It seems like every time I pick up the paper (OK, read it online), there is another article about the ever-rising cost of food around the world. The increases are going to affect my pocket, but how are they going to affect my investment? Will my supermarket suffer a terrible fate? How do I know if a supermarket stock is sustainable in today's market and beyond?

Same store, year after year
First, we want to consider gross margin. Gross margin is a good indicator of how profitable a company is and how flexible it can be with pricing, if and when times get tough. Another good way to spot a sustainable grocery stock is to look at same-store sales growth, or how sales measure up year over year at the same location. Anything from 2% to 4% is considered a strong number for this industry.


2010 Comparable Store Sales*

2010 Comparable Store Sales*

2010 Gross Margin

2009 Gross Margin

2010 EPS

2009 EPS






















Source: Capital IQ, a division of Standard & Poor's. *Excluding fuel.

Ruddick, the name behind the Harris Teeter supermarket chain, shows good gross margins for a grocery outfit. This gives it an advantage over other stores should it need to make adjustments to stay competitive in the future. With much lower gross margin, Kroger doesn't have the same luxury, but its comps are strong, indicating its stores have very likely done a great job attracting new customers on top of maintaining a loyal base.

One thing to keep in mind about comps is that they may decline in the wake of expansion. If your company's numbers don't look as strong as you'd like, check out the annual report to determine if it is building more stores in the same market and what management's rationale is for doing so. They may well be cannibalizing their own sales. If there is no rationale, or they don't address the drop in comps, you may be dealing with an unsustainable supermarket.

Reviewing your grocery stock's same-store sales and gross margins is a great way to get started evaluating how sustainable your company is. High comps and strong margins are encouraging signs that your stock will be around for years to come.

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