A basic tenet of investing is that, even in down markets, people need to eat. As a result, supermarkets are often seen as a safe bet, along with certain consumer goods that stock grocery-store shelves. Yet truisms don't always apply evenly, as SUPERVALU
Despite an increase in the number of stores it operates, the grocery chain had flat sales of $10.2 billion in the second quarter. In fact, with same-store sales declining 1.3%, it was fortunate it was able to offset those numbers with greater square footage. While SUPERVALU has cut prices on many products and become more promotional, it hasn't been doing a good job of conveying that to consumers.
Contrast that with Kroger
Another concept that has gained traction in supermarkets is organic, fresh produce, which was popularized and made a staple by Whole Foods Market
Consider also that Kroger chose to pass along to shoppers many of the increased costs it experienced, while SUPERVALU made the decision to eat them. While that led to higher profits for Kroger and a hit to earnings for SUPERVALU, Kroger still saw sales rise.
A partial explanation may be that Kroger is seen as a low-cost supermarket all the time, like Wal-Mart with its “everyday low price” policies. That can’t be the only reason, though, since SUPERVALU’s Save-a-Lot chain ought to be perfectly positioned for these times. Perhaps we'll see that later on in the year. Then again, maybe not. SUPERVALU has pared back guidance for the rest of 2009.
The value proposition still seems to be the key here, and SUPERVALU says that some moves it has taken since the close of the quarter are already coming to fruition, as shown by high foot traffic in its stores. At just six times earnings, the grocery chain would seem to be priced to offer investors a good value, but the inconsistent way SUPERVALU has been moving would suggest investors might want to shop elsewhere.
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Fool contributor Rich Duprey owns shares of Kroger and Wal-Mart but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.