With over 3,800 stores and more than $110 billion in revenue, Kroger is the second-largest retailer in the U.S., behind Walmart. Normally, a company of this size would not fret about Whole Foods’ relatively paltry 460 stores being sold off to a company whose bricks-and-mortar footprint consists mostly of a few bookshops. But because that buyer is Amazon, some are expecting Kroger to be worried.
Whether the company is worried or not; its investors are. June 15 and 16 were a rough couple of days for Kroger. First, its stock plummeted almost 19% when it warned investors that its profit would be smaller than expected this year. Then the company’s value tumbled even further after Amazon announced its $13.7 billion deal to acquire Whole Foods. That was nearly two weeks ago, and Kroger’s share price is still down nearly 25% from where it was on June 14.
This morning, Kroger CEO Rodney McMullen appeared on CNBC, where he did his best to downplay the seriousness of the Amazon/Whole Foods alliance and its eventual impact on the industry.
“I guess for me it wasn’t as much of a surprise as it was for others,” McMullen told CNBC. “You could tell that Amazon wanted to do something from a physical asset standpoint and I think Whole Foods is a great fit for them.”
McMullen argued that the retail industry is in a state of “constant change,” and while this deal aligns a huge market disruptor with an established physical retail chain, he claimed that “We don’t see this deal as any different than anything else.”
The CEO wouldn’t directly address speculation that Kroger might try to outbid Amazon for Whole Foods, other than to say “you should assume that we look at any potential opportunities.”
Some prognosticators predict that Amazon — with its higher profit margin non-food items (not to mention heavily profitable businesses like Amazon Web Services), and its vast delivery reach — will be able to undercut existing supermarkets on price, particularly on organics, a sector that is notorious for its expensive price tags.
“From our long-term business model we always assume the market will get more competitive,” explained McMullen, noting that organics is a $16 billion sector his Kroger Co., which also includes chains like Ralphs, Fred Meyer, and Fry’s. “We’ve been able to make natural and organic accessible to all customers both from a pricing standpoint and from a product offering standpoint. We feel great about the proactive things that we’ve done to help lower prices for our customers and we see that opportunity continue going forward.”
And while Amazon may be able to reach millions of potential customers with its existing logistics and delivery network, McMullen told CNBC that “people still like to go visit with friends, engage and see new foods and new experiences.”
“Kroger has been in business 134 years and we’ve been through many, many changes and we really see this change as well,” said the CEO. “What we find is when we help the customer fall in love with food and we deliver it at a great value, the customers reward us with that business. We don’t see that changing.”