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Kroger (KR) Builds Grocery Portfolio, Turkey Hill Sale Likely

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As part of building competitive strength, The Kroger Co. (KR - Free Report) has been narrowing its non-grocery footprint and making investments to expand its grocery offerings as well as e-commerce presence. After the sale of its convenience store business earlier this year, the company has now started searching strategic alternatives for its Turkey Hill business, including a potential sale.

Turkey Hill, which is part of Kroger’s Our Brands (owned brands), is one of the company’s popular ice cream brands. Apart from ice creams, Turkey Hill produces a full line of popular iced teas, fruit drinks, milk and other frozen desserts. It has about 800 full-time, part-time and seasonal associates working at the company’s manufacturing and distribution facility in Conestoga, PA. Turkey Hill’s products are sold in about 49 U.S. states, excluding Hawaii.

As already mentioned, Kroger’s intent behind evaluating options for this business is mainly to lower its non-grocery exposure. Earlier this year, the company divested its convenience store business for $2.15 billion to British gas station operator EG Group as part of its “Restock” initiative. The “Restock Kroger” program revolves around refurbishing its supermarkets and reducing prices for consumers as well as enhancing store technology.

Following this, the company made several investments to boost its e-commerce business, including partnering with British online grocery delivery company Ocado, acquisition of a meal-kit provider Home Chef and the launch of a grocery delivery service “Kroger Ship”. Of these, we note that the launch of “Kroger Ship”, on the lines of Amazon’s (AMZN - Free Report) Prime Pantry and Target’s (TGT - Free Report) Restock service, is crucial. This has clearly proved Kroger’s potential to stay abreast in the highly-competitive and evolving grocery space.

Kroger’s Ship service offers free shipping for orders above $35, for its private-label, center-aisle and household essentials. This is a two-day delivery service while options are available for faster deliveries for an additional charge. Undoubtedly, the Kroger Ship will help the company to retain its position in a market where Amazon, Target and Wal-Mart (WMT - Free Report) are continuously expanding their delivery services to reach the top spot.

Kroger has a prominent position in the supermarket space, with about 2,800 stores in 35 states and the District of Columbia as well as 38 food manufacturing plants, including 19 dairies. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Kroger’s shares were up 0.3% on Aug 7. Further, the stock has rallied 23.2% in the last three months, outperforming the industry’s increase of 9.2%.



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