- Amazon said it's testing a two-hour grocery delivery service with the recently-acquired Whole Foods Market.
- Shares of major grocery stores fell on the news.
- One analyst believes the move creates a "buying opportunity" for grocers, especially Kroger.
While shares of the major grocery stores fell Thursday on the news that Amazon is testing a two-hour grocery delivery service from Whole Foods, investors should see this as an opportunity to scoop up shares.
Adopting the "buy at the dip" mentality, Jefferies analyst Christopher Mandeville sees the news as an opportunity for investors to buy other grocery stocks on the cheap.
"Today's grocery stocks' reactions to the WFM/AMZN 2-hr. delivery news, [especially] for KR [Kroger], is unwarranted in our view and we'd suggest investors be buyers of the dip as the pullback creates an improved set-up for 4Q17 earnings and increases the discount to what [long-term] value we see is attainable," Mandeville wrote in a note to clients.
He said that while the move may eventually force grocery retailers to narrow the window of time to deliver goods, it does not mean customers will immediately rush into this service. He noted that most customers already have a method of ordering online, such as Instacart and Postmates, and that Amazon’s service is limited to Prime members in Cincinnati; Dallas; Austin, Texas; and Virginia Beach, Virginia.
Mandeville added that grocers like Kroger have done a good job closing the competitive gap. Kroger is rapidly expanding its online delivery options, offering competitive timing, such as four-hour same-day service, greater convenience, and digital coupons, which helps the consumer "capture better value."
Walmart has made a significant push into offering its own same-day delivery services through its acquisitions of Bonobos, Jet.com, and Parcel. Matthew Fassler, an analyst at Goldman Sachs, said that Walmart's strategy to target middle-income consumers in smaller metropolitan areas is compelling.
"Retail is still subject to significant disruption, while WMT, we think, is still very much in control of its own destiny," Fassler told investors.
Here's how shares of major grocery stores performed Thursday:
- Kroger -4.25% @ $27.68 per share
- Walmart -2.38% @ $100.40 per share
- Sprouts Farmers Market -2.37% @ $25.99 per share
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