Motley Fool writer believes Kroger can survive Amazon

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Motley Fool writer believes Kroger can survive Amazon

By Lawrence Aylward - 11/25/2019
Kroger knows what it's up against in Amazon.

In an article for financial company Motley Fool, business writer and former stock broker James Brumley lists three reasons why Amazon’s grocery ambitions won’t “destroy” the The Kroger Co.

When Seattle-based Amazon acquired Whole Foods Market in 2017, some industry pundits made it sound like it was just a matter of time before Amazon would take over the grocery industry. They hinted that other grocery retailers, including Cincinnati-based Kroger, would meet a doomed fate.

That hasn’t happened, but Amazon might just be getting started in grocery, especially with brick-and-mortar operations. Speculation began earlier this year that Amazon would launch a new brick-and-mortar venture that is separate from its Austin, Texas-based Whole Foods Market chain. Amazon has reportedly signed more than a dozen leases on store locations in the Los Angeles area, which may carry several lines of Amazon's private brands. Initial locations are expected in the densely populated areas of Woodland Hills and Studio City, as well as Irvine in Orange County. Other locations are expected to open in Chicago and Philadelphia.

Brumley wrote that “Amazon.com has destroyed countless small retailers and has taken a bite out of some bigger names as well. And, it did all of that almost entirely online.”

And now with Amazon’s plans to develop its own brick-and-mortar grocery store chain using its cashierless, Amazon Go technological take on shopping, even grocery powerhouses like Walmart and Costco Wholesale have a reason to be concerned, Brumley added.

But he believes that Kroger, well known for a private brands program that accounts for about 30% of its sales, will not be a casualty of Amazon’s expansion.

“[Kroger] is now melding tech and food shopping just as well as Amazon likely will. And, it's doing so with an advantage Amazon doesn't have,” Brumley wrote.

He lists three key reasons why Amazon's latest entry into grocery isn't the threat to Kroger that it's been made out to be.

The first is that Kroger's physical retail footprint is already established. "With nearly 2,800 grocery stores already in existence versus Amazon's none (aside from its grab-n-go convenience stores and its ownership of not-quite-mainstream 500-plus Whole Foods Market locales), Kroger doesn't have to take on the expense of building locations from scratch and then driving new foot traffic to those stores,” Brumley observed in his story.

The second reason is that Kroger is embracing tech and is remaining relevant in a world dominated by tech-savvy consumers, Brumley stated.

“In January, Kroger unveiled a test program of a new shelf display system. Rather than just paper price tags, the enhanced display for grocery environment (or EDGE) allows shoppers to learn more about that food's nutritional value. The tech enhances Kroger's existing Scan, Bag, Go feature and can even help the grocer better manage its inventory and tailor-make offers for individual shoppers,” he wrote.

The third reason is that Kroger’s management knows what it’s up against, Brumley states. He gives “kudos” to Kroger CEO Rodney McMullen and his management team for recognizing that consumer preferences are changing and that grocers must change as well.

“An understanding that the grocery business is now more about a lifestyle and less about mere food sales suggests Kroger's top brass are thinking specifically about keeping Amazon in check — something too many other retailers failed to do,” Brumley wrote.

But he stressed that Amazon is still a tough competitor and that Kroger will have to fight.

Read Brumley’s entire article here.

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