Kroger Investors Have An Appetite For Consolidation After Weak Q2

The food industry is facing a deflationary environment, weighing on supermarket chain Kroger Co (NYSE: KR)'s stock price over the past three months. Shares have fallen nearly 14 percent over the past 90 days.

According to recent CPI Food-at-Home data, grocery-level deflation continued to worsen in September. With Kroger's investor conference set for next week, analysts at Deutsche Bank are hoping to get an update on industry conditions. Grocery prices have fallen for 10 months in a row.

"Persistent deflation has led grocers to cut prices and offer aggressive promotions to drive traffic, and, as a result, sales and margins across the industry have declined," wrote Deutsche Bank.

Consolidation Coming?

The current challenging environment in the industry could set the stage for more consolidation, according to Deutsche Bank.

"KR is very well positioned to capitalize on M&A opportunities, as its B/S remains strong, giving KR plenty of flexibility," added the analysts.

Deutsche Bank maintains a Buy rating on Kroger with a $39.00 price target.