After you get the receipt after checking out, it confirms that the grocery industry is a big business. Rather than just being a consumer, you wonder if you, too, can profit from the industry. The fact is you absolutely can profit from grocery stocks.
This article will explain the industry and help navigate investment opportunities. When you finish this article, you will have 10 of the best grocery store stocks to invest in.
Understanding the dynamics of the grocery retail industry
The grocery store retail industry has changed significantly since its inception in the 1920s. The introduction of the self-service model, exemplified by the opening of Piggly Wiggly in 1916, marked a significant shift. Customers could now browse and select products themselves, leading to cost savings for retailers. Previously, most people would purchase food from a farmer's surplus market, which could be fully stocked just once a week depending on the time of year and what farmers can produce.
The 1930s saw the rise of supermarket chains such as Kroger and A&P. The grocery chains introduced during this time (many still operating today) offered more choice and a more consistent product selection by partnering with local farmers. Successful supermarket chains experienced positive stock performance as they expanded and gained economies of scale — while those unable to scale (like A&P) eventually went out of business.
The 1960s to 1990s witnessed consolidation, with larger chains acquiring smaller ones. Diversification into non-grocery retail sectors also occurred, with successful acquisitions combining multiple agreements with individual farming operations, meaning that customers would no longer need to visit several grocery stores in their area to find all the ingredients they needed — grocery stores sold various products in the same location. However, this also means that there were fewer successful grocery store stocks.
The late 20th century saw technology integration, including barcode scanning and computerized inventory systems, enhancing efficiency and reducing costs. It resulted in compounded share value for stores that introduced this technology, as customers opted for the convenience and speed of these companies. Winners like The Kroger Co. NYSE: KR were able to capture even larger percentages of the market share, branching to additional markets.
The 21st century brought about the rise of e-commerce in the grocery sector, with companies like Amazon.com Inc. NASDAQ: AMZN entering the market. Traditional retailers adapted by investing in online platforms and delivery services. Today, the consumer price index is a particular concern for consumers, with increased favorability towards companies using their existing digital infrastructure to provide more convenient deliveries and lower pricing.
Assessing the financial health of grocery chains
Before investing in a grocery store stock or company, assessing its operations' financial health and likely longevity is important. While the specific factors you'll want to consider will vary depending on your goals and the time you plan to hold the investment, some major information to evaluate includes the following essentials.
Revenue growth
Revenue growth for grocery store stocks is calculated by comparing the current period's total sales to those from the previous period. This metric is crucial for investors, as it reflects the store's ability to attract and retain customers, further offering insights into the demand for its products and overall financial health within the competitive grocery retail sector.
Evaluate the historical and current revenue growth of each company you’re considering investing in, and look for consistent growth trends. You may also want to prioritize companies with multiple revenue streams — for example, an online site or app that customers can use to order groceries may contribute to higher profits.
Profit margins
A company’s profit margin is a financial metric that assesses its profitability by expressing its earnings as a percentage of revenue. For grocery store stocks, gross margin and net margin are the two main types of profit margins.
Gross margin is calculated by subtracting the cost of goods sold (COGS) from total revenue and dividing the result by total revenue. Conversely, net margin considers all operating expenses, including taxes and interest, providing a more comprehensive view of profitability. A higher profit margin indicates that a grocery store effectively manages its costs relative to its revenue, showcasing operational efficiency.
Profit margin is an essential factor to consider as an inverter, as a higher profit margin may indicate more effective pricing strategies and cost control measures. Pull the company's most recent balance sheet to learn more about profits and calculate margins, which must be made available to investors regularly if the company is publicly traded. Compare profit margins against previous and current data from competitors for the most compelling insights.
Debt levels
Debt levels are another critical factor to consider before investing, especially when you’re on a long-term investment horizon. In grocery retail, where profit margins can be relatively thin, high debt levels might strain a company's ability to meet its financial obligations. Uncontrolled debt levels may also indicate that a company is not managing its resources sustainably and could even be a sign of bankruptcy looming.
Debt levels are typically measured by metrics like the debt-to-equity ratio, which compares a company's total debt to its shareholder equity. A lower debt-to-equity ratio is generally favorable, indicating a more conservative capital structure and reduced financial risk. Grocery store stocks with manageable debt levels are better positioned to weather economic downturns or industry challenges, providing investors with stability and confidence. Like profit margins, it's most useful to compare debt levels against previous debt levels of the same company or of competitors for the most relevant insights, as average debt levels and debt-to-equity ratios may vary widely by industry.
External factors impacting grocery store stocks
Understanding the external factors that influence the value of grocery store stocks can help you choose grocery store investments that align with your investing goals. The following are some regulatory and tech changes influencing the grocery investing landscape.
Regulatory environment
While most grocery store stocks do not produce the bulk of produce and food products they sell, "store brands" and the brands each store elects to carry can have implications related to regulation.
- Testing and sanitation requirements: Grocery store chains that produce their generic versions of popular products must be aware of changing regulations issued by the Food and Drug Administration (FDA). The FDA sets strict testing and hygiene standards that companies must adhere to to operate within the bounds of the law and keep customers safe. Companies with robust food safety measures and clear, accurate labeling are positioned to maintain customer confidence. Non-compliance or incidents of food safety violations can lead to reputational damage and legal consequences, potentially affecting stock performance negatively.
- Labor regulations: Regulations related to labor practices, minimum wage, working hours and employee benefits are relevant to the grocery retail industry, where a significant workforce is involved. Consider investing in companies with long histories of adhering to labor, health and safety regulations, as these options are better positioned for long-term growth.
Technological innovations
Technology has significantly transformed the grocery retail industry, influencing stock values by reshaping how companies operate and engage with customers. Tech innovations are particularly relevant to grocery store supply chain operations, which have come into the public spotlight along with other shortages caused by the COVID-19 pandemic.
The rise of e-commerce has been a game-changer, allowing grocery stores to expand their reach beyond physical locations and tap into the growing demand for online shopping. Companies that have successfully integrated e-commerce platforms and embraced digitalization — like Amazon and Walmart Inc. NYSE: WMT — experienced positive impacts on their stock values since the beginning of the pandemic. Customers gravitate towards e-commerce operations not only because they provide more convenience and access to a more diverse selection of products — they also have the potential to provide more personalized recommendations, increasing conversions for companies that capitalize on this tech.
Automation is another technological innovation that plays a crucial role in the grocery retail sector. Implementing automation technologies, such as robotics and artificial intelligence, may improve supply chain operations, leading to more streamlined ordering processes. Companies using this tech (like Kroger) can more easily keep their shelves stocked and avoid ordering too many products unlikely to move. This enhances customer experience and can be a massive asset in improving brand loyalty.
Overview of grocery store stocks
The U.S. food retail industry sales rose 9% in 2022 to over $8 trillion. Grocery store stocks are companies involved in producing, packaging, distributing and selling grocery store and food products. They are not just supermarket stocks. They can range from supermarket stock to publicly traded grocery stores and warehouse membership clubs to producers of dairy, produce, meats and plant-based proteins, beverages, snacks, packaged and frozen foods and household items.
The industry is known for consolidation, as bigger stores tend to buy up more petite mom-and-pop chains or put them out of business. Grocery stores must continually stay on top of consumer trends like online ordering, e-commerce and delivery. Online grocery should double its market share by 2025 to over $250 billion.
Grocery store stocks are defensive consumer staples because their products and services are essential to daily life. These stocks are stable, and many provide a consistent dividend. It's considered a defensive and recession-proof industry because consumers still need to buy food during strong and weak economic periods. While many consumers may spend less and tighten their wallets during recessions, they still have to spend money on grocery items.
Grocery stocks have shown to be an inflation hedge because rising inflation benefits their margins, and they usually pass on the extra costs to shoppers. In a nutshell, high inflation is good for grocery stocks. Large grocery store companies that import many items internationally also benefit from a rising U.S. dollar. A strong dollar enables these giants to buy and import cheaply overseas and sell at a more significant margin in the U.S.
What to look for in grocery store stocks
When researching grocery stocks to buy, there are many factors to weigh to determine if the stock is right for you. Use MarketBeat.com tools to help you better analyze your stock candidates. Watch out for the following five factors when investing:
- Growth potential: Has the company grown its categories, market share, consumer base and sales? Is the company growing its footprint in different geographies and categories? Growth can come through innovation, acquisitions and organically. Become aware of the growth potential for the company to reach higher milestones with its products and consumers.
- Competitive advantage: What makes the particular company better or stand out? Michael Porter of Harvard Business School famously theorized that competitive advantage was primarily gained through a low-cost strategy concentrating on volume or a differentiation strategy focused on high-quality premium features. Diversification can also be included as many grocery stocks have grown their footprint in private label brands and plant-based proteins. Consider comparing stocks on MarketBeat.
- Financial performance: Is the company still growing revenues and profits on a year-over-year (YoY) basis? Most established companies have grown beyond the hyper-growth stage of 25% YoY and have a steady upward trajectory. Read through the recent quarterly reports, income statements, balance sheets and forward guidance relative to consensus analyst estimates. Please pay special attention to the conference call transcripts as they provide more detail in addition to a question and answering session with analysts.
- Valuation: Compare financial metrics with peers and competitors in its space. Compare various metrics like price-earnings (P/E) ratio, P/E growth, net margins, debt-to-equity ratio and quick ratio. Make sure not to compare apples and oranges like grocery distributors like supermarket stocks to manufacturers since they are different types of businesses. Compare retail stocks on MarketBeat.
- Dividend history: The established grocery industry stocks tend to have dividends. Check dividend history to see if they've consistently provided and raised dividends. This is a good sign of stability and profitability since you sustain dividend payouts without profits.
10 best grocery store stocks to buy now
Here is a list of some of the best grocery stocks. The list isn't in any particular order and is not a ranking. It is just a list to start your journey from an investing standpoint to find the top grocery stocks you can add to your portfolio.
Costco Wholesale Corp.
Costco Wholesale Corp. NASDAQ: COST is one of the world's largest wholesale warehouse membership clubs and usually ranks fifth or sixth largest retailer. Most of its 800+ warehouses are located in the U.S., with over 300 warehouses located internationally. The company generated over $220 billion annually in 2022 and continues to grow. It has more than 200,000 workers in the U.S. and more than 300,000 worldwide. The company has over 123 million members. Its warehouse stores are massive, ranging from 80,000 to 200,000 square feet.
Customers pay a monthly or annual membership fee to access deeply discounted groceries and products ranging from toilet paper and houseware to wine and gas. Its private label, Kirkland's, is praised for its quality and low-priced goods. It sells more than a billion rolls of toilet paper annually under its Kirkland's Signature brand. The stock's five-year performance is up 163% and pays a 0.72% annual dividend yield.
The Kroger Co.
The Kroger Co. NYSE: KR operates over 2.700 supermarkets in the U.S. under brands such as Kroger, Ralphs, Smith's, King Soopers, and Fry's. It also has over 30 manufacturing and 44 distribution locations. It was founded in 1883 by Bernard Kroger in Cincinnati. The supermarket chain sells groceries, household supplies, apparel, toys, health and beauty products and pharmacy services.
Many locations also sell gasoline. It has its private label brand products, which are more economical for consumers while quality remains high. The company has over 400,000 employees with annual revenues north of $135 billion. The stock's five-year performance is up 97% and pays a 2.17% annual dividend yield.
Target Corp.
Target Corp. NYSE: TGT has been a large domestic retail department store since 1902, selling household items, jewelry, beauty products, snacks, electronics, toys, shoes, pet supplies and apparel. It didn't go all-in on the grocery concept until 1995 when it opened its first Super Target store. The company followed Walmart's lead and added fresh grocery items like produce, meat and dairy.
It also created its private label, Archer Farms, selling consumer staples items, including bottled water, pasta, milk, and bread. Target found that adding a grocery section continued evolving into a one-stop consumer shopping destination. The company has grown to over 1,900 retail stores in the U.S. and 49 distribution centers. California has the most, with 317 locations comprising 16% of all of the Target stores in the country. Target plans to open up 20 new stores annually.
The company generates over $120 billion annually, with over 440,000 employees. The stock's five-year performance is up 131% and pays a 2.66% annual dividend yield.
Walmart Inc.
Walmart Inc. NYSE: WMT is not only the nation's largest grocery retailer but the world's largest retailer. It's the largest importer of products in the U.S. It's the world's largest employer, with over 2.3 million employees worldwide. Walmart started its humble beginnings in 1962 when Sam Walton opened its first Walmart store in Rogers, Arkansas.
By 1967, the Walton family owned 24 stores, generating $12.7 million in annual revenues. The company added groceries to its stores in 1988 to wild success. Fast forward to 2023, and the company operates over 11,500 stores in more than 24 countries, serving over 37 million customers daily. It operates nearly 600 Sam's Club members-only warehouse stores in the U.S. Groceries now make up over 50% of its total annual sales. The company grew revenues by 6.72% to $611.3 million in fiscal 2023.
It's also the country's largest importer of goods. Walmart can be found on the top retail and wholesale stocks on MarketBeat. The Walton family still retains over 50% of Walmart's outstanding shares. The stock's five-year performance is up 72% and pays a 1.52% annual dividend yield.
General Mills Inc.
If you're a fan of breakfast cereal, then chances are high that you've eaten a General Mills Inc. NYSE: GIS product. General Mills is a global manufacturer of consumer foods. Its popular cereal brands include Cheerios, Golden Grahams, Lucky Charms, Cinnamon Toast Crunch and Wheaties.
It also makes the Blue Buffalo brand of dog food products and baking products from Betty Crocker, Gold Medal and Pillsbury. It also owns the organic foods brand Annie's and the ice cream brand Häagen Dazs. The company generates over $20 billion annually in sales and has over 32,500 employees. The stock's five-year performance is up 100% and pays a 2.48% annual dividend yield.
Kellogg Co.
Kellogg Co. NYSE: K is a global cereals, snacks and convenience foods manufacturer. It produces popular cereal and breakfast brands, including Coco Krispies, Special K, Nutri-Grain, Rice Krispies and Eggos. Its popular snack brands include Pringles, Pop-Tarts, and health-conscious brands like Bear Naked. The company also has plant-based protein products brands like Gardenburger and Incogmeato.
Annual revenues have climbed over $16 billion with more than 30,000 employees. The stock's five-year performance is up 11.75% and pays a 3.5% annual dividend yield.
Conagra Brands Inc.
Conagra Brands Inc. NYSE: CAG manufactures consumer packaged foods and goods. Some of its well-known brands include Orville Redenbacher, Chef Boyardee, Slim Jim, ReddiWhip and PAM. It also makes frozen packaged goods, including Banquet, Birds Eye, Marie Callender's and Healthy Choice. Annual revenues have grown north of $12 billion. The company has 18,000 employees. It also acquired private-label manufacturer Pinnacle Foods in 2018. The stock's five-year performance is up 2.5% and pays a 3.5% annual dividend yield.
The Hershey Co.
The Hershey Co. NYSE: HSY is a global manufacturer of snacks and confectionery products. If you have a sweet tooth, then you're familiar with Hershey's chocolate products, including Hershey bars and Kisses, Reese's, Cadbury, Mr. Goodbar, Whatchamacallit, Milk Duds, Caramello and Kit Kat bars.
While it is mainly known for sweet treats, it also makes Skinny Pop popcorn, Dot's Pretzels ONE bars and Lily's botanically sweetened chocolate bars. The company operates Hersheypark amusement park and Hershey's Chocolate World in Hershey, Pennsylvania, styled like Willy Wonka's Chocolate Factory. The stock's five-year performance is up 178% and pays a 1.6% annual dividend yield.
Sysco Corp.
Sysco Corp. NYSE: SYY is one of the largest distributors of food products to restaurants, schools, hospitals and hotels. They provide produce, seafood, meats and non-food products like cleaning supplies, paper products and restaurant equipment. Not to be mistaken with networking giant Cisco Systems, Sysco Corp. is a global food service company that is a crucial supplier to the hospitality industry.
The company thrives when consumers dine out and spend money in restaurants freely. While the pandemic hurt its business during lockdowns, sales recovered above pre-COVID levels in 2023. The stock's five-year performance is up 21% and pays a 2% annual dividend yield.
Campbell Soup Co.
Campbell Soup Co. NYSE: CPB is an iconic brand with the unforgettable slogan "Soup is Good Food." The company has diversified beyond just soup. The company has an extensive snack business of popular brands like Snyder's, Pepperidge Farms, Kettle Brands, Cape Cod and Lance. Its meal and beverage division sells products under the Swanson, V8, Pace, Prego and SpaghettiOs brands.
It has diversified its soup line to include Chunky, Healthy Request, Slow Kettle, Well Yes! and Homestyle. It's also moved into the slow cooker and sauces segment, where customers must add meat for a tasteful meal. The company has grown revenues through $9 billion with 14,700 employees. The stock's five-year performance is up 33% and pays a 2.73% annual dividend yield.
Pros and cons of investing in grocery store stocks
Investing in grocery store stocks comes with its own set of benefits and risks. Here are some of the pros and cons of the investment.
Pros
Here are some pros of investing in grocery store stocks:
- Defensive investment: These are essential consumer discretionary stocks whose products and services are needed by people every day in every economic climate. This results in lower volatility for grocery stores, especially compared to technology stocks. Investors seek opportunities in defensive and consumer discretionary stocks when economic conditions worsen. The defensive nature of grocery stocks helps offset some of the high volatility of technology stocks in a portfolio.
- Inflation hedge: As inflation rises, commodity prices rise, making food products more expensive. In most cases, the rising input costs are passed onto the consumer with a little extra to help expand margins. That's why your grocery bill seems higher during periods of high inflation, which means more profits for grocery stocks. It is another way grocery stocks can offset a portfolio's inflation-sensitive technology stock volatility.
- Recession resistant: Consumers who spend less during recessions will give up buying new jeans versus food. Consumer discretionary purchasing contracts, but consumer staples buying continues. People may not need new clothes but must eat during recessions.
- Dividends: While grocery stocks don't move like momentum stocks providing heavy growth for investors, they offset some downside with dividend payouts. Grocery stocks are suitable for risk-averse investors seeking income over growth potential. The dividends can increase over time, primarily if invested in the stock through a dividend reinvestment program (DRIP).
Cons
Here are some cons that come with investing in grocery stocks:
- Low growth potential: Grocery stocks tend to be boring because they are stable and lack volatility. This can result in low growth potential as innovation can be slow. Except for acquisitions, growth tends to slow down as the business matures. The addition of mobile apps, e-commerce, delivery and curbside pickup are all innovations born out of necessity during the pandemic.
- Changing consumer trends: Trends in the food industry can be fleeting, creating frequent shifts in consumer buying patterns that can drive demographics to and away from different types of products. Whether a high protein and low carb diet fad or plant-based food wave is gaining or losing steam, it will impact certain industries within the general grocery store industry.
- Competitors: While every industry has competitors, the grocery business has a thin moat. There are constantly new start-ups with new ideas and food formulations hoping to strike it big. It's also prone to be engulfed by giants in other industries like e-commerce. Remember that Walmart was a big department store chain that entered the retail grocery store segment in 1988 and became the largest grocery retailer in the world. The industry is also notorious for price wars to lure customers from competing brands and stores.
- Regulatory risk: Federal and local governments can create and change legislation, affecting various food industry segments. Grocery store foods are subject to various inspections and regulations determined by many federal agencies about cultivating, processing, safety and selling food products. Any restrictions, limitations or bans can have lasting financial implications for grocery store stocks.
Strategies for successful investment in grocery store stocks
The best grocery store stocks for your portfolio could vary depending on your portfolio goals as well as your investing timeline.
Long-term vs. short-term investment approaches
When cultivating your investment strategy, first decide if you want to prioritize short-term trading profits or long-term share valuation increases. Investors pursuing short-term gains in grocery store stocks often focus on market trends, quarterly earnings reports and other potential catalysts that could impact stock prices in the near term. In the short term, volatility in the stock market and changes in consumer sentiment can have pronounced effects on grocery store stocks, which traders can capitalize on in the form of low-value price movements.
While short-term investing is riskier than long-term buy-and-hold strategies,
For those seeking long-term growth potential in grocery store stocks, you’ll likely want to take a more fundamental analysis-based research strategy. Factors like revenue growth, profit margins and sustainability/supply chain initiatives can contribute to a longer company history and an increased chance that your shares will be worth more years later.
Diversification and portfolio allocation
Diversification and splitting your funds between multiple companies and segments of the retail grocery sector are also important considerations for investors. While grocery store stocks may offer stability and income potential, investors must avoid over-concentration in a single sector.
As part of the consumer staples sector, grocery store stocks are often considered defensive because demand for essential goods tends to remain relatively stable, even during economic downturns. Including these stocks in your fully diversified portfolio can provide a degree of stability and potential income through dividends.
However, it’s important to diversify across grocery store chains and additional types of stocks in the consumer staples sector. Consider incorporating other dividend-generating stocks from other parts of the consumer staples sector to spread your risk between multiple other corporate offerings.
Alternatives to investing in grocery store stocks
If owning single grocery store stocks still feels risky, consider taking an exchange-traded fund (ETF) that tracks or holds positions in many grocery stocks. You can use the MarketBeat ETF screener to get some ideas. ETFs trade like stocks but are managed by professional money managers who research, buy and sell grocery sector stocks.
If you feel that is too risky, you can stick with the consumer staples sectors and look for potential investments in other areas just as important as food. If consumer staples are what you want to stick to, then consider an ETF that tracks the consumer staples sector, like the Consumer Staples Select Sector SPDR Fund NYSEARCA: XLP.
Private label manufacturers
You've seen cheap "knock-off" brands of popular food and beverage products at the grocery store. You often get what you pay for in quality or lack of it. However, the brands sold under the grocery store's name tend to imply more quality than the knock-offs at a cheaper price than the national brands. This thinking drives more grocery retailers to sell their private-label food items.
These items often match the quality of name brands but cost much less for the shopper while providing higher margins for the grocery store. Investors can benefit from including manufacturers and sellers of private label items in their "grocery stocks to buy" list.
FAQs
Here are some answers to frequently asked questions concerning grocery stock investment.
Are grocery store stocks a good buy?
Grocery stocks can be a good buy depending on your entry price and investment time horizon. The essential nature of the industry makes them an excellent defensive play during high inflationary periods. Research is critical in finding the right grocery stock that fits your investment profile and holding period.
What are the best food stocks to buy now?
Food trends can change rapidly. However, major food producers have stood the test of time and provided steady growth and stable dividends in the list of 10 best grocery stocks. It helps to look at some of the strong retail stocks for this year.
Which supermarket is publicly traded?
Kroger is a popular publicly traded supermarket chain that continues to grow top and bottom lines. Implementing e-commerce through its mobile app and loyalty programs has helped it weather pandemics and bull and bear markets.
Before you consider Costco Wholesale, you'll want to hear this.
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While Costco Wholesale currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.
