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Why Does Warren Buffett Keep Buying Kroger Stock?

By Matthew Frankel, CFP® - Mar 6, 2021 at 7:11AM

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Berkshire's stake in the grocery store operator got even bigger in the fourth quarter of 2020.

We recently got a glimpse at the moves Warren Buffett and his team made in Berkshire Hathaway's (BRK.A 1.60%)(BRK.B 1.72%) stock portfolio in the fourth quarter of 2020, and one of the moves that stood out is that the conglomerate's stake in grocery retailer Kroger (KR -3.70%) has grown. In this Fool Live video clip, recorded on Feb. 22, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss why Buffett might like Kroger and the grocery industry so much.

Matt Frankel: I mentioned Kroger, he's been building a position in Kroger for some time. Remember, grocery stores had gone out-of-favor in a while. Everyone thought Amazon (AMZN 4.11%) was going to take over the business.

Jason Moser: Yeah. I remember when Amazon made that acquisition of Whole Foods. Back then, we saw every grocer on the day of that deal's announcement, every grocery store stock just tanked. I don't know. It just seemed like it was such a knee-jerk reaction because people forget about that grocery opportunity, how big it is. I think Walmart (WMT -11.38%), technically, is the country's largest grocer. Kroger, right there behind them. Obviously, Kroger owns Harris Teeter, among other brands. It was just a big opportunity. Grocery, people got to eat. That's just, again, maybe not the most exciting business in the world, but pretty steady.

Frankel: Yeah. One thing during the pandemic, grocery stores have gotten really good at the omni-channel thing. Which is something else I think Buffett might be seeing here. Everyone thought that that was going to be Amazon's secret sauce when it bought Whole Foods. That that was going to be the grocery store you could do curbside, or delivery, or things like that. But now I can get delivery from Publix if I want to, I can get delivery from Kroger if I want to. There's a chain in the Southeast called Lowe's Foods that's amazing. They're doing curbside pickups, and it's so efficient and easy. Grocery stores have really taken away Amazon's key advantage there, in a lot of ways. If I could just drive up and someone puts the groceries in my trunk, what's the difference between that and ordering them for next-day delivery on Amazon? It's almost more convenient.

Moser: You're seeing a lot of operations that are really pulling it off on a national scale. Target's (TGT -1.41%) the one that comes to mind immediately. That's just done such a terrific job with that.

Frankel: Right. Kroger was so beaten down when Buffett first started getting into it. I don't really blame them. That's a great value investment in my mind.

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Stocks Mentioned

The Kroger Co. Stock Quote
The Kroger Co.
KR
$51.23 (-3.70%) $-1.97
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$471,670.00 (1.60%) $7,420.00
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$314.60 (1.72%) $5.31
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,307.37 (4.11%) $91.16
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$131.35 (-11.38%) $-16.86
Target Corporation Stock Quote
Target Corporation
TGT
$215.28 (-1.41%) $-3.07

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