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Kroger and most of the other grocery retailers will do just fine. Amazon won't be able to effectively deliver to rural areas well away from a distribution center. And it will take a very long time for them to get into many cities and metro areas where they won't have a presence right now. Whole Foods is not in every city in this country.
Subway has not put very many smaller sub chains or mom and pop places out of business. And Domino's, Papa Johns or Pizza Hut have not put very many smaller chains like La Rosa's or small Italian and Greek pizza places out of business.
No question the supermarket landscape is going to change in the years ahead and ultimately it should mean better service for the consumer. But to think that a company like Kroger is going to get destroyed by this is absurd.
Last week there was article after article about how poorly Whole Foods was doing.
Kroger was a potential buyer.
And there were loads of articles praising Krogers strategy, particularly with its low cost organic items and prepared foods.
Y'all are nuts if you don't recognize the true innovator in the field is KROGER, not Whole Foods.
Kroger has the wider store network and superior grocery supply chain.
They are the store to beat, not the other way around.
Sure competition can be scary but looks at Krogers portfolio.
The chain competes well in some of the nations poorest marketsas well as its richest, and can win both dirt poor and broke Wellston OH as well as Indian Hill. That's saying something.
What Kroger will need to do is work voraciously on its tech side.
I cannot speak to its Clicklist program because I have never tried it, but that's also part of its problem... it is not a member of a familiar online platform.
Goal #1 for them should be to form a partnership with a familiar online platform.
To me, Facebook/Instagram seems like the most logical chpice, followed by Uber/Lyft and Snapchat.
Give people a "food" button on their favorite app!
In turn, they'll need their tech partners capital to go fully national.
In Kroger spirit, if they do this I hope they acquire and retain names of local chains rather than start new a la Macy's.
Kroger and most of the other grocery retailers will do just fine. Amazon won't be able to effectively deliver to rural areas well away from a distribution center. And it will take a very long time for them to get into many cities and metro areas where they won't have a presence right now. Whole Foods is not in every city in this country.
In terms of pure business economics I'm not sure building a model that relies on the bottom quinitile in terms of population, market size and disposable income is the recipe for a thriving enterprise. Do you want the cheese or the whey? However I could be wrong...
^^^Kroger has the resources to go into markets that their competition cannot or in most cases cannot. Hy Vee which is a Iowa chain effectively serves metro markets like KC and Des Moines but also has stores in little towns of just a few thousand. Scaled back in size, they offer basic products and services and manage to fill a niche that otherwise would not be reached by other stores. Independent stores like IGA have pulled out of most small towns because they don't have the buying power or delivery fleet to get their products into these stores effectively and at a reasonable cost. Kroger is doing the same in some cases That store in OTR that just closed had lost money for 20 years. Despite that, the company was able to keep it open to help serve an area that otherwise would have nothing. There is an old saying in the retail and restaurant business. "sometimes you have to spend a little money to make a little money.." A loss leader if you will.
<<The online retail boom has been devastating for brick-and-mortar sellers of electronics, clothes, books, and many other goods where price and convenience are priorities for consumers. While online grocery shopping has been around for a while, it was never considered a major threat to traditional grocers like Kroger and Safeway. That is, until now.
“The acquisition says as you look toward the future, you can’t just do brick and mortar groceries and you can’t just do online groceries,” according to Needham’s Kerry Rice. “A big piece of this is logistics, where the grocery stores haven’t been able to do well—Getting it to you quickly and building out a network.”
Instacart?
<<
In November 2015, the organic food pioneer outlined a nine-point turnaround plan to combat declining sales, and CEO John Mackey specifically emphasized digital strategies as part of that.
“We will invest in digital strategies to convert the strong traffic we generate online into sales,” he said during the company’s conference call that month. “We have integrated Instacart into our app, will soon launch a national sales flyer, and will continue to make upgrades to provide more functionality and streamline our customers’ digital experience.”>>
Amazon likely to cut Whole Foods margins and sacrifice short-term profits?
<<“We anticipate Amazon’s ownership is likely to result in lower prices at Whole Foods, forcing other grocery participants to follow, negatively impacting category margins,” according to Stifel’s Mark Astrachan. “There is a generally strong correlation between price and comp store sales growth, and we also note Amazon has largely foregone profits in other categories in which it competes, which we believe is likely to happen with Whole Foods/grocery.”
Until investors demand profits rather than growth in revenues when valuing Amazon, they are a problematic competitor for all competitors.
Until investors demand profits rather than growth in revenues when valuing Amazon, they are a problematic competitor for all competitors.
Especially when some legacy companies fail to deliver either. Remember (I know I do), KR announced a drop in same-store sales and reduced full year guidance by 10% a day before the Amazon news came out. The WF purchase was just a kick in the nuts right after they already allowed themselves to get hit in the jaw.
One saving grace for AMZN is the AWS component of the company is wildly profitable, another thing that company's with a singular, vertical revenue model don't have the luxury to fall back on.
Especially when some legacy companies fail to deliver either. Remember (I know I do), KR announced a drop in same-store sales and reduced full year guidance by 10% a day before the Amazon news came out. The WF purchase was just a kick in the nuts right after they already allowed themselves to get hit in the jaw.
One saving grace for AMZN is the AWS component of the company is wildly profitable, another thing that company's with a singular, vertical revenue model don't have the luxury to fall back on.
In its last quarter, if you look at the 10Q quarterly report available on the SEC website, AMZN's operating income actually fell 10 percent. It received a massive earnings per share boost from a much lower income tax provision. The market totally ignored the drop in operating income, despite AMZN's 185 price earnings ratio.
There is some belief that AMZN is losing cloud services market share (AWS) to the likes of Oracle, Microsoft, Google, etc. Oracle just won a massive ATT contract.
Dan Niles, an tech investing guru, actually went short AMZN after the Whole Foods acquisition due to the implied capital requirements of the acquisition, and the need for AMZN to compete in its other market places, especially including AWS, where AMZN faces some powerful competitors. Essentially, Niles believes that the Whole Foods acquisition and the commitment to the grocery business will be the straw that broke the back of the AMZN camel's back.
Unfortunately for Kroger, AMZN's impact on the grocery market may be negative for Kroger even if ultimately it's a bad decision for AMZN.
In a perverse way, if Whole Foods becomes the extra burden that breaks the AMZN business model, and AMZN's retail operations are extremely highly valued by investors and vulnerable to a downside repricing, it may enable the likes of Macy's to better compete with AMZN as AMZN is forced to raise prices to maintain its stock market valuation. This is especially true if the Whole Foods acquisition forces AMZN to collect sales taxes in additional states, as some analysts have speculated (perhaps incorrectly if WF operates as an independent subsidiary), eliminating a powerful AMZN competitive advantage versus Macy's and other retailers.
I don't think that grocery delivery will be a major threat to brick and mortar grocery retailers. Aldi and Lidl are a much bigger threat to Kroger. Every new Aldi and Lidl store will cost Kroger business. So far it's not a threat for Kroger because Kroger can easily overcompensate such losses buy taking business from much weaker market participants. The grocery retail market in the U.S. is still extremely fragmented. The competition will become much more intense once these weaker market participants are out of business. Then it will not be possible to compensate the losses that occur when a new Aldi or Lidl store opens nearby.
Kroger will of course not fall. But they have to take measures to lower the operation costs. For example reducing the number of different banners.
The grocery retail market in the U.S. seems to me somewhat comparable to the grocery retail market in Germany about 25 years ago. Very fragmented and larger market participants run their business under many different regional banners. In the next one or two decades the grocery retail market in the U.S. will become much more concentrated and I'm sure that the number of different banners under Kroger for example operates will shrink. Just to streamline the business. The number of grocery chains will shrink but the number of grocery stores will be much higher in the future. A higher density of grocery stores will make it easier for customers to switch between different stores to shop for the best price. The price differences for comparable products between stores from different chains will be much lower then they are today.
Running a grocery retailer as a market-listed corporation will become very difficult. Family owned businesses like Wegmans, HEB, Aldi or Lidl can invest all profits in further expansion and improvements. Whereas Kroger has to devote profits for share repurchases and paying dividends, that's a major disadvantage. It's in my opinion not advisable to invest in stocks of grocery retailers.
For running a grocery retail business successfully you need a unique selling point. That can be the lowest price, a one stop shopping experience or an upscale shopping experience or outstanding quality. Kroger could be trapped in the middle without having a unique selling point.
A thinkable way to compete with Aldi or Lidl is probably to reduce the prices of the basic store brand products to the prices of the discounters. The profits can be earned by large and beautiful deli departments that promise higher margins. That seems to me a good way to evade the direct competition with chains like Aldi or Lidl. Especially in the U.S. where people still prefer a one stop shopping experience.
Offering a just average shopping experience in a warehouse style grocery store without being the price leader will be the best way to drive a business into dust.
I don't know anyone who uses grocery delivery. I would be skeptical that it's going to catch on. Been around for years already. People aren't opposed to going to the grocery store and picking things out themselves.
I don't know anyone who uses grocery delivery. I would be skeptical that it's going to catch on. Been around for years already. People aren't opposed to going to the grocery store and picking things out themselves.
I know several persons who use AMZN currently for non-perishable items, because they don't have to be at home at the delivery time. Some of these persons live in major cities and don't own a personal vehicle and don't want to carry large amounts of groceries on mass transit.
Older, live-at-home individuals who no longer drive and the disabled may certainly be candidates for home delivery, including for perishables.
Online shopping doesn't always mean home delivery, as in Kroger's digital offering. This report was written before AMZN's Whole Foods acquistion.
<<Around a quarter of American households currently buy some groceries online, up from 19 percent in 2014, and more than 70 percent will engage with online food shopping within 10 years, according to "The Digitally Engaged Food Shopper" report. It also found that of those who will buy digitally, 60 percent expect to spend about a quarter of their food dollars online in 10 years. >>
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Seismic ramifications
