Supermarkets largely have all been living in a house of pain, said Jim Cramer. However, one company is executing much better than the others.
"In the supermarket space, the one company that's managed to buck the overall negative trend has been Kroger, " said Cramer on Wednesday's broadcast.
Looking at the price action in Kroger versus two of its largest competitors Supervalu and Safeway – Cramer said there's no comparison.
Supervalu has slipped 67% for the year and Safeway has been hammered down 21%. Kroger, however, has gained 3% for the year.
"That's not a particularly good return," admitted Cramer "but relative to the other supermarkets its downright incredible."
So why hasn't Kroger been crushed?
- About a decade ago Kroger made a very smart decision to cut prices aggressively in order to fend off rising competition from discount players like Wal-Mart. Kroger acted early and they acted fast.
- Also Kroger has scale. It's the second largest player in groceries behind Wal-Mart.
- Kroger also sells gasoline at over a thousand of its supermarkets, or nearly half of its store base. "The company uses discounted gas as a loss leader to bring people into their supermarkets. It's a very smart model," said Cramer.
- Kroger has private label strength. Kroger produces more than 40% of its own private label products, which allows for much greater cost savings.
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What's the bottom line?
In general supermarket stocks are an area of the market that Cramer generally avoids because the space is so competitive.
"These companies have razor-thin margins, they're facing cut-throat competition from both each other, as well as big box stores like Wal-Mart andCostco, not to mention drugstores likeCVS and Walgreens. It's just a very tough business."
However, if you must put money to work in the space, Kroger has been able to thrive thanks to excellent management.
"It's proof that you can transcend even a lousy industry if the people in charge are making the right calls," Cramer said.
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