What's going on?
Kroger, a major American supermarket chain, warned on Thursday that it wouldn’t be earning as much in profit in 2017 as it previously expected. Spooked investors sent the stock down almost 20%!
What does this mean?
Kroger is America’s second largest supermarket chain after Walmart – so this is a big deal. Its recent troubles stem from increased competition in the grocery world and falling prices for many of its raw products (like meat and fresh produce), which has led to its second straight quarter of declining sales.
Why should I care?
For markets: Kroger’s investors are pessimistic about its future.
Before reporting its earnings on Thursday, Kroger’s shares were already down 14% this year, as declining sales and profitability have, unsurprisingly, proved unpopular with investors. At the same time, the threat of even more competition is weighing on investors’ minds: low-cost grocers such as Germany’s Aldi are expanding in the US and Amazon is about to launch a futuristic grocery store with no checkouts (nevermind that Amazon’s existing delivery business is also a threat to traditional grocers, particularly for supplying non-perishables like cleaning products).
The bigger picture: Grocery stores are struggling globally.
Kroger is not alone. Grocery chains in the US and across the world are facing similar headwinds. For one, the cost of doing business, especially employing workers, is rising. At the same time, competition is fierce among grocers, making it hard to boost profits by rising prices for customers. That creates a big squeeze on profitability – and stock prices.