Cramer: Kroger's decline proves grocery is just as bad as the rest of retail

  • After shares of Kroger fell nearly 19 percent on a slashed forecast, Jim Cramer lost some faith in the grocery business.
  • While the "Mad Money" host still likes Kroger, he found the company's conference call concerning.
  • In an increasingly competitive space, the only winner in the end is the consumer, he said.

After supermarket giant Kroger cut its guidance for 2017 and saw its stock nosedive nearly 19 percent on Thursday, Jim Cramer took it as yet another segment of retail becoming a risky investment.

"Let it be duly noted that after today, the grocery business has now become no better than department stores as a place to invest," the "Mad Money" host said. "That's right, after the horrendous forecast cut by the largest supermarket chain in the country, Kroger, one that drove the stock down almost 19 percent, we have now officially come to still one more un-investable space in the retail business."

Cramer said that he did not want to blame Kroger for its decline, calling it a "fantastic company" that excels at what it does.

"But after listening to today's conference call, one can only conclude that supermarkets are now in one gigantic race to the bottom and no one come out unscathed, perhaps least of all Kroger," he said.

Watch the full segment here:

Once an industry leader, Kroger has struggled of late, seeing its same-store sales — excluding fuel — fall 0.2 percent in the first quarter, on top of labor inflation and food deflation.

Its conference call was no better, as management fielded analyst questions about competition from Wal-Mart, Amazon and others, leaving most of the inquirers dissatisfied, Cramer said.

"Worse, at one point, they simply seemed to give up and agree," Cramer added, quoting CFO Michael Schlotman:

"At the end of the day, we always assume this industry is going to get more competitive, quarter in, quarter out, year in, year out," Schlotman told the analysts. "And, unfortunately, I guess, we're rarely disappointed with the result."

Cramer found that to be an understatement, as the grocery business was relatively cutthroat and had narrow margins even before disruptors like Amazon and others started selling food.

Several years back, Costco decided to focus on food above all other products, taking a loss to reinvent its sales strategy. Whole Foods oriented itself toward more affluent shoppers. The privately-held Trader Joe's broke in, attracting various demographics.

"Then Wal-Mart and Target decided they had to offer food, too, and while initially both seemed off their game, they rapidly realized there was only one way to compete: on price," Cramer said.

The dollar stores followed, catering to consumers with food stamps, and two massive pharmacy chains, CVS and Walgreen's, also joined the grocery party.

Not to mention German grocery chains Aldi and Lidl, which announced plans to expand to the United States, with Lidl opening stores in Virginia, North Carolina and South Carolina on Thursday.

And with Amazon expanding into the food business with grocery delivery service AmazonFresh and other initiatives, the price battle may soon turn into a full-blown war, Cramer said.

"Now, there's no way that Kroger is going to cede its turf to everyone. It will compete. It will compete aggressively, which is exactly why, even down here, this stock's a tough one to own," Cramer said. "Sadly, I think Kroger knows it. There was a resigned nature to this conference call at the end that makes me feel like saying, 'You know what, guys? Call me back when somebody blinks.' Right now, though, everyone's approaching groceries with eyes wide open, and I think, in the end, the only winner is you, the consumer."

In an emailed response to CNBC's request for comment, Kroger's chairman and CEO, Rodney McMullen, detailed the company's strategy to keep the supermarket chain in a class above the rest:

"The best thing we can do is to stay on offense by continuing to focus on our customers – what they want and need today and what we anticipate they will want and need tomorrow – and executing our strategy," he wrote. "We continue to manage our business for the long term and to deliver net earnings growth on a three-to-five-year time horizon. We are making the investments necessary to continue being the best food retailer in the country. Our strategy is to focus on our customers – as their wants and needs change, we'll be right there with them. We are confident that we will continue winning with our people, our food, and the customer experience, and we will not lose on price."

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