Will Online Grocery Sales Cripple Kroger and Safeway?

Retail

Published: January 30, 2017 12:10 pm

Last Updated: January 12, 2020 3:22 pm

Could there be a shift from brick-and-mortar shopping to e-commerce in the grocery industry as occurred in consumer electronics and department stores? If so, large grocery retailers like Kroger Co. (NYSE: KR) and Safeway, a subsidiary of privately owned Albertsons, are in deep trouble. New research shows that 20% of all grocery sales will be handled online by 2025. That figure equates to $100 billion.

Amazon.com Inc. (NASDAQ: AMZN) has so badly fractured traditional retail that several of the companies are on the ropes financially. At the top of this list are retailers like Sears Holdings Corp. (NASDAQ: SHLD) and Macy’s Inc. (NYSE: M). Each has closed scores of stores and has posted several quarters of same-store sales attrition.

FMI and Nielsen released a report titled “Grocery Is the Next Big Retail Sector Re-Shaped by Digital.”

The most vulnerable companies are large grocery chains. Wal-Mart Stores Inc. (NYSE: WMT) is near the top of this list, although it is not a pure play in the industry. Over half of the revenue Wal-Mart generates in the United States is from grocery goods. As Amazon has battered it in traditional department store markets, its grocery business is about to come under siege.

The two other grocery chains with the largest exposure are Kroger and Safeway. The former had sales of $103 billion in 2015, according to the National Retail Federation. The company has 2,796 stores in 35 states, according to its public filing. Safeway, the second largest grocery chain, claims it has 1,300 locations:

There are now over 1,300 Safeway stores across the US. These include 266 Safeway stores in Northern California and Hawaii, 273 Vons stores in Southern California and Nevada, 107 Randalls and Tom Thumb stores in Texas, as well as 28 Carrs stores in Alaska.

Safeway’s revenue was $67 billion in 2015.

The grocery business is about to get ugly.

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