Warren Buffett Invested In Kroger In 2019 — Now The Grocer Is Expanding Its Footprint

Legendary investor Warren Buffett rarely invests in real estate, but it's a crucial piece of the strategy for many companies in his portfolio.

Take Kroger Co. KR as an example. Buffett added Kroger to his portfolio in 2019 and now owns a $2.9 billion stake. The company recently unveiled plans to expand its brick-and-mortar store base soon.

Kroger has nearly 2,800 stores in the U.S. under different brand names, but it lags behind competitors like Walmart Inc., which has about 4,700 locations.

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"We expect capital investments for 2024 to be between $3.4 billion and $3.6 billion, which is consistent with 2023 in our long-range model," Kroger interim Chief Financial Officer Todd Foley said during the company's fourth-quarter 2023 earnings call. "Capital investments will be aligned with our strategic priorities and expect to drive sales growth and improve margins."

Kroger will achieve sales growth by enhancing the customer shopping experience through investing in its stores. It's planning 30 major store projects this year, including new stores, relocations and expansions with a focus on higher-growth geographies that have a track record of delivering on return on invested capital, Foley said.

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Although the company hasn't revealed the specifics of its strategy, according to RCLCO Real Estate Consulting, commercial real estate owners and developers across the country see an opportunity to transform low-density grocery store sites into higher-value developments by delivering new multifamily communities with ground-floor grocers,

According to CoStar, North America has nearly 140,000 neighborhood community centers totaling 4.4 billion square feet. About 8,350 properties are anchored by supermarkets, averaging 83,500 square feet. About 75% of the supermarket-anchored centers were built before 2000, making them prime sites for redevelopment.

In many locations, developers and grocers are teaming up to redevelop existing grocery stores into multifamily housing anchored by a street-level grocery store. Both parties benefit from the arrangement, with the grocer having customers already on the site and apartment communities with stores on the ground floor achieving a rental rate premium 6% higher than comparable multifamily buildings in the same area, according to RCLCO.

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