Looking ahead to 2009, Consumer Staples should continue to be one of the best performing sectors in the market, given its strong fundamental macroeconomic backdrop relative to the other sectors in the S&P 500. We can sit and argue as to whether or not the market will go back up or further deteriorate in 2009, but given the unstable credit and the uncertain housing and labor markets, it is hard to say just what will happen and how much is already priced in. That being said three stocks in Consumer Staples should benefit in this environment.
Kroger Company (KR: 22.17, +0.18 (+0.82%))
Kroger Co. is one of the largest US supermarket chains, operating about 2,500 supermarkets, some of which operate fuel centers as well. The company operates stores in the following formats: combo stores, which are the local neighborhood supermarkets that you shop at; multi-department stores, which are larger than combo stores and have a similar offering to a store such as Wal-Mart; and price warehouses, which are one stop shops for low priced goods in a warehouse setting. The firm also has 782 convenience stores and 394 fine jewelry stores.
The firm has three tiers of private label items: Private Selection, meant to meet or beat the gourmet brands, “banner brands”, which attempts to be equal or better to the national brand and Kroger value, designed to deliver goods at affordable prices for the consumers. Their strong portfolio of private label goods will continue to benefit them in 2009, as one of the emerging trends in Consumer Staples, is a shift toward these private label goods.
Their business model is also very attractive. Their customer 1st strategy is one of the best in retail and is what will continue to drive their sales growth. Kroger’s CEO sums up the program best in one of the most recent conference calls:
“One of the most sophisticated tools we use to leverage opportunities in any economy is our vast collection of consumer data derived from our customer loyalty cards. We use this data to anticipate and respond to changes in consumer behavior. We’ve been building our extensive collection of consumer data since 1999. Today more than 40% of all US households (has) one of our shopper’s cards. As a result, Kroger has one of the largest retail consumer databases in America.
Our partnership with Dunnhumby USA gives us valuable insight into our customer’s shopping habits. Through this insight we’re able to use our customer loyalty data to benefit our customers and increase their engagement with our stores. Our work with Dunnhumby also allows us to segment our store base to offer customers in each store the right mix of products and services. The store segmentation strategy and Kroger’s multiple formats allows us to meet the specific needs of various consumer segments.”
It is no secret that Kroger has performed well in this market. They had same store sales growth at 4.7% for their last quarter, with this quarters growth trending at 5%. Much like Wal-Mart, Kroger has withstood the economic downturn and has benefited greatly from consumers deciding to eat at home. The consumers also love the value brands that their stores offer, particularly their private label items, which have seen strong growth during the economic slowdown. Kroger also holds the #1 or #2 position in market share in 39 of their 43 markets. This is due to a combination of their customer loyalty initiatives as well as their low prices.
Given their strong macroeconomic backdrop with a shift to private labels, strong business model and strong performance in this market are reasons to believe that Kroger should continue to be a company that outperforms the broader market in 2009.
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- Vinay Ayala
Disclosure: None
