Amazon (Ticker Symbol: AMZN) announced last week that it has plans to open up dozens of its own food outlets across the U.S. The grocery store stocks took this news poorly and sold off on the announcement. Kroger (Ticker Symbol: KR) led the way lower closing down 4.5 %, Walmart (Ticker Symbol: WMT) followed closing down 1.07%, and Target (Ticker Symbol: TGT) closing down 0.41%.
This isn’t the first time that Kroger’s stock has been affected by Amazon. On August 27th, 2017, Amazon first stepped into the grocery industry by acquiring Whole Foods Market for $13.7 billion. Whole Foods Market is an upscale grocery chain that sells primarily organic foods and is headquartered in Austin, Texas. This news sent most of the grocers in the space down, hurting Kroger the most.
After Amazon announced that it was buying Whole Foods Market, Kroger’s stock gapped down, sold off, and closed down 18.87% on the first day. As you can see from the chart above, the stock gapped down lower the second day after the announcement closing down 9.42%. The stock has since begun to recover from the news but it is apparent how the market reacted to Amazon entering the space and potentially disrupting the traditional grocery business.
As soon as the end of this year, Amazon is planning to open its first store in Los Angeles, California. The new stores would be separate from their Whole Foods Market chain. They would offer a more complex product line than Whole Foods offers. It will not only have organic options but discount and mainstream brands as well.
This is why Kroger is poised to be hurt the most by this move. Walmart and Target have established themselves as a major retailer of almost all common household and non-household goods. Kroger, however, is primarily a grocery store, which leaves it vulnerable for Amazon to put pressure on the prices of grocery goods which would hurt Kroger’s margins.
As we all know, we can get an array of items delivered to our houses from Amazon. Household goods like laundry detergent, bread, jelly, and medicine can sometimes be delivered on the same day. Walmart and Target have made pushes recently to try and compete with Amazon’s online domination by investing tens of millions of dollars into their own online retail and delivery services. It is a new and complicated venture and it has yet to pan out for them monetarily.
Kroger is now going to have to directly compete with Amazon in the grocery space. They are investing in order online and pick up in store options. In addition, Kroger recently bought Homechef, a meal delivery company, to help compete with other grocery delivery services.
As you can see, Kroger is trying to find ways to compete with the retail giant. With last quarter sales not quite up-to-par and margins under pressure, they have an uphill battle to climb. Kroger is trying to do the right thing and expand their investment realm but they are going to have to make those investments profitable if they want to compete with the likes of Amazon.