Why Kroger Should Be a Good Pick This Holiday Season


Competition in the grocery space has become fierce as each retailer tries to outperform its peers. Attracting customers has become increasingly difficult, especially given the cost-consciousness of consumers. However, some players, such as Kroger , have done remarkably well in this situation.

What happened? Kroger's revenue for the quarter increased 3.2% over last year to $22.5 billion as customers flocked to its stores to fulfill their grocery needs. Kroger's same-store sales grew 3.5% since the retailer was able to win over its customers' hearts through its customer-focused strategies. One of the key strengths of the company is that it has always followed a customer-first strategy.

Kroger's customer loyalty program has been a major sales driver. Customized discount coupons make customers feel even more loyal to the retailer, which leads to regular visits. Moreover, Kroger's stores are always organized in such a way that customers feel delighted to shop. Also, Kroger has taken measures to reduce the waiting time at checkout lanes.

The retailer has also been able to manage its costs well, which led to a 15% jump in its earnings per share from $0.46 in the period last year.

Performance against peers Although Kroger is doing a great job of luring customers and controlling costs, it is important to find a company that outpaces other players in the industry. In the last five years, Kroger has yielded a higher return than SUPERVALU . However, it provided a much lower return than Whole Foods Market , as shown in the chart below:

KR Chart
KR Chart

KR data by YCharts

Clearly, Whole Foods has been a commendable performer with 1090% appreciation in its stock price. This is mainly because the retailer offers organic and natural food to high-end customers. Health-conscious customers are willing to pay a premium for healthy food options, even as demand for organic food has increased. However, Kroger has also started to offer organic and natural food, and it has experienced great growth in this area.

In fact, Kroger plans to double its sales from this segment in the next five years. Also, Kroger has become a tough competitor for Whole Foods since the Cincinnati-based retailer has been offering organic food at lower prices than Whole Foods. Therefore, it is snatching away shoppers from Whole Foods.

On the other hand, Supervalu has been unable to perform with declining revenue and rising costs widening its losses. This has led to a sharp decline in its stock price. However, the scenario has changed considerably in the last year. Supervalu shut down its loss-making stores and started concentrating on its discount stores.

Supervalu's efforts were reflected in its third-quarter numbers, which beat analysts' expectations. The retailer managed to post $40 million in earnings compared to a loss of $111 million last year. Its revenue came in ahead of estimates at $3.95 million as its Save-A-Lot discount stores attracted customers. Supervalu's strategy of selling off unprofitable businesses has also paid off, as evidenced by its stock price performance over the last year.

KR Chart
KR Chart

KR data by YCharts

Hence, with appreciation of 165.9% in its stock price, Supervalu has improved over the last year. Also, Kroger's presence in the natural food segment has benefited the company largely and enabled the retailer to outpace Whole Foods Market over the last year in terms of stock price performance.

Strengthening position Kroger's efforts are not limited to opening new stores, enhancing products, and expanding into natural foods. It plans to grow by acquiring other businesses. It recently acquired Harris Teeter Supermarkets, which offers organic food to affluent customers. Hence, Kroger will strengthen its position in the premium food market where Whole Foods Market has a strong hold.

Kroger will be adding more than 200 Harris Teeter stores, as well as boosting its revenue by $4.5 billion. Therefore, the retailer will be well placed with its traditional product portfolio as well as the new range of offerings from Harris Teeter. This will enable the company to cater to customers at various price points.

Final thoughts
Kroger has been expanding its footprint greatly by getting into new markets and offering new products. Its focus on customer satisfaction has also been a crucial driver of its success. Moreover, the company manages its costs well and it has been overcoming competition through its strategies. Investors should not ignore this opportunity to enhance their portfolio.

Which company is taking over retail?
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

The article Why Kroger Should Be a Good Pick This Holiday Season originally appeared on Fool.com.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Pratik Thacker has no position in any stocks mentioned. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.