2 Supermarket Stocks in Focus Amid Robust Industry Trends

The Zacks Retail – Supermarkets industry players are capitalizing on steady consumer demand and investing in AI-powered omnichannel strategies to enhance convenience, efficiency, and personalization. Efforts like these position Walmart Inc. WMT and The Kroger Co. KR well for long-term growth.

However, supermarket retailers face macroeconomic headwinds that are affecting consumer spending patterns. Rising operational costs — such as for labor, store upgrades, and technology investments — are squeezing profit margins. In response, industry players remain agile, continuously evolving their product offerings and refining merchandising strategies to stay aligned with shifting consumer preferences.

About the Industry

The Zacks Retail – Supermarkets industry includes supermarket retailers that offer grocery, health and beauty aids, household chemicals, electronics, stationery, automotive accessories, hardware and paint, sporting goods, fabrics and crafts, entertainment products, home furnishings and more. Players in this industry operate through various formats such as supermarkets, multi-department stores, retail stores, discount stores, supercenters, hypermarkets and warehouse clubs. Food retail accounts for a chunk of their business. The industry has undergone a significant transformation over the years, with e-commerce playing a strong role. Given consumers’ rising preference for online shopping, industry participants have enhanced pickup and delivery services and are offering easy payment options.

Major Trends Shaping the Future of the Supermarket Industry

Robust Omnichannel Strategies: Supermarket retailers are making substantial investments to strengthen both their online and in-store operations, creating a seamless omnichannel experience for customers. Efforts to enhance store layouts, expand product assortments, implement competitive pricing and streamline inventory replenishment have yielded positive results. In response to the surge in online grocery shopping, many retailers are accelerating digital transformation through strategic acquisitions, tech partnerships and enhancements to delivery and payment systems. Popular services like same-day delivery, buy online and pick up in-store, curbside pickup and contactless payments are now standard offerings. A key driver of this transformation is the integration of artificial intelligence, which is being used to personalize recommendations, optimize inventory management and enhance customer engagement across platforms. These innovations position supermarket brands for long-term success in an increasingly digital and convenience-focused retail environment.

Consistent Demand: Supermarket companies continue to experience steady and resilient consumer demand, driven by the essential nature of grocery products and everyday household items. Even amid economic fluctuations, supermarkets maintain consistent foot traffic and online orders, making them a reliable segment within the retail industry. Factors such as rising health awareness, preference for fresh and local produce, and the growing adoption of online grocery shopping contribute to sustained growth. In response, supermarket retailers have remained agile, continuously innovating their offerings and refining merchandising strategies to meet evolving consumer expectations. This combination of consistent demand and strategic adaptability positions supermarkets as recession-resistant investments and key players in the dynamic omnichannel retail landscape. 

Rising Costs Squeeze Profitability: Supermarket operators are facing growing challenges to profitability due to rising operational expenses across the board. Upgrades to physical stores, wage hikes, and ongoing investments in advanced e-commerce technologies are significantly increasing overheads. At the same time, spending on digital transformation, marketing campaigns, and promotional strategies is further tightening margins. Adding to the pressure, elevated tariffs on imported goods are raising supply chain costs, while the rising cost of living is impacting consumer spending habits, potentially softening demand. Together, these factors are compelling supermarkets to carefully balance cost management with continued investment in innovation and customer experience.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Retail – Supermarkets industry is housed within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #78, which places it in the top 32% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. 

Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence about this group’s earnings growth potential. Let’s look at the industry’s performance and current valuation.

Industry Versus Broader Market

The Zacks Retail – Supermarkets industry has outperformed the S&P 500 and the broader Zacks Retail – Wholesale sector in the past year.

The industry has surged 60.7% over this period compared with the S&P 500’s growth of 7.7%. Meanwhile, the broader sector has advanced 12.3% in the said time frame.

One-Year Price Performance

Industry's Current Valuation

On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing retail stocks, the industry is currently trading at 33.99X compared with the S&P 500’s 20.43X and the sector’s 22.89X.

Over the last five years, the industry has traded as high as 33.99X and as low as 17.55X, with the median being 22.11X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)

2 Supermarket Stocks to Keep a Close Eye On

Walmart: The Zacks Rank #3 (Hold) company continues to solidify its position as a global retail leader through a diversified and resilient business model. The company generates revenues across multiple channels, including physical stores, digital platforms, advertising, and memberships. Key initiatives, such as Walmart Marketplace, Walmart Connect (its advertising platform), and Walmart+ (its membership program), are not only enhancing customer engagement but also contributing to higher-margin revenue streams. A cornerstone of Walmart’s success lies in its robust omnichannel strategy. The company has made significant investments in data analytics, store operations, and digital expansion to deliver a seamless shopping experience across platforms. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for WMT’s current fiscal year earnings per share (EPS) has moved down by a penny to $2.60 in the past 30 days. The consensus mark for the next fiscal year has also been revised down by a cent in the last seven days to $2.89 per share. Shares of Walmart have rallied 61.1% in the past year.

Price and Consensus: WMT

The Kroger Co.:  This Zacks Rank #3 company continues to strengthen its position in the retail space through a customer-focused strategy, high-quality fresh food offerings, and an expanding private-label portfolio under “Our Brands.” Digital transformation is a key pillar of Kroger’s growth strategy. Initiatives like the Boost membership program, Delivery Now, and the rollout of customer fulfillment centers have significantly boosted digital engagement. Investments in automation and AI-driven inventory management continue to enhance operational efficiency, reduce waste, and improve margins, positioning Kroger for long-term scalable growth. Apart from these, alternative profit streams are also gaining traction.

The Zacks Consensus Estimate for KR’s current fiscal year earnings EPS has remained unchanged at $4.74 in the past 30 days. The consensus mark for the next fiscal year has also remained unchanged at $5.15 per share in the same time frame. This Cincinnati-based retailer’s shares have jumped 28.4% in the past year.

Price and Consensus: KR

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This article originally published on Zacks Investment Research (zacks.com).

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