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Kroger Stumbles as Competition Gets Fiercer in the Grocery Space

Matthew Boyle

(Bloomberg) -- Kroger Co. fell the most in more than three months after posting an uneven quarterly performance, fueling investor concerns that Walmart Inc. and other rivals are taking sales and shoppers away from the grocer.

Same-store sales excluding fuel rose 1.5% last quarter, short of projections, and while earnings narrowly beat analysts’ estimates, profit margins decreased again because of investments the company’s making to keep pace with the competition.

Kroger, America’s biggest traditional supermarket chain, has found life more difficult amid the rock-bottom prices and improved quality offered by discounters like Walmart and Germany’s Aldi. It doesn’t help that Dollar General Corp. is beefing up its grocery section, adding more fresh and frozen food while entering more urban markets with stores that cater to millennials. Even drugstores sell plenty of food nowadays, which has prompted Kroger to partner with Walgreens to sell groceries in some locations.

“While the results generally met expectations, the other large retailers of food that we cover performed a little better,” Joe Feldman, an analyst at Telsey Advisory Group, said in a note.

Digital Sales

In response, Kroger is pushing hard to bolster online sales, which grew 42% last quarter. The company has also tested autonomous deliveries in Texas and Arizona. About 35 million more Americans are now buying food online compared with a year ago, according to Coresight Research, but penetration is still below markets like the U.K. Kroger generated about $5 billion in digital sales last year, and by the end of this year it plans to offer pickup or delivery service for all of its U.S. shoppers, up from about 90% last year.

The shares sank as much as 5.1% to $22.43 in New York Thursday. They had already lost 14% this year through Wednesday’s close, compared with double-digit increases for both Walmart and the benchmark S&P 500.

Kroger’s e-commerce investments, as well as a partnership with Microsoft Corp. to roll out digital shelf labels and explore other next-generation technology, have dented profitability in the short term, sending investors elsewhere.

Profit excluding some items amounted to 72 cents a share in the period that ended May 25, exceeding the average analyst estimate by a penny. Kroger reiterated its full-year sales and profit guidance.

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