Fairway Group Holdings Corp (FWM), The Kroger Co. (KR), Sprouts Farmers Market Inc (SFM): Why Uniqueness Alone Is Insufficient as a Competitive Advantage

Going forward, the bright spot for The Kroger Co. (NYSE:KR) will be the positive synergies derived from its July merger with Harris Teeter, a regional upscale food retailer. Kroger should be able to tap Harris’ strengths in fresh food, its differentiated store format, and in-store shopping experience, to improve its competitive position and customer value proposition.

While Fairway positions itself as ‘more for less’ by offering more SKUs at lower average prices, Sprouts Farmers Market Inc (NASDAQ:SFM), a leading natural and organic food specialty retailer, sticks by its motto ‘Healthy Living for Less.’ It prices its products at an average discount of 25%-30% to that of its competitor Whole Foods Market and should benefit from price conscious customers seeking more affordable organic food choices.

In its initial quarterly results release since its listing in August, Sprouts Farmers Market Inc (NASDAQ:SFM) reported a 45% increase in sales to $622 million and a doubling of diluted EPS to $0.10. In terms of store expansion, it has opened 17 stores year to date. Furthermore, its small average store size of about 25,000 gross square feet makes it easier to find suitable retail space. In light of good results and strong store opening numbers,  Sprouts Farmers Market Inc (NASDAQ:SFM) is guiding for 19%-21% revenue growth for the full year.

Conclusion

I have concerns about the sustainability of Fairway’s uniqueness and the dilution of its local leadership advantage with its ambitious expansion plans. In addition, its high indebtedness increases its financial risk. With all the optimism factored into Fairway’s stock price, it is neither safe nor cheap as an investment candidate.

The article Why Uniqueness Alone Is Insufficient as a Competitive Advantage originally appeared on Fool.com and is written by Mark Lin.

Mark Lin has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 

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