Food fight! Which grocery store stocks will win in 2024?

Key Points

• Kroger's $24.6 billion merger with Albertsons is awaiting approval by the FTC.
• Casey's General Stores' stock advanced 22% last year thanks to fuel sales, which account for more than 60% of total sales.
• Instacart parent Maplebear is a grocery-related company that successfully embraces generative AI.

Food distributors and retailers are living up to their reputation as the best consumer staples industry to own. 

Up 2.1% year-to-date, the group has a sizable early lead over its roughly flat sector. Over the last 10 years, the staples distribution and retail industry have had a 134% cumulative return compared to 76% for a sector that includes food manufacturers, beverage companies, personal care and household products makers and tobacco businesses. 

Costco, U.S. Foods and Sprouts Farmers Market were among the biggest winners in 2023. A more affluent customer base and a huge special dividend drove the gain for Costco. For U.S. Foods, there was steady demand from restaurants, hotels, schools and hospitals, along with better cost management. In the case of Sprouts, an expanded assortment of more affordable private-label brands and e-commerce investments were major factors.

Will the same sources of outperformance be in play this year? 

Yes and no.

According to Grocery Dive, value offerings and a fresh focus on omnichannel sales will shape the grocery industry in 2024. Yet there will be some new forces at hand, too.

In-store experiences should be more prominent in grocers' plans to attract and retain customers. As direct competitors to restaurants, stores will look to create restaurant-quality experiences complete with authentic international cuisine and on-site food vendors. 

Technological innovation should also be on full display. Electronic shelf labels and robots that improve inventory management (and reduce theft) could soon be coming to a grocery store near you. Not surprisingly, artificial intelligence (AI) is poised to seep into the industry as well. Integrating generative AI tools paves the aisle for "conversational commerce" and personalized recommendations.

Assuming these investments bear fruit as anticipated, food retailers and distributors executing the 2024 playbook could be some of the biggest winners. These three stocks may be worth placing in the shopping cart.  

What are Kroger's growth initiatives? 

For The Kroger Co. NYSE: KR, the elephant in the room is the supermarket chain's pending $24.6 billion merger with Albertsons. If approved by the FTC, the deal will likely profoundly affect how competitors move to challenge (or mimic) the grocery store version of an NBA superteam. It could spark further industry consolidation and send competitors scrambling to find supply chain efficiencies and cost savings in the razor-thin margin business.

Whether the merger continues or not, Kroger will likely move forward with plans to bolster its position as the nation's largest grocer. This includes launching more items as part of an "Our Brands" portfolio that is hitting home with value-minded shoppers. Digital coupons, smart shopping lists, an expanding two-hour pickup service and 30-minute Instacart delivery will also be tech-driven growth drivers.

On Friday, CIO Yael Cosset discussed Kroger's digital strategy at the National Retail Federation's (NRF) Big Show. Some topics include digital weekly circulars and AI tools for greater personalization and creative marketing content.

Will Casey's have another strong year?

Casey’s General Stores Inc. NASDAQ: CASY stock advanced 22% last year and may have more in the tank — literally. More than 60% of the convenience store operator's sales come from fuel sales.

The U.S. Energy Information Administration (EIA) forecasts that retail gasoline prices will average around $3.40 this year, roughly on par with what they averaged in 2023. Casey's should essentially be able to replicate its successful 2023 blueprint as far as benefitting from steady customer traffic goes.

At the same time, Casey's will have the opportunity to build off a surging prepared food and dispensed beverage business that helped inside-store sales rise 6.2% in the third quarter. Its famous thin-crust pizzas, whole pies and limited-time menu items win over travelers and locals alike. Digital investments (including a mobile app and online ordering) also boost sales and delivery tie-ups with Uber Eats and DoorDash.

Will Maplebear stock recover in 2024?

Maplebear Inc. NASDAQ: CART is one of the grocery-related companies that are embracing generative AI. Last summer, the Instacart parent introduced Ask Instacart, an AI-powered search tool that helps customers find items and discover recipes using natural language instead of keyword search. In September 2023, the tech-driven grocery delivery company followed up the offering with new AI features designed to enhance retailers' digital transformation and create more convenient, personalized shopper experiences. 

Instacart launched ads on its AI-powered, smart Caper Carts earlier this month. This could be a valuable new revenue source for brands seeking to connect directly with in-store shoppers. 

Since its September 2023 Nasdaq debut, Maplebear shares are down almost 40%. Last week, Wolfe Research suggested the selloff is an opportunity to upgrade CART to Outperform. Seven other research firms are bullish, and five are neutral. The $33 consensus price target implies that the stock will rebound 27% this year — but not return to its $42 IPO level.