The Zacks Retail – Supermarkets industry players are facing mounting challenges as inflationary pressures and shifting consumer spending habits weigh on revenues. Budget-conscious shoppers are opting for smaller pack sizes and lower-priced products, squeezing top-line growth. At the same time, rising operational costs — from store upgrades to higher wages and digital investments — are eroding profit margins. 

However, retailers are leveraging omnichannel strategies, enhancing online capabilities and refining in-store experiences. Efforts like these position Walmart Inc. WMT and The Kroger Co. KR well 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

Evolving Economic Conditions: Supermarket players are navigating an ever-changing economic landscape shaped by inflationary pressures. These dynamics have particularly impacted cost-conscious consumers, prompting a shift toward smaller pack sizes and an emphasis on lower-priced products. As shoppers seek more affordable options to manage their expenses, supermarket companies face revenue headwinds. Despite moderation in inflation, the unpredictable economic landscape and its influence on consumer spending patterns pose challenges to supermarket companies’ revenues.

Rising Costs Squeeze Profitability: Supermarket operators are grappling with mounting operational expenses as they strive to enhance performance. Higher costs tied to store upgrades, wage increases and technological advancements in e-commerce are weighing on profit margins. Additionally, investments in digital capabilities, along with marketing and promotional initiatives, further intensify margin pressures.

Robust Omnichannel Strategies: Supermarket retailers have significantly invested in enhancing both online and offline operations. Their efforts to improve store layouts, product offerings, competitive pricing strategies and assortment replenishment have been fruitful. Additionally, companies are expanding their online presence in response to the surge in online shopping. This has led to increased efforts through acquisitions, partnerships and improvements in delivery and payment systems. Features like same-day delivery, buy online and pick-up in-store, curbside pickup and contactless payment options have been particularly beneficial. Concerted efforts to unite store and online operations to offer customers a solid omnichannel experience keep supermarket players well-placed for growth. 

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 #186, which places it in the bottom 25% 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 drab 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 losing confidence about this group’s earnings growth potential. Since the beginning of August 2024, the industry’s consensus earnings estimate for the fiscal year ending January 2026 has declined 3.6%.

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 80.1% over this period compared with the S&P 500’s growth of 21.3%. Meanwhile, the broader sector has advanced 30.1% 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 34.3X compared with the S&P 500’s 22.45X and the sector’s 25.45X.

Over the last five years, the industry has traded as high as 34.3X and as low as 17.55X, with the median being at 21.96X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)

2 Supermarket Stocks to Keep a Close Eye On

Walmart: This Zacks Rank #2 (Buy) company continues to be driven by its omnichannel business. Walmart has been benefiting from an increase in both in-store and digital channel traffic, reflecting its adept navigation of the evolving retail landscape. Newer ventures like the marketplace, advertising and membership have contributed to diversified profits, reinforcing the resilience of WMT’s business model. 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 risen by a penny to $2.48 in the past 30 days. The consensus mark for the next fiscal year has remained unchanged at $2.74 per share. Shares of Walmart have rallied 86.2% in the past year. 

Price and Consensus: WMT

The Kroger Co.:  A well-defined customer segmentation strategy, emphasis on value and focus on its 'Our Brands' portfolio have enabled this Zacks Rank #3 (Hold) company to maintain a competitive position effectively. Kroger remains committed to its core strengths, which include offering an array of fresh products, providing personalized shopping experiences and fostering a seamless digital ecosystem. Strength in its pharmacy business has also been a key growth driver. 

The Zacks Consensus Estimate for KR’s current fiscal year earnings EPS has remained unchanged at $4.44 in the past 30 days. The consensus mark for the next fiscal year has risen by a penny to $4.75 per share in the same time frame. This Cincinnati-based retailer’s shares have jumped 40% in the past year.

Price and Consensus: KR

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