Shares of retailer Kroger (KR) dipped in pre-market trading today, as the company appeared to stall its plans for e-commerce expansion.
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Automation Assessment
In the wake of revealing its Q2 results on Thursday, September 11, company executives disclosed to U.S. investors their intention to reassess the application of automation technology aimed at cost savings and profit augmentation.
Ron Sargent, interim CEO of Kroger, indicated that the corporation was undertaking a “comprehensive site-by-site examination” of its warehousing and distribution protocols.
This reassessment seemingly pertains to Kroger’s collaboration with Ocado, a U.K.-based grocery logistics firm listed on the FTSE. The two entities forged an alliance in 2018 to establish the equivalent of 20 customer fulfillment centers featuring automated systems for order sorting.
To date, Kroger has inaugurated eight locations, with plans to launch two additional sites within the current fiscal year.
In the preceding year, Ocado Group unveiled enhancements to its partnership with Kroger, as the U.S. grocery leader placed an order for an array of automated technologies to implement across its Customer Fulfillment Centers (CFCs).
These state-of-the-art systems, which include the On-Grid Robotic Pick and Automated Frameload, are designed to markedly elevate operational efficiency, minimize costs, and enhance customer service.
Regional Emphasis
Nevertheless, Sargent noted that Kroger intends to concentrate more on fulfilling orders directly from its stores to bolster speed and operational efficiency.
“In high-density locales where we have observed substantial demand, these facilities yield superior results compared to those in areas with lower density and slower customer engagement,” Sargent remarked. “We are critically evaluating some of our automated facilities.”
Neil Wilson, UK investor strategist at Saxo, commented: “These remarks present a clear setback for Ocado, as Kroger appears poised to pivot away from large CFCs provided by the British firm, opting instead to rely more heavily on local stores for order fulfillment.”
As e-commerce becomes increasingly pivotal for supermarket chains like Kroger, the company strives to contend with competitors such as Walmart (WMT) and Amazon (AMZN).
In its Q2 report, Kroger announced a 16% increase in e-commerce sales, primarily driven by delivery performance. While there have been advancements in both pickup and delivery profitability, the company recognizes the potential for further improvement.
Is KR a Suitable Stock to Acquire Now?
According to TipRanks, KR holds a Moderate Buy consensus derived from 8 Buy ratings and 9 Hold ratings. Its apex price target stands at $85, while the consensus price target for KR stock is $76.69, indicating a potential upside of 14.07%.
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