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Stock Strategist

Scale Helps Kroger Fight Competition

We think the grocer is likely to reward patient investors.

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Of the traditional grocers, we believe  Kroger KR is uniquely positioned to defend its returns against a competitive onslaught that should intensify as Amazon (AMZN), hard discounters, and mass merchandisers price aggressively to boost volume. Though industry factors are diminishing its competitive standing, we think Kroger still benefits from enduring intangible assets and cost advantages.

Grocers use price as a primary lever to drive traffic, which we believe necessitates efficiency and cost leverage (spurred by high traffic) to deliver returns. We expect this environment to endure as the industry changes, with an omnichannel experience likely to prevail as customers use a combination of deliver-to-home, click-and-collect, and in-store shopping, particularly since most American consumers drive past grocers on their commutes and home delivery can be inconvenient for buyers with uncertain schedules. In physical retail, we anticipate that shoppers will use a variety of sellers to meet their needs based on convenience, price, and breadth of assortment, demanding high value as well as a compelling store environment.

Zain Akbari does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.