- Kroger has experienced impressive growth in the last year despite a challenging retail environment.
- Revenue gains at Kroger in the last year are similar to those at Amazon.com.
- Kroger is managing to beat Walmart at its own game of deep discounting and offering a wide variety of products.
- Kroger's HomeShop delivery service could be a threat to Amazon Prime and Walmart to Go.
There's a retail giant that has been profiting handsomely from Wal-Mart Stores' (NYSE:WMT) recent troubles, and it is not Amazon.com (NASDAQ:AMZN). It is, surprisingly enough, Kroger (NYSE:KR), a giant, multifaceted retailer that is often dismissed as "just a grocery store."
Kroger has been reporting impressive revenue growth for years even as Wal-Mart has struggled. Kroger has even reported revenue gains in the dismal retail picture of the past few months. Kroger reported TTM Revenue figures of $98.33 billion in January 2014 and $101.29 billion on April 30, 2014. That's an increase in revenue of $2.96 billion, or nearly $3 billion in just three months; not bad for "just a grocery store."
The revenue gains at Kroger are actually similar to those at Amazon.com in a comparable period. Amazon reported a TTM revenue figure of $74.45 billion in December 2013 and $78.12 billion in March 2014, an increase of $3.67 billion. Kroger's revenue growth was nearly as great as Amazon's.
During the same period, Walmart's revenue growth was positively anemic. Wal-Mart reported a TTM revenue figure of $476.41 billion in January 2014 and $477.3 billion in April 2014. That's a gain of only around $1 billion.
The charts show that both Kroger and Amazon have revenues that are growing at two to three times the rate of Wal-Mart's. The charts also indicate that Kroger is as aggressive and as sophisticated a competitor as Amazon.
This should be a real eye opener because Kroger is positively cheap right now. It is trading at $48.82 a share on July 11. It should also raise the question, how is Kroger able to compete with a monster like Walmart and do so well?
Kroger: It's Far More Than Just a Grocery Store
The truth is that Kroger is far more than just a grocery store. Kroger operates a massive environment that rivals those of Wal-Mart and Amazon.com. Kroger's operations in the United States include:
- 787 convenience stores.
- 2,642 grocery stores ranging from neighborhood stores to supercenters.
- 2,109 pharmacies.
- 1,261 gas stations at its supermarkets in addition to the convenience stores.
- 324 jewelry stores.
- 116 medical clinics.
Kroger has also figured out some interesting ways to leverage its operations. One version of Kroger's supercenters, the Market Place, actually sells furniture and clothing, much like Wal-Mart's supercenters.
Some of Kroger's supermarkets also serve as fulfillment centers for Kroger's HomeShop service, which competes directly with Amazon Prime and Walmart to Go. HomeShop offers both delivery and pick up as well as drive up service at the stores. It also offers some products that Amazon doesn't; in Colorado, HomeShop is offering beer, wine, and spirits from some of its stores.
Beating Walmart at Its Own Game
Kroger has online retail capabilities that rival those of Wal-Mart and Amazon.com, at least in the grocery area. It also seems to have the capability to beat Walmart at its own game: deep discount and one-stop shopping. Recent news stories claim that Kroger just lowered prices on nearly 10,000 items.
The business model has paid off handsomely; Kroger had a TTM return on equity rate of 31.35% on April 30, 2014. On the same day Wa-Mmart reported a TTM return of equity rate of 21.71%. Amazon.com reported a return on equity of just 3.24%.
In fact, Kroger has been so successful that Walmart is now imitating it. Wal-Mart has launched a shopping service similar to HomeShop, Walmart to Go, and has started building neighborhood grocery stores and even entered the convenience store business.
Is Kroger a Threat to Amazon.com?
The situation could get even better in recent months as Kroger's biggest rival, Safeway (NYSE:SWY), reorganizes after its purchase by Cerberus and its merger with Albertsons. Safeway had such a tough time competing with Kroger and Wal-Mart that it decided to sell itself.
Investors should definitely take another look at Kroger; it's more than just a grocery store. Kroger has now become a force to be reckoned with and a potential rival to Walmart.
Kroger could also be a major threat to Amazon's grocery plans because it has the resources and the expertise to compete directly with Amazon Prime Fresh without major capital outlays. Kroger can simply use its existing stores as "fulfillment centers" for HomeShop, a strategy it is already employing in some regions, such as Colorado. Kroger can also offer deep discounts to online customers and other amenities, such as cooked meals from its delis and even prescriptions.
Investors that ignore a retailer with the size and capabilities of Kroger are doing themselves a huge disservice. Even if you don't own Kroger, you had better note its effects on the retail market in the United States, which are profound.
Additional disclosure: I conduct some online retail sales through Amazon.com.