How is Kroger Poised to Gain From Convenience Stores Sale?

Industry experts are of the opinion that competition in the U.S. grocery industry is going to intensify and supermarket chains will have to constantly revisit their strategy in order to withstand the same. This means, either you "shape up or ship out." It seems that The Kroger Co.KR has taken stock of the situation and is on its way to give itself a complete makeover. This Cincinnati-based company recently entered into an agreement to sell its convenience stores to focus on its core operations.

Per the deal valued $2.15 billion, Kroger will sell more than 700 stores - operating under the banners of Turkey Hill, Loaf 'N Jug, Kwik Shop, Tom Thumb and Quik Stop - to EG Group, a Blackburn, England-based operator of convenience stores in Europe. Since last October, Kroger has been looking for strategic alternatives for its convenience store operations, including a potential sale.

No wonder, Kroger plans to utilize net sale proceeds to buy back shares and lower the debt load. However, management highlighted that supermarket fuel centers and Turkey Hill Dairy are not part of the deal. The transaction is expected to be concluded during the first quarter of Kroger's fiscal year.

The decision looks inevitable in a scenario, where the grocery industry has been grappling with stiff competition, volatility in food prices, aggressive promotional environment and declining store count. The industry witnessed a major shake-up when the news of Whole Foods' takeover by Amazon AMZN surfaced.

Kroger, which shares space with Wal-Mart WMT and Target TGT , is leaving no stone unturned to attract consumers and attain incremental revenues. The company is expanding store base, and introducing new items, digital coupons and the order online, pick up in store initiative.

The company's "Restock Kroger" program is also gaining traction. Kroger commenced the "We Are Local" campaign; launched and opened a new restaurant concept, Kitchen 1883; and added two new product-lines under "Our Brands" - an apparel brand and a floral line, BLOOM HAUS. The sale of the convenience store business is part of this program only. Kroger is also looking to expand its "Scan, Bag, Pay & Go and Self-CheckOut" program - piloted at 20 stores - to nearly 400 locations this year.

We believe that these strategies are likely to bolster Kroger's performance and drive the stock. In the past three months, shares of this Zacks Rank #3 (Hold) have surged 33.6%, outperforming the industry 's growth of 18.3%. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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