Time to Load Your Cart With Kroger?

Supermarket chain Kroger (NYSE: KR  ) has kept its chin up in these trying times. It not only churned out a great first quarter but also raised its full-year earnings guidance. Smart execution of strategies and cashing in on rivals' problems worked for Kroger, and I feel it will continue to do well.

Attraction gimmicks
Kroger realized it had to adjust according to customers' changing needs, and came up with a Customer 1st strategy through which it has tried to cut costs and pass on the benefits to customers. Lower prices, discounts, reward points with options to redeem at fuel pumps -- Kroger is going all out to lure customers.

Peers like SUPERVALU (NYSE: SVU  ) are pursuing similar strategies, but customers seem to like Kroger more. Where SUPERVALU is expecting same-store sales to fall for the full year, Kroger is looking at a 3% to 3.5% rise.

Kroger has met success with its customer-oriented moves. Its first-quarter sales rose nearly 6% from the year-ago period, and identical-store sales climbed 4.2%. Compare this with SUPERVALU's negative same-store sales figure of 1.9% or Safeway's (NYSE: SWY  ) flat first-quarter same-store sales, and we know customers are flocking to Kroger. Consistently growing same-store sales only highlights Kroger's operational efficiency.

In house
The giant retailer is also doing well with its store brands, which now represent more than a quarter of its grocery division sales. Kroger is continuously adding to its list of store-brand products (the latest being its Private Selection snack chips, available in 13 flavors). This isn't really surprising as these exclusive brands are better money makers than national brands. Which explains why Safeway is also trying to boost margins by taking the house brands route.

Taking advantage
If internal initiatives weren't enough, industrial spats have added to Kroger's good fortunes. Kroger has been gaining from Walgreen's losses. The company's pharmacy division outperformed the company's own expectations, thanks to Express Scripts (Nasdaq: ESRX  ) customers queuing up at Kroger's and other drug retailers to fill their prescriptions after the company split with Walgreen. Nearly half of Kroger's same-store pharmacy sales during its first quarter came from new customers, an unexpected win for the company. Retaining customers doesn't really seem to be an issue at Kroger's, so benefits of this impasse should continue to flow in.

The Foolish bottom line
Peers can emulate Kroger's strategies, but the biggest grocery retailer in the U.S. continues to hold its own. And I love the way Kroger keeps just about every player in this space on its toes. Its latest victim isn't even a grocery retailer. Green Mountain Coffee Roasters (Nasdaq: GMCR  ) has continued to see shares trend lower after Kroger revealed plans to distribute its own K-cups. Safeway followed with an announcement to launch five Keurig-compatible store-brand coffees. Now this is one story I am not going to miss!

Some biggies (read: Wal-Mart) might be reaching out to customers through price-comparing advertisements, but Kroger knows how to do it right the silent way, with great deals and cheap fuel, much the same way Foolish favorite Costco keeps winning. I strongly recommend adding the grocery retailer to your personalized stock watchlist to stay updated on all its news and analysis. Click here to add Kroger.

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Neha Chamaria does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Costco Wholesale and SUPERVALU. Motley Fool newsletter services have recommended buying shares of Green Mountain Coffee Roasters, Costco Wholesale, and Express Scripts Holding. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Motley Fool newsletter services have recommended buying calls on SUPERVALU. Motley Fool newsletter services have recommended creating a lurking gator position in Green Mountain Coffee Roasters. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (2) | Recommend This Article (11)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 20, 2012, at 3:57 PM, djlresearch wrote:

    Kroger looks good compared the country's worst performing grocers like Safeway and Super Valu.. Thats not the way to look at Kroger. Kroger is just an average, sterile, plain vanilla grocery with average results. Same store sales are barely ahead of inflation. Kroger stock is about as exciting as you local electric utility.

    IMO Kroger will continue to perform at their current average and sustainable level. They have not invented a new way to shop for groceries. They will never be the new Facebook of supermarkets. They are a grocery store, plain and simple.

    They are most likely a safe place to park money and earn a small dividend. I would not expect much of any kind of capital appreciation.

  • Report this Comment On June 30, 2012, at 3:29 PM, DAG1996MF wrote:

    Perhaps a more accurate way to look at it is that Kroger is the only grocery retailer left that's not getting it's lunch eaten by Wallymart, that also owns convenience stores, gas stations and jewelry stores (in addition to grocery stores) and that is also using its diversity to position itself even better for the future by opening EV charging stations. My shares are up 8% in three weeks not counting the dividend -- by my pencil, that's pretty good capital appreciation for a stock in a defensive sector.

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