Here's How Kroger (KR) is Fortifying Position in Industry

The Kroger Co. KR, which operates in the thin-margin grocery industry, has been undergoing a complete makeover not only with respect to products but also in terms of the way consumers prefer shopping grocery. The company has been adding new products as well as eyeing technological expansion. Its acquisition of meal kit company, Home Chef, and partnership with British online grocery delivery firm, Ocado, reinforces its position in the online ordering, automated fulfillment and home delivery space.

In the latest developments, Kroger expanded its partnership with Nuro, a leading autonomous vehicle company, to deliver fresh groceries. Leveraging Nuro's new third-generation vehicles, Kroger will continue to enhance its digital services in Houston to provide customers with fresh food at a great value.

This Cincinnati, OH-based company is expanding the customer fulfillment centers (CFCs) to ensure efficient deliveries. It recently announced the expansion of the Kroger fulfillment network to the Indianapolis area. This network is likely to enrich customers’ shopping experience with advanced digital services and delivery capabilities. Of late, Kroger announced that it would set up a CFC in North Carolina, which will be powered by Ocado Group.

No doubt, Kroger has been making significant investments to enhance product freshness and quality, and expand digital capabilities. Impressively, it has been introducing new items under its “Our Brands” portfolio — launched 216 new items in third-quarter fiscal 2021. It has announced a partnership with Kipster Farms to bring the world's first carbon-neutral, cage-free eggs to retail shelves in the United States under the Simple Truth brand.

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We note that Kroger’s digital business remains one of its key growth drivers. Clearly, customers have been opting for e-commerce solutions for their grocery and other household essentials. Considering the current scenario, the company has been focusing on a no-contact delivery option, low-contact pickup service and ship-to-home orders. It continued to expand contactless payment solutions like Kroger Pay or “Scan, Bag, Go.”

The company’s ‘Kroger Delivery Now’ service provides customers with food and household staples in 30 minutes. Apart from this, the company had earlier announced the Kroger Drone Delivery pilot in partnership with Drone Express, reinforcing the importance of timely delivery to customers.

Digital sales soared 103% during third-quarter fiscal 2021, on a two-year stacked basis. Management remains committed to double digital sales and digital profitability by 2023.

Wrapping Up

We believe that Kroger’s focus on fresh offerings, technology and process improvements to lower costs, seamless digital ecosystem and margin-rich alternative profit business should continue contributing to growth. Shares of this Zacks Rank #3 (Hold) have surged about 19.6% in the past six months compared with the industry’s growth of 3.9%.

3 Stocks You May Bet On

Here are three better-ranked stocks — Albertsons Companies ACI, United Natural Foods UNFI and Costco COST.

Albertsons Companies, a leading food and drug retailer in the United States, sports a Zacks Rank #1 (Strong Buy). The company has an expected EPS growth rate of 8% for three-five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Albertsons Companies’ current financial year sales suggests growth of 1.5% from the year-ago period. ACI has a trailing four-quarter earnings surprise of 31.8%, on average.

United Natural Foods, the leading distributor of natural, organic, and specialty food and non-food products in the United States and Canada, flaunts a Zacks Rank #1. UNFI has a trailing four-quarter earnings surprise of 35.4%, on average.

The Zacks Consensus Estimate for United Natural Foods’ current financial year sales and EPS suggests growth of 4.8% and 7.7%, respectively, from the year-ago period.

Costco, which operates membership warehouses, carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 8.3%, on average.

The Zacks Consensus Estimate for Costco’s current financial year sales and EPS suggests growth of 10.9% and 14%, respectively, from the year-ago period. COST has an expected EPS growth rate of 8.8% for three-five years.

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