The Kroger Co. (KR): Loyalty Cards and Organic Food Will Drive Growth for This Grocer

Safeway Inc. (NYSE:SWY) is also making strong moves this year with its successful customer loyalty program “Just for U.” It has been able to attract above 5 million registered users and generate almost 50% of the supermarket revenue. It will launch this program in Canada in the third quarter of this fiscal year. It has expanded its rewards program to company owned fuel stations. It has also expanded this program to fuel stations of Chevron and ExxonMobil. It is expected to have a fuel partner available for 94% of its stores by 2Q13. The company is also targeting at store expansion and has gained market share in the West, where SUPERVALU INC. (NYSE:SVU) sold its store in a deal.

Source: Google Finance and Yahoo Finance

Kroger is performing best in respect of the operating margin with 3.39% among the three peers and has a modest forward P/E of 10.79. Supervalu is not an obvious choice with its negative operating margin and highest forward P/E. Safeway can be a better option with its modest operating margin of 1.8% and lowest forward P/E among the three peers.

Conclusion

The Kroger Co. (NYSE:KR) has a great loyalty program in place in partnership with Dunnhumby. It is expected to drive the company’s sales with its expertise in the domain. The Natural & Organic food segment will provide opportunity for growth along with its new store growth strategy. So, I will recommend a “buy.” Supervalu is struggling after it sold off five of its banners. Its margins are under pressure and will take some time to improve. So, I would recommend a “sell.” Safeway has a successful “Just for U” loyalty program, and it is expanding it to fuel stations. It is expanding its store base in the West, where Supervalu sold its business. So, I would recommend “hold” for good returns in the long term.

Ash Sharma has no position in any stocks mentioned. The Motley Fool owns shares of Supervalu. Ash is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Loyalty Cards and Organic Food Will Drive Growth for This Grocer originally appeared on Fool.com and is written by Ash Sharma.

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