What's going on?
On Thursday, Kroger – the largest US supermarket chain – reported disappointing sales growth in its latest quarter, sending its shares crashing 10%. Clean up in aisle four, please.
What does this mean?
Kroger’s using technology to change how it operates in order to be more competitive – and putting these changes in place is causing disruption. Sales growth fell short of expectations because it was changing the layout of its stores, which meant that customers couldn’t always find what they were looking for – leading them right into the arms of other grocers.
Why should I care?
For markets: Investors are putting the brakes on Kroger’s restart.
When a company has difficulties and restructures (like Kroger, last year), investors often want to see proof it’s back on the right track before they invest (they sometimes call such companies a “show me story”). Kroger’s shares had risen almost 40% since March, thanks in part to striking a major tech deal with Ocado. However, investors may be selling once again because they’re worried shoppers won’t return to Kroger if there are cheaper (Aldi and Lidl) or more convenient (Instacart) ways to get their groceries. Kroger might become a “show me” story yet again.
The bigger picture: Supermarkets are super-changing but it’s not all bad.
Most big supermarkets are making big moves to compete with cheaper (and Amazon-ier) alternatives and changing shopping habits. Walmart’s digital investments paid off last quarter. And French grocer Groupe Casino has teamed up with Ocado. Major investments usually mean higher costs and lower profits, but there’s some hope: British chain Morrisons reported upbeat results on Thursday, growing quarterly revenue by 6% more than a year ago – well above estimates – partly helped by its own tie-up with Amazon.