Kroger Could be Selling Off Convenience Stores to Make Investors Happy

For many years, Kroger has controlled a major portion of the grocery market but competition is getting fierce.  German chain Aldi (which you might know as its American subsidiary Trader Joe’s) has come to US soil and Amazon.com has muscled its way in through a partnership with Whole Foods. Wal-Mart, of course, has continued to put pressure on the competition with notoriously low prices.

And in light of all this competition, supermarket giant Kroger has announced it is exploring new strategies to hold ground in this industry.  Backed by support from Goldman Sachs, Kroger is looking to potentially sell its convenience store business if it cannot develop a more profitable strategy.  Obviously, the company is looking for a way to keep investors happy: and selling nearly 800 convenience stores located in 18 states could do the trick.

The convenience store sector of the Kroger company did about $4 billion in sales last year.

According to Kroger Chief Financial Officer Mike Schlotman, “Considering the current premium multiples for convenience stores, we feel it is our obligation as a management team to undertake a review.”

Kroger investors seem happy by this news as the announcement led to a jump of 6 percent in share value.  Investors, then, seem pleased by the strategy to retain Kroger’s jewelry stores, pharmacies, and retail health clinics after selling the convenience stores.

Kroger CEO Rodney McMullen comments, “We have the scale, the data, the physical assets and human connection to win. Restock Kroger builds on our strengths and strategically repositions Kroger to accelerate our customer-centered efforts in order to create shareholder value.”

McMullen goes on to say, “We are gaining market share, but we’ve allowed others to gain share more than we would be happy with. We need to move faster in digital.”

Now, it is important to note that this 6 percent spike in share value is only the beginning of a recovery for Kroger.  The company did see its stock price fall more than 37 percent over the course of this year; obviously investors are a little more interested in the moves made by Aldi and the Amazon-Whole Foods partnership.

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