Invest Where Demand Never Fades

Some people choose to buy the latest technological gadgets and hottest cars, others do not. It comes down to one's financial situation, tastes, and habits. However, there is one common staple that is always in high demand -- food.

The demand for food has led to many excellent investing opportunities over the years. But today's market is more competitive than ever. Therefore, you can't just pick any food store and expect great results. Let's take a look and determine which food store is likely to yield the best long-term results. 

Extreme diversification
Kroger (NYSE: KR  ) isn't the type of company to sit back, watch the industry change, and then whine about its failures after its shred it to pieces. Rather, Kroger is very good at staying ahead of industry trends. For instance, it has diversified itself in an extreme way. In addition to 1,195 supermarkets, it has 783 convenience stores, 326 fine jewelry stores, and 37 fuel-processing plants. This kind of diversification limits downside, and adds several revenue streams.

In July, Kroger expanded its exposure in the Southeastern United States by purchasing Harris Teeter, a supermarket brand situated in mostly high-end markets. Harris Teeter is best known for its attractive deli, meat, produce, and bakery sections. These sections are what lead to consumers opting for Harris Teeter over the competition.

While Kroger increases its geographic diversification and targets more high-end consumers, its value-oriented rewards program also brings in bargain hunters. Therefore, Kroger is appealing to a broad audience.

Impressive numbers
In the second quarter, Korger's same-store-sales increased 3.3% year over year (without fuel.) That's impressive, but what's more impressive is 39 consecutive quarters of positive same store sales. This is very important because it indicates Kroger is capable of growing the top line without having to open new stores. This is otherwise known as organic growth.

Kroger points to its customer first strategy as the primary reason for its success. This strategy involves competitive pricing, a broad range of products, and top-notch customer service, all to improve the shopping experience. These aren't unique initiatives, but what separates Kroger from many others, is that Kroger delivers.

Looking ahead, Kroger raised its 2013 same-store-sales guidance to 3%-3.5% from 2.5%-3.5%. And it has a long-term goal of 8%-11% earnings growth. Kroger is a well-run operation that should reward its shareholders over the long haul. However, that doesn't necessarily mean it's the best investment option in its peer group.

Kroger vs. peers
Safeway's (NYSE: SWY  ) identical sales increased 1.9% in the third quarter. This isn't as impressive as Kroger, but it's still a positive. Safeway has also decided to exit the Chicago market, divesting 92 of its Dominick's stores, which should be completed by the middle of next year. This move is expected to lead to a cash tax benefit of $400 million to $450 million. Safeway plans to use that cash for stock buybacks and fuel organic growth.

Safeway wants to focus more on its core operations. And it believes that its "Just for U" loyalty program is beginning to gain traction. This program offers customers personalized deals based on their purchase history. It also allows customers to save 20% on top of their Club Card prices. This kind of program should appeal to the value-conscious consumer.

Whole Foods (NASDAQ: WFM  ) is a much different company. It only has 340 stores, but this should be looked at as a positive, as it has been very successful and there is still plenty of room for new units.

I wasn't as bullish as most on Whole Foods, but now that it isn't just focused on high-end consumers, (and is now offering lower-cost items), it makes it more diversified and resilient. Another big positive is that Whole Foods has become the largest player in organic and natural foods -- a piping hot market.

Whole Foods is aiming for top-line growth, via new store expansion, and in order to keep the bottom line in check, it's looking for small spaces and leases. Whole Foods grew sales by 15.6% in 2012, with identical sales growing at an 8.7% clip. Barring a calamity, Whole Foods should continue its impressive growth.

Foolish bottom line
All three companies should be long-term winners. However, Kroger and Whole Foods offer more potential than Safeway. Kroger's consistent same-store-sales performance over 39 consecutive quarters proves that it is led by a wise and highly strategic management team.

A stock with even more potential
The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

 


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