Kroger Has An Advantage Over Amazon In Groceries

About: The Kroger Co. (KR), Includes: AMZN, WMT


Scott Perry, Seeking Alpha

Mar. 11, 2019




         Investors have largely given up on Kroger, as Amazon aggressively moves into the grocery industry.


         However, there are signs Amazon is struggling to adapt to the different approach needed for perishable goods.


         News Amazon is looking to grow its retail presence in groceries shows Kroger's massive retail network is a fundamental advantage when expanding delivery and pickup services.


Trepidation is growing with each new breathless article on Amazon's (AMZN) plans to disrupt the industry. Investors have seen what happened to retail and aren't going to underestimate Amazon this time. But what if groceries are fundamentally different and require a new strategy which doesn't align with the model Amazon has used to dominate e-commerce. That's what Ben Thompson argues in a recent article where he suggests Walmart (WMT) has a fundamental advantage over Amazon due to the different value chain needed for groceries.


I'd argue Kroger (KR) has many of the same advantages, and while Walmart is ideally positioned, I believe an investment in Kroger offers more upside if the Amazon threat proves to be overblown. I've held Kroger stock for almost a year now and continue to accumulate stock on selloffs.


The more Amazon starts replicating grocer's retail network, the more investors should ask if Amazon really does have the upper-hand in groceries. Amazon's fulfillment model hasn't had to deal with the problem of perishable goods. Groceries call for a new strategy hence Amazon's acquisition of Whole Foods and its growing interest in expanding its retail presence.


The problem for Amazon is large grocers already have this retail network in place giving them a head start which allows them to more easily roll-out delivery and pickup services. Kroger is the second largest grocer in the US after Walmart. It should be able to grow its market share even if Amazon has some success.


The top four grocers in the US have consistently grown market share over the last 20 years but still have under 50% share. The rise of delivery will drive consolidation in this fractured industry, as smaller players struggle to compete which benefits Kroger with its massive scale.