An employee pushes grocery carts outside a Kroger Co. grocery store in Louisville, Kentucky.
Luke Sharrett | Bloomberg | Getty Images
Kroger was downgraded to buy from Jefferies to buy. Instead, it should be following Walmart's lead, according to a Thursday note.
For a grocery store chain, capturing online shoppers and catching up on Amazon-owned Whole Foods is a tricky business.
Jefferies analyst Christopher Mandeville said a grocery chain's fulfillment method is a make-or-break investment. It could be opt for large, central warehouses, so known as centralized fulfillment.
Kroger's decision to invest in centralized fulfillment centers could be a multiyear mistake, Mandeville wrote. Ocado's robot technology.
But centralized fulfillment centers require high up-front costs. The average fulfillment center size for Ocado is 300,000 to 400,000 square feet. Each central warehouse for Kroger will cost about $ 55 million and take two to three years to build. A micro-fulfillment center identifies 5,000 to 20,000 square feet of underutilized space inside an existing grocery store or in a space adjacent to the current store. At both types of centers, robots perform the grocery picking.
Because micro-fulfillment also naturally puts the grocery picking closer to urban centers, delivery is much cheaper. In particular, the notoriously difficult "last mile," or the final delivery step to a shopper's home, is more efficient from a nearby micro-fulfillment center.
"We view Kroger's centralized fulfillment center platform as a more expensive, time "Mandeville wrote."
Walmart, on the other hand, started testing micro-fulfillments in August 201
"We view Walmart as best-positioned for long-term share gains given its early adoption of micro-fulfillment centers to an already robust omni-channel platform and strong feedback from our proprietary shopper survey, "Mandeville wrote.
Kroger's stock traded 1.8% lower before the market opened Thursday, and has dropped 11% since January. It has a market cap of $ 19.7 billion. Walmart, which has a market cap of $ 338.3 billion, has seen its stock almost 28% year to date.