Kroger Stock Forecast

With $119 billion in annual revenue, Kroger [NYSE: KR] is the largest grocer in the world, according to Deloitte’s Global Powers of Retailing report. It trails only Walmart and Costco in global retail revenue, and is even beating a post-Whole Foods Amazon in the sector. What’s even more amazing is it’s the only retailer in the top ten that operates in only one country – the U.S.

The report credits Kroger’s revenue with its merger and acquisition strategy, along with data-driven marketing, pricing, and restocking strategies. Its stock price had major jumps in the mid-2010s, reaching a high of $41 in December 2015 before leveling off for the remainder of the decade. So what’s the outlook for 2020?

Let’s dive in and find out.

Kroger’s 3,014 Retail Locations = BIG Money

Kroger is headquartered in Cincinnati, Ohio, and it operates 3,014 retail locations, which includes 2,758 supermarkets (of which, 1,560 have fuel centers and 2,268 have pharmacies) and 256 jewelers.

It also owns and operates 35 food manufacturing facilities for its private-label products. Kroger subsidiaries include Fred Meyer, Ralphs, King Soopers, Smith’s Food and Drug, Home Chef, Vitacost, Fry’s Food and Drug, and Fred Meyer Jewelers.

Chairman and CEO Rodney McMullen rolled out the “Restock Kroger” initiative in late 2017, which included a $4 billion sell-off of its convenience store holdings and a revamp of its existing store footprint. It focuses on serving the changing landscape of American food choices and eating habits and believes this data-driven approach gives it a distinct competitive advantage over the competition.

At heart, the company is a grocery and retail chain, but what that means is quickly changing. On-demand delivery, the gig economy, and online retailers are all taking a bit out of this grocer’s dough.

Check Out This Retailer’s Moves

Although the tools evolved, consumer research isn’t new to Kroger. In fact, the company pioneered it for the grocery game in the 1970s, along with electronic scanners.

As the 2000s progressed, Kroger continued acquiring smaller competitors to expand its operations across the U.S. In the 2010s, brick and mortar became a liability, as e-retailers like Amazon got intense.

By the end of the 2010s, meal delivery services like Plated and Blue Apron started trending. Kroger responded in 2018 with a $700 million purchase of Home Chef. This meal kit delivery company has 3 million meals served monthly, and that’s only one part of the company’s delivery strategy.

Kroger’s grocery stores also offer delivery service through its website and Instacart. It’s working on pilots for alcohol delivery, automated self-driving delivery, and more. This focus on innovation and serving emerging markets is proving to be an asset in Kroger’s arsenal. This provides a lot of optimism for market analysts and investors.

It’s not just the way we buy food, but the food itself that’s changing. Consumer palettes are constantly evolving, and the company is serving every possible dietary need and trend it can. Everything from in-store amenities to payments, merchandising, and the online experience are continuing to evolve. Kroger is the epitome of the modern data-driven approach.

Is Kroger Stock A Buy?

Kroger’s 2019 financials show it grew its earnings, but that growth is somewhat slowing. That’s due to stiff competition, even though the company is still holding strong at number one.

Its revenues are more than its top three competitors (Albertsons, Publix, and H.E. Butt) combined. Still, the grocery sector has razor-thin margins of only one to three percent.

A CNN poll of 21 investment analysts have Kroger at a solid hold rating for the conceivable future. This is because its inherent risk is balanced by the sheer amount of innovation it’s pursuing. Not only are store shelves optimized, but its distribution network is being properly leveraged to compete everywhere we buy groceries.

Despite this rating, famed investor Warren Buffett, the Oracle of Omaha, made headlines at the end of February for buying Kroger. This sparked a 5-percent jump in the stock price as other investors inevitably followed his lead.

What Are the Risks of Buying Kroger Shares?

The unfortunate part of being number one is that everybody is looking to dethrone you. Walmart, Costco, Amazon, and Target are all heavily focused on the grocery game, and there’s little margin for error. Should a competitor buy a service like Instacart, for example, it could cripple the company’s delivery infrastructure.

Just under a third of the company’s revenue hinges on its private-label brands. These includes banner brands (i.e. Kroger, Ralphs, etc.), Private Selection, Simple Truth, and Murray’s Cheese. Should its food production experience issues (or impedes on another partner brand), it could create a chain of events that hurts revenue.

The company also isn’t without controversy. It has long been targeted by activist organizations like Greenpeace and Moms Demand Action for Gun Sense in America over its seafood sourcing and open carry policies. With modern cancel culture, something as small as a tweet can ignite a boycott.

Kroger remains a solid business, but the biggest unknown risk is whether the stock will return profits if you buy in at today’s prices. That is to say, the company has a great long-term outlook, but you may be overpaying if you buy. Those already in have no reason to sell now either.

Kroger Stock Forecast Summary

Kroger is more than just a grocery story. It has a large retail footprint that includes personal finance, wireless services, gas stations, pharmacies, jewelers, and more. It’s also a food production and distribution company, and it’s working on novel ways to leverage its resources to generate big profits.

This dedication to technology and acquisitions of smaller rivals brought the stock from the $10 range to the $30 range. It has been holding steady so far, and the outlook is great for the business. The only wild card is whether it fits into your personal investment and risk profile.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.