Kroger Positioning Itself to Challenge Superstores

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Sep 12, 2014

When I was growing up, my mother used to buy the family groceries at Kroger (KR, Financial) – sometimes. Kroger was one of several grocery stores in my hometown, and Mom didn’t go to the same place for supplies each week. Kroger was one of them.

Kroger was an ordinary-sized grocery store then; since those days, my perception of Kroger, like many other people’s perception, has been that it is strictly a grocery store – and, at that time, it was. But Kroger has expanded quite a bit. In addition to buying food at many Kroger outlets, consumers today can get all sorts of other things like appliances, furniture, clothes and gas, at Kroger stores. And, as is sometimes the case in these large stores, consumers can find fast food – burgers, tacos or pizza – and coffee vendors as well.

Some consumers may have shopped at a Kroger-owned store without knowing what it was. Today, Cincinnati-based Kroger owns more than two dozen retailers operating under different names and in sizes ranging from Wal-Mart-like (WMT, Financial) superstores to small corner convenience stores.

Kroger isn’t in a position to challenge Wal-Mart yet, although that is what it appears to be positioning itself for. Currently, it is muscling its way past other contenders like Costco (COST, Financial) and Target (TGT, Financial).

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As the chart shows, Kroger’s revenue is competitive with Costco’s and higher than Target’s – but still far below Wal-Mart’s. When that is taken into consideration, Kroger stock is a bargain. Investors can buy a share of Kroger stock for less than a share in any of the other three.

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Kroger has been the recipient of quite a bit of favorable attention here at GuruFocus lately. Earlier this month, Omar Venerio wrote that investors should consider putting their money in Kroger. A couple of weeks earlier, Jaggom wrote that Kroger’s acquisition of Harris Teeter (HTSI) in January was a “smart move.”

More than a month ago, Suravi Thacker wrote that investors would not regret putting their money into Kroger: “The company has been posting great results each quarter and its recently reported first quarter was not an exception.”