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Kroger: A Food Favorite
05/04/2016 7:00 am EST
Given the market’s volatility, I looked for a nice, safe business that operates only in the US, with no exposure to exchange rate gyrations, explains private and venture equity specialist Glenn Rogers in Internet Wealth Builder.
One thing in this world is certain: people have got to eat. Good times or bad times, people are going to go to the supermarket. Of course, there are plenty of supermarkets.
But the one that stands out for me is The Kroger Company (KR). It has been doing a great job growing both organically and through acquisitions over a sustained period of time.
Kroger operates over 3,600 stores with sales of over $109 billion last year. Along with the retail operations it also operates a number of manufacturing facilities that produce private label products.
As well, Kroger operates over 2,200 pharmacies embedded in their food stores, which add to their overall profitability, creating a one-stop shopping.
Kroger also has over 1,300 fuel centers attached to its supermarkets. With the low price of gasoline, the company should benefit from the extra cash in consumers' pockets: what is saved at the pump is spent in the stores.
The company is based in Cincinnati, Ohio and has been in business since 1883, over 130 years. Through the years the company has grown significantly as a result of a sustained mergers and acquisitions effort.
The largest deal in its history came in 1999 when the company merged with Fred Myers -- a $13 billion deal that greatly expanded the company's footprint in the US West.
The merger also generated huge economies of scale in all the key metrics of its business, including manufacturing, logistics, and purchasing. That merger has been very successful and the company has continued to acquire other businesses since then.
In 2014 the company purchased Harris Teeter, which is a large regional chain of more than 200 stores. That same year, Kroger also acquired an e-commerce business focusing on nutrition and healthy living.
The company has increased same-store sales for 12 straight years and there's no reason to think that will not continue going forward.
This company is steady grower with solid management. The share trade at a trailing p/e ratio of 17.9. The stock is off its 52-week high and offering a good entry point for new investors. Buy with a target of $45.
By Glenn Rogers in Internet Wealth Builder
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