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

Kroger Co KR and other multiregional grocery chains nosedived Thursday when Amazon.com, Inc. AMZN announced the consumer perks of its Whole Foods Market, Inc. 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 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.