Kroger Stock (KR) Plunges as Company Takes a Long Hard Look at E-Commerce Costs

Grocery giant's digital ambitions hit reality check as investors flee

THE PRICE OF PROGRESS

Kroger's e-commerce push just triggered a shareholder exodus. The supermarket chain's stock tumbled after executives revealed they're scrutinizing every dollar spent on digital operations—delivery infrastructure, app development, and last-mile logistics aren't cheap.

WALL STREET'S ALLERGIC REACTION

Analysts hammered the stock as management admitted profitability timelines need reevaluation. Turns out competing with Amazon and Walmart in the digital arena requires burning cash faster than a grocery store dumpster fire.

THE NEW REALITY

Traditional retailers keep learning the hard way: digital transformation costs real money—not just buzzwords for earnings calls. Another quarter, another 'strategic review' that really means 'we overspent on tech.' Because nothing says innovation like disappointing shareholders and cutting guidance.

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Robot Review

Following the announcement of its Q2 results on Thursday, September 11, bosses told U.S. investors that it was reviewing its use of automation technology to save costs and boost profits.

Ron Sargent, interim chief executive of Kroger told investors that the business was conducting a “full site-by-site analysis” if its warehouse and distribution operations.

This, it appears, refers to its partnership with FTSE-listed U.K. grocery logistics firm Ocado. They sealed a tie-up back in 2018 to build the equivalent of 20 customer fulfilment centres, where automated robots sort orders.

So far, it has opened eight sites with two more expected to open in the current financial year.

Last year, Ocado Group announced an enhancement of its partnership with Kroger, with the U.S. grocery giant ordering a new suite of automated technologies for deployment across its Customer Fulfilment Centres (CFCs). These advanced systems, including the On-Grid Robotic Pick and Automated Frameload, aim to significantly improve efficiency, reduce costs, and bolster the customer service experience.

Local Focus

However, now Sargent said Kroger was planning to focus more on fulfilling orders directly from stores to improve speed and efficiency.

“Where we have seen strong demand in high-density areas, these facilities deliver better results than those facilities where density is lower and customer adoption has been slower”, Sargent said. “We are taking a hard look at some of our automated facilities.”

Neil Wilson, UK investor strategist at Saxo, said: “The comments are clearly a negative for Ocado as Kroger seems likely to MOVE away from the kind of large CFCs provided by the British company and instead seems to be looking to lean on local stores to fill orders.”

E-commerce is becoming ever more crucial for grocers like Kroger as it aims to compete with rivals such as Walmart (WMT) and Amazon (AMZN) – see above.

In its Q2, Kroger said e-commerce sales grew by 16%, led by delivery performance. It saw improvements in both pickup and delivery profitability, but it cleary seems room for more improvement.

Is KR a Good Stock to Buy Now?

On TipRanks, KR has a Moderate Buy consensus based on 8 Buy and 9 Hold ratings. Its highest price target is $85. KR stock’s consensus price target is $76.69, implying a 14.07% upside.