What's going on?
Shares of America’s largest supermarket chain, Kroger, jumped over 5% on Thursday after the company reported earnings that suggested its fight against Amazon isn’t totally futile…
What does this mean?
Kroger’s sales grew about 1% versus a year ago. That’s not exactly startup-style growth, but it’s much better than the declining sales it experienced earlier this year. Encouragingly for investors, Kroger also said that it expects even more improvement next quarter. Furthermore, its nascent digital effort, ClickList, more than doubled sales versus a year ago (albeit from a small base), giving Kroger’s investors a viable growth channel on which to pin their hopes.
Why should I care?
For markets: Old-school retailers are getting a boost market-wide.
Kroger’s shares lost almost a third of their value this summer after a double whammy of its own disappointing results and the announcement that Amazon would enter the grocery market via an acquisition of Whole Foods. Kroger wasn’t alone: it’s been a brutal year for most old-school retailers. In recent weeks, however, their stock prices have begun to rebound. They’re still down significantly this year, but investors are seemingly beginning to think that they got too negative, too quickly – and that some of these established retailers may be able to compete in this brave new digital world.
The bigger picture: Investors may be overestimating the impact of Amazon’s entry into groceries – for now.
Bill Gates once said that people tend to overestimate the impact of technology in the short term. Amazon has owned Whole Foods for all of four months and there are still no flying drones delivering pumpkin pie! In reality, the adjustment period is longer, and Kroger has a window of time to use its established position in groceries to build a 21st-century business model. However, Bill also said that people always underestimate the impact of technology in the long term. It’ll soon enough be a case of adapt or die for the likes of Kroger.