Dive Brief:
- Berkshire Hathaway, the holding company headed by Warren Buffett, has acquired 18.9 million shares of Kroger, according to a 13F filing from Berkshire. The stake is worth roughly $550 million.
- Kroger’s stock price rose around 6% in after-hours trading Friday on the news.
- Berkshire Hathaway doesn’t own stock in any other grocers, though it does own Amazon stock. It has also invested in restaurants like Dairy Queen and manufacturers Coca-Cola, Kraft Heinz and See's Candy.
Dive Insight:
What does the Oracle of Omaha see in Kroger? Clearly something most stock analysts don’t. Firms have lately been critical of Kroger’s decision to double down on its Restock plan in the face of its declining grocery business and rapid developments in online grocery. Kroger aims to generate profit from alternative businesses like technology licensing, banking and CPG marketing services. But it still needs to improve its core food business, and experts are skeptical a new fresh-focused marketing campaign will materially lift its business.
A recent scathing report from financial firm Jefferies made the case against Kroger’s expensive Ocado deal, arguing the lumbering, automated warehouses will get lapped by smaller micro-fulfillment solutions that competing grocers are adopting. At the grocer’s investor conference in November, Yael Cosset, the company’s chief digital officer, argued that there’s more flexibility in the Ocado model than observers realize, but declined to offer further details. Ocado is currently running a micro-fulfillment test in London.
Still, Kroger does have one of the strongest private label portfolio’s in the business — including the $2 billion Simple Truth brand — and is making a range of investments. This includes a meal delivery business it launched last fall as well as a partnership with Walgreens to build miniature grocery stores inside the pharmacy chain’s locations.
Buffett’s food and beverage holdings trends toward conventional brands that echo Kroger’s appeal. Berkshire Hathaway acquired Dairy Queen in 1997 and owns a 9.4% stake in Coca-Cola. Both investments have paid off in the past, but are coming up against the challenges of a more health-conscious consumer.
Berkshire Hathaway also owns just over a quarter of Kraft Heinz, and that investment hasn’t looked so savvy of late. The CPG firm recently went through an accounting scandal and has struggled to grow sales. Fourth quarter sales reported earlier this week dropped by 5.1%, sending Berkshire’s stake down $1 billion.
