Every generalist investor thinks they can invest in retail. Compared to other industries, where you might have to know something about petroleum geology or how silicon wafers are processed into semiconductors, retail business models seem pretty straightforward.

However, as Eddie Lampert and Bill Ackman can testify (Ackman can testify twice…), retail can be deceptively tough to get right.

On the heels of our recently published research on Whole Foods Markets (Tear Sheet GreenLock, ChartBook GreenLock), a reader requested that we take a look at Whole Foods’ fiercest competitor – Kroger (KR). Today, we published a Tear Sheet GreenLock on this Cincinnati-based supermarket giant.

When I started the research, I thought it would take longer to load the data in the IOI Valuation Model than it would to estimate a fair value, but the more I looked at the company, the more I realized that I had to look.

There is an enormous amount of change going on in the retail world now (a topic we touched on in our recent report GreenLock on Procter & Gamble’s demand environment) and the world of grocery is no different. Fast casual restaurants have reported reduced traffic due to increased competition with the fancy deli counters at supermarkets like Wegman’s and Mariano’s (the latter is now owned by Kroger). Whole Foods Markets – long the high-flyer of the grocery world – is generating negative same-store sales. Meanwhile, Kroger’s profit margins are booming!


Is Kroger’s new profit profile durable or will it be competed away by discounters and dotcoms? We’ll look more at Kroger in a report next week, but today’s Tear Sheet GreenLock is our initial take.