Question

Are Costco, Kroger, and Amazon, Walmarts main competitors? And why?

Answer 1

There is little excitement in food shopping, but grocery sales have turned into a battleground for traditional players such as Kroger (ticker: KR) and Costco Wholesale (COST), as new players including Walmart and Amazon.com push further into the space.

Food retail has long been the domain of discounters and supermarkets, but in recent years that has changed. Walmart has a big grocery segment and Amazon’s purchase of Whole Foods has made it a force to be reckoned with.

Traditional players aren’t sitting still, investing in new technology themselves, but competition remains steep, as other big-box players including Target also make incursions into the grocery business .

Among the traditional players, “Costco has the highest store productivity, but lags the other food retailers in online grocery.” That may not be a problem now, but as consumers grow accustomed to more convenience, Badishkanian warns that “competing on price will no longer be enough.” Kroger, he notes, has the best in-store experience of all the retailers, which should provide some protection from low-cost entrants such as Aldi and Lidl. He is also impressed with the company’s loyalty program, scale, and data use—and that the stock has the cheapest valuation of the four.

For newer entrants, Amazon’s deep pockets and other businesses give it the financial flexibility that traditional players lack, and the network of Whole Foods locations “should be a hedge if the US online grocery market moves towards click and collect model versus home delivery,” he writes. Walmart has used its own mammoth size and balance sheet to build a “build a significant advantage in online grocery.” It also stands to benefit as smaller, less well-capitalized food retailers falter, which could lead to more market-share gains.