While Wal-Mart is considered the gold standard among retailer investments, the stock’s performance has actually been trailing that of Kroger since about the bottom of the last recession, in early 2009. Had you bought shares in early 2010, your Kroger investment is up 63%, your Wal-Mart 42%. Just in the last year, Kroger is up 65% against Wal-Mart’s gain of 7.4%, and in that shorter time period Kroger actually beats Costco, which has gained just 20.7% in that time.
In short, while Kroger doesn’t have the margins of Wal-Mart, it has more room to grow. While it doesn’t have the cachet of Costco, it’s about the same size, and has about the same margins.
The pros are on to Kroger. Why shouldn’t the Fools get into the action?
Bet the jockey
The man to thank in this case is David Dillon, 60, who came to Kroger when it acquired the Dillon Companies, a Kansas-based grocery chain, in 1983. Dillon became Kroger’s CEO in 2003.
Dillon has used his various brands as laboratories. He created a version of Fred Meyer under the Dillon name, for instance, in 2006, and now has five of them. Today The Kroger Co. (NYSE:KR) owns 15 different supermarket chains, six convenience store chains, three different budget food chains, and four different grocery chains, along with five different “marketplace” stores – similar to a Target – under its grocery store names, in their territories. That’s probably why you haven’t heard of the company, in comparison to its main rivals – with so many brands it flies under the radar.
In some ways, you might compare today’s Kroger to the old Federated Department Stores, which eventually became Macy’s. The difference is that Kroger is in niches that are expanding, and its stores are generally profitable. When something isn’t working, Dillon dumps it. He sold the Hilander’s chain in 2011, and got out of the Bell Markets and Cala Foods in northern California the same year.
Dillon gives his managers autonomy, and he pays his people. Three-quarters of Kroger employees belong to a union, the United Food and Commercial Workers.
The Foolish bottom line
Despite its gains during the last few years, The Kroger Co. (NYSE:KR) remains a bargain compared to other large retailers. Since it does business under many different names, it has many different ways in which to grow. It has a well-respected grocery man at the top, and it’s building a pipeline of like-minded people who can continue growing the business after he retires, in about five years.
Wall Street is on to this story. That’s why Kroger shares are rising faster than those of its peers. Shouldn’t it be on your radar too?
Dana Blankenhorn owns shares of Costco Wholesale (NASDAQ:COST). The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale.
The article Attention Kroger Shoppers originally appeared on Fool.com.
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