Consumer

Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

When Amazon.com Inc. announced it had agreed to buy Whole Foods Market Inc., the news landed like a bomb in the grocery industry. Shares of companies such as Target Corp. and Supervalu Inc. were whacked, and startups like Blue Apron Holdings Inc. faced fresh questions about how they could get traction given this change in the competitive landscape.

But no company has been harder hit than Kroger Co., the grocery behemoth with about 2,800 supermarkets nationwide. Kroger’s stock has lost more than 38 percent of its value year-to-date, making it one of the worst performers in the S&P 500 Index.  

Nosedive
Kroger's stock was slammed when the Amazon-Whole Foods deal was announced, and it has struggled to recover
Source: Bloomberg

If there were ever a moment for Kroger to rise to the occasion and show investors it has a serious, actionable plan to face down new threats, it is now.

And so the company just put out a press release saying it is ... opening a restaurant?

Kroger on Thursday unveiled plans for an eatery it calls Kitchen 1883. The first location is set to open in October in Union, Kentucky, and it will serve “new American comfort food.”

There’s no doubt that fighting a foe like Amazon requires creative thinking and a willingness to tear up old playbooks. But opening a restaurant is a bad idea for Kroger right now. It is destined to be a distraction from its problems, not an answer to them.

First, let’s be generous and assume Kitchen 1883 will be a smashing success. It still does very little to answer Kroger’s most pressing question: How can it build a moat around its $118 billion in annual sales?

Remember, competitive pressure is not just coming from Amazon. Lidl is storming U.S. suburbs, Sprouts Farmers Market Inc. is growing quickly, and discount powerhouse Aldi continues to expand. Kroger needs to find a way to differentiate itself from this pack. Otherwise its market-share loss could be so big that a fledging restaurant chain will struggle to make up the difference.

But there's quite a good chance Kitchen 1883 won't be a hit. The restaurant business has been in something of a slump for a while now.

Hungry for Sales
The restaurant industry has seen sales decline in most of the past 12 months
Source: MillerPulse, Bloomberg

And just as mall-based retailers are grappling with being “overstored" -- having more locations than the market demands -- some players in the restaurant industry face a similar dynamic. These conditions will make it tough for a new concept to succeed.

And that is especially true if the brand in question doesn’t feel particularly distinctive. Kroger describes Kitchen 1883 as offering “a made-from-scratch menu, hand-crafted cocktails and a community-centered atmosphere." Maybe Kroger is being skimpy on details at this point for a reason, but this is so vague it could describe any number of restaurant chains in America. It does nothing to suggest Kroger will bring something different and exciting to the dining scene.

Kroger needs to get its primary business in fighting shape instead of trying to tackle new areas of the food business.

For one, it could consider some splashy dealmaking of its own. Brittain Ladd, a supermarket industry consultant who used to work in Amazon’s grocery business, has suggested it look to join forces with Target. They could cross-pollinate customers and benefit from each other’s expertise; as Gadfly has noted previously, Target’s grocery department is a real trouble spot.

Kroger could also plow more money into improving its e-commerce capabilities. And it could focus more on prepared foods, which would help attract a convenience-minded customer without veering too far from what it does best.

Stick to what you know, Kroger. But do it with more creativity and urgency. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Sarah Halzack in Washington at shalzack@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net