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Can Kroger Take on AMZN, WMT With Driverless Grocery Delivery?

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“Shop anything, anytime and anywhere” is the new mantra that U.S. grocery players are fervently following to provide consumers a seamless experience. From speedy deliveries to payment systems and from selling grocery to offering meal-kits, supermarket chains have been in a constant race against each other for quite some time now. Industry experts believe that the competition in the U.S. grocery market is going to intensify further in the digital space and players will have to constantly revisit their strategy in order to counter the same.

Clearly, either you “shape up or ship out”. The Kroger Co. (KR - Free Report) has taken the stock of the situation and has been steadily creating a niche in the burgeoning online grocery space. The latest deal with Nuro — the maker of driverless road vehicle — to deliver groceries at customers’ door steps using autonomous vehicles is just another game plan to take on rivals.

Grocery Delivery Game

The grocery industry has been grappling with stiff competition, higher input costs, aggressive promotional environment and thin margins. The industry witnessed a major shake-up when the news of Whole Foods takeover by Amazon (AMZN - Free Report) surfaced. This amalgamation of online marketplace with physical stores caused a tectonic shift in the grocery landscape. Amazon can now leverage Whole Foods’ fresh foods procurements expertise with its own data mining techniques.

Amazon has been trying to exploit nook and cranny of the online grocery delivery space, quite evident from its free two-hour delivery of Whole Foods products to Prime customers. It is going an extra mile by helping small businesses or entrepreneurs in establishing a delivery business under its Amazon Delivery Service Partner program and utilizing the same as a delivery tool.

Experts believe that Amazon is leaving no stone unturned in its effort to counteract any threat stemming from Walmart, which holds a dominant position in the U.S. food market and has been gradually building up its e-commerce muscle.

Walmart (WMT - Free Report) has been proactive in expanding in the fast-growing online grocery space. The company extended alliance with last mile logistics entity, Deliv, to support same-day delivery for groceries. It also acquired delivery start-up company, Parcel Inc. to extend same-day deliveries. The company also partnered with ride hailing services Uber and Lyft for speedy online grocery deliveries. The company also teamed up with Postmates for grocery delivery.

Another player, Target (TGT - Free Report) is deploying resources to enhance omni-channel capacities and expanding same-day delivery options. To this end, the company has undertaken rationalization of supply chain with same-day delivery of in-store purchases for a flat fee along with technology and process improvements. Further, the company acquired Shipt to expand same-day delivery service. Apart from this, the company’s Target Restock program and Drive Up service deserve mention, when talking about its efforts to join the online delivery bandwagon.

How Kroger Plans to Take on Amazon & Walmart?

It’s quite apparent that competition among grocery retailers is far from subsiding, and Kroger understands that. The company’s partnership with Nuro will definitely prove to be game changer in the grocery delivery space. Customers via Kroger's ClickList ordering system and Nuro's app can place same-day delivery orders. Apart from this, the company’s deal with the Ocado, an online grocery delivery company, along with the acquisition of Home Chef, a meal kit provider, is definitely a good move to stay abreast in the race.

Kroger’s partnership with Ocado is in the right direction to overcome competition. Both the companies are likely to develop three automated warehouse facilities this year and plans to take the count to 20 in the first three years. The alliance under discussion is part of the company’s “Restock Kroger” program which is gaining traction. Further, Kroger is looking to expand its “Scan, Bag, Pay & Go and Self-CheckOut” program to nearly 400 locations in 2018.

Wrapping Up

Certainly, Kroger is leaving no stone unturned to attract consumers and attain incremental revenues. The company remains on track to boost market share by introducing new items, digital coupons, and order online, pick up in store initiative. We believe that these strategies are likely to bolster the company’s performance and drive the stock further.

In the past three months, shares of this Zacks Rank #3 (Hold) have increased 19% comfortably outperforming the industry that declined roughly 1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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