Kroger To Pull Plug On Three Planned New Virginia Stores

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Kroger announced that it has scrapped plans to build three new stores in Virginia. Two of the planned new stores were to be located in the hotly contested Richmond market. The other unit, a planned replacement store, was planned for Charlottesville.

In Colonial Heights, the Cincinnati-based retailer will not go forward with a new store, first announced in 2015 when the retailer acquired the old Colonial Heights courthouse for $2.56 million. It planned to build a 95,000 square foot unit on the 9.5-acre site.

In a statement released by the company, a spokesman said, “We understand that our decision to not build the Colonial Heights store may seem confusing or cause frustration, and we sincerely apologize to those who anticipated our store opening. Our company has made a decision to focus our efforts on improving the customer experience at existing stores through renovations and innovative technology.”

The other new Richmond area store affected was a planned 113,500 square foot replacement unit on Mechanicsville Turnpike in Mechanicsville that would have served as a relocation for Kroger’s nearby existing 55,000 square foot Mechanicsville supermarket that was built in 2002. Instead, the company said it will invest about $3.5 million in its current store and continue to focus on its existing stores in the Richmond market, where it ranks second overall to Wal-Mart.

In Charlottesville, where Kroger is the share of market leader with three stores and nearly $120 million in annual sales, plans to build a new replacement unit at the site of the former Giant (Landover) store in the Sycamore Square Shopping Center on Seminole Trail, have been canceled, too

In a statement, Kroger said it has invested $11.2 million to refurbish and modernize its Barracks Road and Rio Hill stores in the past five years. They have also added online ordering at Rio Hill. Kroger had planned to invest $28 million to build the Sycamore Square unit.

Until earlier this year, Kroger had been among the best performing retail food stocks over the past decade and also served as an example to Wall Street that bricks-and-mortar retailers can be successful.

However, in February Kroger posted negative identical stores sales of 0.7 percent (ex-fuel) in its fiscal fourth quarter ended January 28, its first negative comps number since 2004. The company cited deflation and fierce completion.

After releasing second quarter financials on June 15, the negative ID sales trend lessened, but continued (0.2 percent, ex-fuel), although Kroger earned $303 million and overall revenue increased.

However, Wall Street was already uneasy with Kroger’s recent performance which helped send the stock price to from $30.28 at the market’s opening on June 15 to $24.56 by the end of the day.

The next day another major ripple was felt when Amazon announced it planned to acquire Whole Foods Market for $13.7 billion in cash. By no doing of its own, Kroger’s share price fell even further to $20.46 per share. On July 10, a slight rebound to $22.89 had occurred, but those numbers are still a far cry from the $37.97 per share value a year earlier.

While Wall Street may be on the warpath against Kroger, many industry analysts feel that the company will rebound, including one retail executive who’s competed against the big merchant for 35 years.

“They are fundamentally sound on every level,” he claimed. “Unlike a lot of bricks-and-mortar supermarket operators, Kroger has invested in its infrastructure and has great locations. It also has a growing digital presence and continues to innovate in its channel when it comes to health and wellness and private label. Of course, when you’re number one in your arena, and the new darling of the free world – Amazon – makes a mega-deal, somebody’s going to suffer. I’m not trying to diminish to the potential ramifications of an Amazon and Whole Foods partnership which I think will change how a lot of us traditional retailers do business, I’m simply saying that Kroger is among the best suited food retailers in any class of trade to compete successfully against all comers.”

And Kroger CEO Rodney McMullen seems to agree with that line of thinking, noting after last month’s earnings: “We remain focused on our strategy. This will make a difference for our customers and create value for our shareholders. We are running the business with an eye toward where the customer is going. Customers tell us they want to connect with us in multiple ways with the help of friendly associates to easily provide meals to their families at prices that enable them to stretch their budgets. We are committed to providing that experience, and we will not lose on price. We are driving our strategy of lowering costs to reinvest in ways that provide the right value to our customers. We’re pleased that identical supermarket sales in the last nine weeks of the first quarter were positive, and that has continued in the second quarter to date.”