The Biggest Threat To Kroger Isn't Amazon And Whole Foods — It's Still Walmart

Kroger Co (NYSE: KR) and other multiregional grocery chains nosedived Thursday when Amazon.com, Inc. (NASDAQ: AMZN) announced the consumer perks of its Whole Foods Market, Inc. (NASDAQ: WFM) acquisition, but grocers have more formidable foes to worry about.

“As the largest seller of groceries and related products in the US, Wal-Mart Stores Inc (NYSE: WMT) has by far the most meaningful competitive effect on the supermarket industry,” Andrew Wolf, managing director of Loop Capital Markets, wrote in a Monday note.

Related Link: Amazon-Whole Foods: Everything You Need To Know As A Shopper And Prime Member

Whole Foods’ 1.9-percent shares of the U.S. grocery industry doesn’t compare with Walmart’s 22-percent-and-counting. Against a 0.4-percent rival average, Walmart boasted second-quarter sales growth of 2.5 percent.

At the same time, its annual growth is an estimated 37 times that of Whole Foods, which would have to make 52-percent comps growth, a “near impossibility” by Wolf’s standards, even to compete. This represents sales per square foot of about $1,400 compared to a current $925.

And Loop considers such a feat unlikely. By its estimates, Amazon synergies will drive incremental growth in Whole Foods sales of just $225 million, which pales in comparison to Walmart’s $8.3 billion expected growth.

If both firms meet expectations, Walmart’s annual growth, alone, will surpass more than half of Whole Foods’ $16 billion total sales.

Harmless Whole Foods

Other analysts consider Whole Foods a non-threat for simply fundamental reasons, including its highly specific and non-traditional consumer base.

“The quinoa elite and mainline groceries serve different customers and don't directly translate,” Bernstein analyst Brandon Fletcher wrote Friday.

At the same time, its selection of reduced-price products is not as broad as that of Walmart.