2 Supermarket Stocks in the Spotlight Amid Industry Challenges

The Zacks Retail – Supermarkets industry is facing multiple headwinds, including persistent inflation and shifting consumer spending patterns, which are affecting revenue growth. As price-sensitive shoppers increasingly favor budget-friendly products, top-line expansion is under pressure. At the same time, rising operational costs, driven by store renovations, wage increases and investments in digital infrastructure, are tightening profit margins.

In response, leading supermarket retailers are doubling down on omnichannel strategies to stay competitive. By enhancing online platforms, streamlining store operations and improving the overall customer experience, companies like Walmart Inc. WMT and The Kroger Co. KR are positioning themselves for long-term growth.

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

Rising Costs Squeeze Profitability: Supermarket players are under increasing pressure as rising operational costs take a toll on profitability. Operators are grappling with higher expenses, caused by store renovations, employee wage hikes and significant investments in e-commerce infrastructure. At the same time, spending on digital transformation, targeted marketing and aggressive promotional strategies is further tightening margins. Supply-chain expenses are also climbing due to elevated tariffs on imported goods. Meanwhile, inflation and the rising cost of living are affecting consumer spending, potentially weakening demand. These mounting challenges are causing grocery retailers to strike a delicate balance between managing operational costs and investing in innovation to enhance customer experience.

Evolving Economic Conditions: Supermarket chains are adapting to a rapidly changing economic environment, caused by persistent inflationary pressures, geopolitical tensions and trade wars. These conditions have reshaped consumer behavior, especially among price-sensitive shoppers who are increasingly opting for smaller pack sizes and value-oriented products. As customers focus on affordability to stretch their budgets, grocery retailers are facing revenue challenges. Thus, the uncertain economic outlook continues to influence purchasing habits, creating ongoing headwinds for supermarket revenue growth. Navigating these shifts requires retailers to remain agile and responsive to evolving consumer preferences.

Robust Omnichannel Strategies: Supermarket retailers are making substantial investments to strengthen 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.

Zacks Industry Rank Indicates Dull Prospects

The Zacks Retail – Supermarkets industry is housed within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #179, which places it in the bottom 27% 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 dull 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. 

The industry’s position in the bottom 50% of the Zacks-ranked industries leads to a negative aggregate earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence about this group’s earnings growth potential. Since the beginning of April 2025, the industry’s consensus estimate for current financial year earnings has decreased 1.1%.

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 44% over this period compared with the S&P 500’s growth of 12.5%. Meanwhile, the broader sector has advanced 3.9% 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 32.93X compared with the S&P 500’s 22.43X and the sector’s 17.42X.

Over the past five years, the industry has traded as high as 34.04X and as low as 17.55X, with the median being 22.13X, 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 reinforce its status as a global retail powerhouse through a diversified and resilient business model. The company drives revenues through multiple channels, including brick-and-mortar stores, e-commerce platforms, advertising and membership services. Strategic initiatives, such as Walmart Marketplace, Walmart Connect (its advertising arm), and Walmart+ (its subscription program), are enhancing customer engagement while driving higher-margin growth. At the heart of Walmart’s success is its strong omnichannel strategy. Backed by substantial investments in data analytics, digital infrastructure, and in-store operations, the company delivers a seamless and integrated shopping experience that keeps it ahead in a highly competitive retail landscape. 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 remained unchanged at $2.59 in the past 30 days. Shares of Walmart have rallied 44.2% in the past year.

Price and Consensus: WMT

The Kroger Co.:  The Zacks Rank #3 company is reinforcing its competitive edge in the retail sector through a customer-centric approach, premium fresh food offerings and a growing portfolio of private-label products under the “Our Brands” umbrella. Digital transformation remains a core driver of Kroger’s growth. Programs like Boost membership, Delivery Now, and the expansion of automated customer fulfillment centers have increased digital engagement and convenience. Additionally, strategic investments in automation and AI-powered inventory management are enhancing operational efficiency, reducing waste and enhancing profit margins. Alternative profit streams are also gaining momentum, further strengthening the company’s diversified revenue base. 

The Zacks Consensus Estimate for KR’s current fiscal year EPS has moved up a couple of cents to $4.76 in the past seven days. Kroger’s shares have jumped 41.3% in the past year.

Price and Consensus: KR

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Walmart Inc. (WMT): Free Stock Analysis Report
 
The Kroger Co. (KR): Free Stock Analysis Report

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

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