Analyst: Kroger Shows 'Continued Experimentation And Learning' With In-Store Food Service

Following a visit to food and drug retailer Kroger Co (NYSE: KR)'s Union City and Newport, Kentucky, Kroger Marketplace stores, a Loop Capital Markets analyst shared his takeaways on Kroger's food service initiatives. 

The Analyst

Loop Capital Markets analyst Andrew Wolf has a Hold rating and $28 price target on Kroger shares.

The Thesis

At its October investor conference, Kroger redefined its addressable market as the combined $1.5-trillion food retail and food service market, Wolf said in a Friday note. (See the analyst's track record here.) 

The Union City Kroger Marketplace store the analyst visited featured the inaugural Restaurant 1883, and the Newport store featured "local favorite" Eli's Barbecue and other in-store restaurant concepts, Wolf said. 

"Our main takeaway from our site visits is that Kroger's in-store initiatives including prepared food kits and third-party restaurant concepts appear likely to be larger business opportunities than dine-in restaurants adjacent to its supermarkets, at least in the near term," the analyst said. 

Loop Capital Markets is anticipating "continued experimentation and learning for Kroger" in the food service sector, Wolf said. 

On valuation, Wolf said Kroger trades below all members of the food merchandisers group, except for SUPERVALU INC. (NYSE: SVU) on comparative forward EV/EBITDA multiples.

The Price Action

Kroger shares have been an underperformer this year, losing about 20.5 percent for the year even as the S&P 500 Index has advanced close to 20 percent.

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