This Grocery Store Attracts the Most Smartphone-Savvy Moms

A grocery store that’s succeeding in attracting technologically equipped mothers is ahead of industry trends. Is it Kroger, Safeway, or Whole Foods?

Jan 18, 2014 at 1:00PM

Retailers must keep pace with their peers technologically if they want to survive. Grocery stores are no exception to this rule. You might think that convenient location plays the biggest role for grocery stores, but this is only true to a certain extent. If two grocery stores are located across the street from each other (which is often the case), and one grocer offers more to its customers via deals on its website or mobile apps, then it's likely to attract, or at least retain, more customers.

Also keep in mind that moms tend to shop for the most food, and that using smartphones before or during food shopping is a growing trend. Therefore, the grocery store that attracts the most smartphone-wielding moms who use its website or apps is likely to have a leg up over its peers.

We'll take a look at some interesting trends for moms who shop for food with smartphones, and then reveal which of the following grocery stores has a big lead over its peers: Kroger (NYSE:KR)Safeway (NYSE:SWY), or Whole Foods Market (NASDAQ:WFM).

Have smartphone, will use
According to analytics company Placed, 80% of moms with smartphones (referred to as "smartphone moms" from this point forward) use their smartphone before or while shopping for food. Due to the rising popularity of smartphones, any grocer that's paying attention will be sure to take advantage of this trend. 

For instance, consider another important stat: 45% of smartphone moms look for coupons prior to visiting the grocery store. And 40% of smartphone moms look for coupons while shopping in the grocery store. Additionally, 40% of smartphone moms look up recipes prior to visiting the grocery store, and 32% refer to a recipe on their smartphone while shopping. For a grocery store to miss out on such opportunities would be a form of incompetence.

As far as coupons go, 29.3% of smartphone moms access coupons on a coupon site or app while shopping versus 28.8% who access a grocery store's site or app. The big losers here are packaged-goods brands; only 5.3% of smartphone moms visit a specific brand site or app. 

All interesting information, but who is the clear winner? 

Ahead of the curve
The study conducted by Placed consisted of 125,000 opt-in app users and 5,000 questionnaire respondents. Of this total group of smartphone moms, Kroger had the largest reach, with 13.7%. Safeway had the second-largest reach, with 5.6%. And Whole Foods was well behind at 1.9%.

However, this doesn't mean that Kroger is the top investment option of the group and Whole Foods is the worst. This is simply one study that adds another piece to the puzzle, indicating that Kroger has an advantage over its peers in one area. If we were to look at another area, such as top-line growth over the past year, then Whole Foods would be the leader:

WFM Revenue (TTM) Chart

Whole Foods revenue (trailing-12-month) data by YCharts.

The point here is that you need to look at all the pieces of the puzzle to determine the best investment. That decision is ultimately up to you. However, I can offer a quick overview as to why Whole Foods is the fastest-growing company of the three. 

Today's health-conscious consumer prefers natural and organic foods. Whole Foods meets that demand. Since most Whole Foods stores are mostly situated in middle- to upper-class areas, its consumers have more spending power, which is another benefit for the company. The one potential danger for Whole Foods is that its premium pricing could turn into a negative if its target market were to be hit by declining incomes, which could stem from weakening macroeconomic conditions. Whole Foods also needs to keep an eye out for rising threats, such as Sprouts Farmers Market

Despite Whole Foods operating domestically, in Canada, and the United Kingdom, it only has 367 locations. Kroger only operates domestically, but it has 2,424 locations. This massive exposure leads to Kroger generating a lot more cash flow, to the tune of approximately $3.5 billion in operating cash flow over the past 12 months. This allows Kroger to reinvest in its business while returning capital to its shareholders. For instance, it currently offers a dividend yield of 1.7%, whereas Whole Foods yields 0.9%. But Whole Foods offers more growth potential due to its international exposure.

It's basically a matter of whether you want growth or stable dividends. If you want growth, then it comes at a price. Whole Foods is currently trading at 36 times earnings; Kroger is trading at just 13 times earnings.

The bottom line
Kroger is the largest grocery store in the United States, and food will always be in high demand. This simple combination of facts has made Kroger very resilient to weak economic conditions as well as any past downside stock market moves. It has also demonstrated that it's capable of catering to today's consumer through technology.

In my opinion, Kroger is one of the safest investments available throughout the broader market. That said, if you're looking for growth, then you will find more potential with Whole Foods.

Whole Foods is a quality operation, and it's likely to be a long-term success, but due to premium pricing for its natural and organic foods, it's very sensitive to changing consumer-spending habits.

Personally, I'd feel more comfortable investing in Kroger given the current macroeconomic environment, but I'm conservative. Please do your own due diligence prior to making any investment decisions.

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John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors. Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends and 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.

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