This Grocer Won't Survive a Rivalry with Amazon

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Kroger stock immediately fell 16% Friday morning (June 16) after Inc. (Nasdaq: AMZN) announced it was buying Whole Foods Market Inc. (Nasdaq: WFM) for $13.7 billion.

Amazon has clearly set its sights on disrupting the retail grocery industry. While it could kill companies like Kroger, it's handing our readers a massive profit opportunity...

Amazon has already helped usher in a "Retail Ice Age" in other sectors, as malls and brick-and-mortar retailers have ceded market share to the e-commerce giant. That could happen in the grocery sector too.

But some observers are skeptical Amazon will be able to rival traditional grocery stores. After all, shopping for groceries is different than shopping for clothes or books online. Barron's told its readers on Saturday (June 17) that grocery stores are immune to Amazon's influence because customers prefer to go to the grocery store.

We aren't buying that.

In fact, Money Morning Chief Investment Strategist Keith Fitz-Gerald says that argument is ridiculous and these observers are ignoring history.

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"There is no such thing as an 'Amazon-proof' retailer," Keith said. "And any investor who makes the mistake of thinking there is may as well take his or her money to Vegas where at least they'll have fun losing it."

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Just think of the profits missed by investors who thought clothing retailers were safe from Amazon's influence. Critics said consumers wouldn't buy clothes without first trying them on. Amazon stock is up over 1,000% over the last decade, while former retail stalwarts like Sears Holdings Corp. (Nasdaq: SHLD) are barely staving off bankruptcy.

That's why we're going to break down how Amazon's entrance into the retail grocery market is a death sentence for competitors like Kroger, and how investors can actually profit from the Retail Ice Age...

Why Kroger Stock Is Collapsing in 2017

Kroger has already suffered from increased competition in the grocery sector, but Amazon's entry into the sector means no company is safe.

Money Morning Capital Wave Strategist Shah Gilani says, "The brick-and-mortar retail 'ice age' is quickly enveloping traditional grocers in its big chill."

Kroger Co. (NYSE: KR) controls 10% of the retail food market, second only to Wal-Mart Stores Inc. (NYSE: WMT), and 10 times the share of Whole Foods. But the Kroger share price has dropped over 35% in 2017 alone as the company faces rising competition.

Kroger stock

More competition in the retail food industry is pressuring other grocery stocks too. Shares of Supervalu Inc. (NYSE: SVU) are down 30.94% on the year.

Grocery stores are facing growing competition from big-box retailers like Wal-Mart encroaching into their markets. New upstarts like Blue Apron, Hello Fresh, and Home Fresh, among others that ship fresh meal ingredients directly to consumers, are also stealing market share from traditional grocers. Blue Apron alone made $1 billion in sales in 2016.

Shah says there's even more weighing down traditional grocery stores.

"As if all the competition hasn't iced traditional grocers enough, they've seen their already thin profit margins thin out more as food deflation hits them hard," he said.

The increasing challenges for brick-and-mortar grocers are likely part of the reason Kroger had to adjust its earnings guidance for 2017 on Thursday (June 15). Kroger dropped its earnings expectations from an EPS range of $2.21 to $2.25 to a range of $2 to $2.05. KR stock fell 25% on day of the announcement.

And that was before Amazon's landmark purchase of Whole Foods.

Now, we think Amazon will expand the Retail Ice Age to grocers, a business Wall Street once thought was safe. The hit to Kroger stock last week might just be the first sign of how Amazon will disrupt the food industry, just like it did for other traditional retail stores.

Fortunately for savvy investors, there's a way to profit from the Retail Ice Age...

Since 2006, brick-and-mortar retailers like Best Buy Co. Inc. (NYSE: BBY), JCPenney Co. Inc. (NYSE: JCP), and Sears have lost 49%, 83%, and 95% of their overall value, respectively.

That's why Shah says the easiest way to make money on disruptors like Amazon is by finding the companies that can't adapt and whose stocks are going to fall.

"It's easier to make money betting against the comeback of losers who aren't changing fast enough, aren't cutting their mountains of old debt fast enough, and are the dinosaurs of yesteryear about to become extinct as the Retail Ice Age buries them forever."

And Shah has already identified the next retail grocery store to fall victim to the Retail Ice Age.

He says this "giant grocer" is sitting on over $14 billion in debt with only a few million in cash left. On top of that, Shah is hoping it's desperate enough to buy an upstart "fresh food" chain that will only add to its debt.

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