Since the beginning of 2022 – a rough marker for the return of inflation to grocers – shares of both Walmart and Kroger have handily beat the market. To anyone following the industry, this performance is not necessarily a surprise.
After all, inflation is a positive for the industry more broadly; indeed, the entire space spent the decade of the 2010s hoping for any kind of inflation at all. And in a higher-inflation environment, both Walmart and Kroger benefit from tremendous scale. The sheer size of each company’s grocery business means more purchasing power. It means each can invest more in omnichannel initiatives and can build out profitable in-store advertising networks. Add in solid execution from both companies – particularly Walmart, as we noted last month – and it makes sense that investors have been positive toward the two grocery giants.
Over the same stretch, meanwhile, smaller public grocers have not done nearly as well. Village Super Market, which operates 37 locations in the Northeast, has been the exception; including dividends, shares have nearly doubled. But discounter Grocery Outlet has seen its shares halved, Ingles Markets (about 200 stores in the Southeast) is down 21% even with dividends, and Weis Markets (about 200 stores in the Northeast) is up 23%, behind market indices.
This performance, too, makes some sense. Smaller brands and smaller chains don’t have the same ability to invest in digital efforts, whether online shopping or in-store advertising. Inflation generally is good for the industry, but a volatile macroeconomic environment and shaky consumer confidence both likely disfavor smaller players. Clearly, Walmart in particular has taken market share, and some of that share has come from smaller regional players. (Ingles, for instance, saw its same-store sales actually decline in its fiscal year ending September 2024.)
What is surprising, however – perhaps even stunning – is the performance of the two natural/organic-focused players in the space.
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