Is Amazon Killing Kroger?

Updated : Nov 10, 2019 in Articles

Is Amazon Killing Kroger?


June 15, 2017 was a bad day for Kroger.
America’s largest supermarket chain losing its fight against Amazon, Walmart and other competitors,
slashed its guidance sending shares down 19%. After listening to today’s conference call,
one can only conclude that supermarkets are now in one gigantic race to the bottom and no one
will come out unscathed, perhaps least of all Kroger. But as bad as that day was, June 16 was much much worse. Amazon announced its acquisition of Whole Foods.
The news white roughly $40 billion off the market cap of the retail food industry. Amazon to buy Whole Foods.
You know, yesterday was a day for Kroger that was tough. Today, will be an even
tougher day. This is a game changer. This is it. This is what everybody thought
that happened. They will now dominate the food within the next two years. Wow! Suddenly, the world had changed for the more than a century year old grocer. Kroger’s origins date back to 1883, when Barney Kroger
opened a grocery store on 66 Pearl Street in Downtown Cincinnati. The store, then called the Great Western Tea Company, began
Kroger Grocery and Baking in 1902. Kroger quickly established himself as the first grocer to
offer in-house bakeries and meat departments. It saved money by making its own goods, like bread and sauerkraut
rather than buying it from third parties. The chain grew slowly but surely over the next two
decades. 40 stores in 1902. 157 stores in 1912. In 1917, Kroger bought four
chains in Detroit comprising 125 stores. Deal-making would go on to be a hallmark of the retailer’s existence.
Kroger’s acquisitions revved up even further when Mr. Kroger stepped down as
president in 1928 and was replaced by William H. Albers.
From the spring of that year through the next 16 months, Kroger bought 28 chains and 1,838 stores including Piggly Wiggly. It was fueled
with capital from Kroger’s ballooning share price.The deals free bought Kroger’s footprint up from roughly 5,600, growing it by more
than a third in just two years. Kroger also learned, after some stumbles,
the important art of moving slowly in integrating its acquisitions: allowing
grocers to maintain their identity by keeping management teams in place.
Through acquisitions over the next few decades Kroger moved into California, Texas, and
Charlotte. By the 1980s, it was the country’s second largest grocer. But the
1980s brought a new competitor and a new game plan. Walmart opened its first Super Center combining its discount stores and grocery in 1988. Creating a powerful new rival that combined Walmart’s cheap prices with the convenience of a grocery shop.
This new competition was particularly difficult for grocery giants like Kroger,
which in 1988 had 1,300 supermarkets in 20 states and 935 convenience stores. Its
size, once a strength, limited its ability to react quickly. I would say that Kroger
came through Walmart pretty well compared to many of its competitors. It
really understood that the economies of scale within the supermarket business
are not so much being big nationally. But being big locally. and if you’ve got a 40%
or 50% share of a local market, you can defend that pretty well. The
grocery industry wobbled. Their stock prices fell and private equity buyers
pounced. In 1986, the country’s then largest
grocer, Safeway, fell prey to private equity firm , Kohlberg, Kravis, Roberts & Co.
The deal made Kroger the country’s largest grocer as Safeway began to downsize. It also made Kroger KKR’s next target. KKR launched a bid for Kroger in 1988 but the grocer that built itself up through acquisitions was unwilling to
let itself become bait. Kroger rebuffed KKR’s offer with the restructuring
program that promised a special dividend of $48 a share which the grocer would
need to fund by loading on debt. The rebuttal ensured Kroger’s freedom. Now it
had to prove itself worthy. Over the next decade, it poured money into we doing it
stores. It invested in its store brands, growing its private label
brand Simple Truths to a billion dollars in 2014. It battled Walmart by not just focusing on
price, but also on product and service. All the while, it continued to gobble up competitors, including its $13 billion acquisition of Fred Meyer in 1999. The strategy worked. Kroger enjoyed 52 consecutive quarters of same store sales growth into the 2000s. Until, once again, its competitors
got better and stronger. In 2017, Kroger’s growth streak ended. Consumer
tastes had changed. People now preferred organic and natural food. Grocers like
Whole Foods had popped up, catering to that need. As a result, the competition
had to get better. Walmart began to make its stores nicer and stock them with
higher quality merchandise. The same went for Publix Supermarkets, Ahold Delhaize
and Sprouts Farmer Markets. European discount stores, Aldi and Lidl, threatened
expansion into the U.S. offering a new competitor who could fight on price
alone. Then, Amazon came along with the knife Amazon’s acquisition of Whole Foods upended the
grocery industry and changed the game. Amazon brought with it the threat of a powerful membership program in Prime, technology and automation to pair a Whole Food’s
store base and an investor set that didn’t bat an eye at investing at the
expensive profit. The deal sent a jolt through the grocery industry. It compelled
already powerful players like Wal-Mart to fuel even more resources into
technology and delivery. 70% of shoppers will be buying some portion of their groceries online within five to seven years, according to Nielsen. That equates to a $100 billion in total sales. Wal-Mart is re-outfitting fitting its
stores to support grocery delivery and racing to bring it to 1,600
locations by the end of fiscal 2020. Retailers like Target, which
struggled with its grocery business, have been forced to quickly make bets. Target
paid $550 million to buy same-day delivery service Shipt in
2017. I think everybody in the business is threatened by serious
changes in consumers preferences and the retailers really don’t know how to deal with this.
So it’s not just a question of Amazon and Wal-Mart being its biggest threats.
There are home delivery services that are significant threats to Kroger
because people are choosing to have dinner delivered rather than making
dinner themselves. Those changes are forcing Kroger to shift course. Buying more
stores won’t help it adapt. Instead, Kroger has begun to furiously invest in
technology. It bought meal kit company Home Chef and a stake and British online
supermarket, Ocado. It launched grocery delivery service Kroger Ship and
struck a partnership with driverless car company, Nero. It inked a partnership with
Walgreens in the U.S. and Alibaba in China. Some of these investments appear to have born results.
It’s digital sales grew more than sixty percent in the third
quarter of 2018. But that growth came at a cost. Its profit fell 20%.
Whether the sacrifice was worth it is yet to be seen. While investors wait, Walmart and Amazon are pouring their own money into winning
the grocery game. Barney Kroger’s vision to make his own
products and offer more in his stores helped fuel the grocer for the past
century and a half. Whether that legacy can match the titans
from Seattle and Bentonville is yet to be seen.

100 Comments

  • Lot of debate on here about who's better, Kroger, Whole Foods, Walmart, et al. If you have multiple stores in your area and only shop at one, you're a rank amateur. Shop sales, buy in bulk and freeze whenever possible, and buy in season. Most importantly, know how much you're spending to the nearest dollar. Supermarkets overcharge a LOT.

  • i worked at kroger for about 6 months as my first job and it was honestly had some great people but management was so shady

  • I disagree entirely with the slant of this report. Amazon is not killing Kroger or other grocers. It did force grocers to reallocate their capital into boosting their online/tech presence but they are not playing catch up. Amazon has not done a damn thing with Whole Foods. They don't quite know what to do with it yet, it seems. If anything, I believe the Amazon acquisition simply demonstrates that you cannot have only an online presence to be successful. You still need a brick and mortar presence as well. I think that is vice versa for other retailers and while the grocery market had remained relatively untouched by online shopping, that is simply starting to shift just as it did with the rest of retail. Some grocers will fail, others will continue but the primary outcome: better service to their customers. I don't see Amazon as a threat.

  • and more people are ordering out because both spouses have to work to pay the rent, because all the real estate investors are buying up all the family homes to rent out at a huge markup, thus no time to cook.

  • So, Kroger put out many competitors out of business and now we should feel bad when someone else is doing the same to it…

  • I work at a Kroger cooperation and we do fine over here on the West Coast because people actually like to go out and go shopping

  • I had an Amazon delivery yesterday. It was a same day delivery. They brought a nightstand, steak, cat food, a Bluetooth speaker and some gummy bears. Forget those other companies

  • Watch your gonna see the last two competitors that will be fighting to the end on who runs the top big box department stores will be Wal-mart vs Amazon and every other company like Macy’s, Costco, cvs Pharmacy, and etc. will just accept defeat and work with either Amazon or Wal-mart

  • The problem I saw was that they brought out one store in the 10's of billions of dollars,And now recently a 19 % raise on already retired Rodney Mcmullen CEO with a 11.9 million dollars Then building these Market places,You know if you just quit building and catch up with your Financial way you would be better off.

  • Take it from a former employee of this company, Shop at a local mom and pop – Give them your dollars not a conglomerate like Kroger.

  • I'm in Dallas Texas my Kroger is always packedthere's a whole foods right around the corner from me and it's barely 1/2 if that most of the time because it's too damn expensive. Whole foods isn't doing that great just because Amazon bought them…btw Jim Cramer isn't that great of a financial expert as you think he is.. he's like the Judge Judy of finance advice

  • I don't think Amazon is killing Kroger . I think Kroger can survive cause of their quality and reputation . We have one 20 mins away and it have a Bakery , Deli with Meats , Seafood , Wine and Spirits store , Starbucks , Pharmacy . It is a nice store for being in a small town . Whole Foods is nice but for folks around here Kroger suits better .

  • I know Kroger employees at warehouse. They are worst kind of people i n retail indusrry. They are worse than GM or Ford!

  • Hey what the hell is Kroger I have never seen one. Is it only in the east. Because where I live in California there are none.

  • Why would anybody go to Whole Foods and blow their entire check? I’ve never been to Whole Foods because I enjoy having money

  • These Wall Streeters are clueless on how people work, live and shop west of the Hudson river. Krogers will not disappear, nor will many of the other smaller, regional chains with strong loyal customers.

  • I’d pick Kroger over Whole Foods any day of the week. I dont shop at Whole Foods, they are not my cup of tea.

  • Although I buy nearly everything from Amazon, I can't imagine not going to the grocery store for vittles. First of all, even Amazon can't deliver fragile, frozen, or fresh produce by any means that I know of… even robots, which their meglomaniacal owner will certainly pursue. When I go to the grocery store, I often don't even know WHAT I want to buy, and going down the aisles with my shopping cart cannot be duplicated for sheer variety and meal ideas at a glance. Amazon can't monopolize EVERYTHING, no matter how hard they try.

  • who gets a shiatsu about Whole Foods, Kroger (Ralphs), & even Walmart / Target ….it costs TOO much at each and everyone of them, fresh fruits and vegetables that is. So I just go to local Mexican or Chinese supermarkets or Aldi. Much lower prices!!!!!!!!!!! Oh sure the Mexican or Chinese cashiers might not speak good English but who cares? I save a bundle of money there

  • Los Angeles doesn’t have Kroger , we have Ralph’s that sells Kroger but rather go to Albertsons or vons or Whole Foods. Interesting history lesson though.

  • Don’t worry Meijer will dominate both of these soon. They are expanding across the Midwest and will eventually go south.

  • I didn’t know Ralphs was Kroger here in California what the heck. Thanks to this video I’ll be buying from them from now on 🙂

  • I stopped shopping at Kroger 15 years ago — 1 reason — their pricing, they are higher than all other competitors. Simple as that…

  • I deliver for Amazon as an independent contractor Cale’s Amazon Flex along with other jobs but I deliver from Whole Foods and it’s amazing how lazy people are. But I earned $83 bucks for 2 hours one day doing it. Takes me a full 8 hours at my security job to earn $100.

    6-25-19

  • Kroger amazing cut 10% and debt last year and cut 30% of Market Cap value. Invests in latest technologies and gimmicks and invests nothing in the associates that run the technology. Sales growth shrinking and they are basically a circle from cutting so many corners Kroger will be circling the drain like Albertsons if they aren’t careful.

  • Whole Foods is STILL Whole Paycheck — they are still too luxe for the average consumer – Aldi is winning hearts.

  • Kroger it’s the largest supermarket in the United States yet I have never seen one of them in Florida or New York.

  • Not sure why people would online shop for fresh foods- canned, bagged, etc. foods I understand, but I prefer to pick out my own fresh veg, fruit, meat, milk. Hence a trip to the store.

  • I worked at kroger and you people have no idea what happens behind the scenes, amazon treats their employees way better, amazon is a better company

  • the kroger in my area renovated its entire store after giant eagle enter the community and bought one of the marsh stores in my area.
    so it's not kroger, giant eagle, walmart, and meijer

  • Whole Foods Is Expensive ASF And Products Are Of Poor Value; There Is Not Even One Whole Foods At A Convenient Driving Distance , Kroger On The Other Hand Is More Value,Quality,And More Convenient , All For Less

  • Some Kroger employees evidently choose to try to be criminal andor "with" criminals so much that they limit other employees that are trying to live normal peaceful lives. They also have "secret" criminal ("political") affiliations.

  • "Americas largest grocery store". Never even heard of Kroger prior to watching this video and I don't think there are any in my state.

  • It’s “century old”

    Not “century YEARS old”

    Century implies we’re talking about time.
    Cent is from Latin for 100

  • Union severed their contract with kroger and one other store because of some issue. I work for safeway so hopefully this means we're in the clear for now.

  • Kroger has some great vegan selections and I expect vegan foods to be priced high, but EVERYTHING else in Kroger is priced too HIGH!

  • I moved away for grad school and I miss my local Kroger so much! Back home it’s where primarily people went to get their groceries!

  • I don’t know if they build new store but if they are getting rid of plastic bag why don’t they add the slide shelves that pull out so you can bag Easy the only have one and one of cash area where the bags is basically stuck in and the have not fix it. So I could see them close the old store i see one where the sign doesn’t light up.

  • Keep in mind as all this is going on the employee have not seen a raises in 10 years so they can a least live. Some of the locations are only provided one day off and the ceo has one of the biggest payouts. Funny they can afford all of this but mange to lay people off before the holidays .But can pay themself love Corperate America

  • Kroger should be fine. Their prices aren't bad. Wholefoods is just expensive. Target could also be kinda expensive. It's only competition should be Walmart.

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