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Can Brick & Mortar Rise to Kroger's Online Game Challenge?

Ritujay Ghosh
Updated

The fight for e-commerce retail supremacy is heating up with The Kroger Co KR acquiring meal-kit company Home Chef. The latest development comes within a week of the company striking a deal with British online grocer Ocado to use its robotic technology to fill up orders at its warehouses. The retail landscape is fast changing with almost all major brick-and-mortar stores increasingly focusing on their e-commerce segment.

It goes without saying that Amazon.com, Inc. AMZN has changed the entire retail ballgame in the last few years, which is compelling its peers re-strategize their business model. Moreover, the grocery industry, which till some time ago remained insulated from the e-commerce war, isn’t safe anymore, with retailers acquiring grocery companies and taking the fight to the delivery race. Given this scenario, the Ocado deal coupled with the acquisition of Home Chef definitely is a move by Kroger to stay abreast in the retail race.

Kroger Heats Up the E-Commerce War

On Wednesday, Kroger announced that it will be buying Chicago-based meal-kit company, Home Chef, in a deal that could amount to $700 million. The initial price is $200 million and could go up to $700 million over the next five years in earnout payments to Home Chef if it meets certain sales and performance targets.

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Kroger, the largest U.S. supermarket chain by stores and sales, has been testing the market of its own meal kits at its own stores for quite some time now. Understandably, the Home Chef buyout is in a move to stay in the e-commerce race that follows Amazon’s takeover of the Whole Foods Market.

Much like a number of other brick-and-mortar stores, Kroger too has been making efforts to survive the e-commerce onslaught. The Home Chef acquisition is definitely give Kroger a shot in the arm, as Home Chef saw its sales jump 150% to $250 million in 2017.

Moreover, the tie-up with Ocado last week will help Kroger will help the company run automated warehouses and deliver food with the help of Ocado’s robots. Kroger certainly is taking the challenge to face both Amazon and Walmart, Inc. WMT with its increased push in grocery and delivery race.

Brick-and-Mortar Stores Take Up the Challenge

The e-commerce retail war heated up after Amazon’s $13.7-billion acquisition of supermarket chain Whole Foods in 2017. Moreover, the e-commerce giant announced two-hour same-day grocery delivery service in February, which set the alarm bells ringing for brick-and-mortar stores like Walmart, Target TGT, Dollar Tree DLTR and Dollar General DG that so long rested assured of business safety. Target has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Walmart, undoubtedly, is Amazon’s biggest rival and has been making inroads into the e-commerce space. The brick-and-mortar giant’s recent $16 billion acquisition of India’s e-commerce company Flipkart is been viewed as a bold step toward the online shift.

Target too has been increasingly focusing on the e-commerce and delivery front. The company has made e-commerce an important part of its $7 billion turnaround plan. Keeping this mind, Target will be introducing voice-activated shopping with the help of Alphabet, Inc’s (GOOGL) Google assistant. Also, earlier this month the company slashed the next-day delivery feel to almost half to attract more customers.

Meanwhile, Dollar Tree has been taking up the challenge by opening more stores. The company will be introducing 650 more stores in 2018 in order to lure more customers. Given that all products at Dollar Tree stores are priced at $1 or below (pricing is its biggest strength) the company is being able to keep itself afloat amid the e-commerce onslaught. Similarly, Dollar General too plans to open 900 stores in 2018.

Summing Up

The retail landscape has certainly changed with e-commerce running the show. This definitely has made brick-and-mortar stores sit up and think. However, the race for supremacy seems to be heating up with more players adding muscle to their e-commerce and delivery arm with more acquisitions and technological assistance.

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Walmart Inc. (WMT) : Free Stock Analysis Report
 
Dollar Tree, Inc. (DLTR) : Free Stock Analysis Report
 
Dollar General Corporation (DG) : Free Stock Analysis Report
 
Target Corporation (TGT) : Free Stock Analysis Report
 
The Kroger Co. (KR) : Free Stock Analysis Report
 
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