Kroger stock surges as it considers selling its convenience stores

Kroger Co has revealed that it’s exploring the sale of its convenience store business, a US$1.4bn operation that spans 18 states.

The move comes as the supermarket operator attempts to revamp its business amid a growing grocery price war among traditional and online food retailers such as Amazon-owned Whole Foods, Wal-Mart and Lidl.

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"Considering the current premium multiples for convenience stores, we feel it is our obligation as a management team to undertake a review," said Chief Financial Officer Mike Schlotma in the filing.

Shares of Kroger Co. climbed 5.6% on Wednesday as the company announced that it was exploring the sale of its 784 convenience stores and reiterated its 2017 profit and sales guidance.

Operating under names including KwikShop and QuickStop, Kroger’s convenience store business employees 11,000 people and sold 1.2bn gallons of fuel in 2016y.

The company is looking to accelerate its digital and e-commerce efforts and has laid out its “Restock” plan, which is comprised of heavy capital investments (US$9bn over the next three years) coupled with cost saving in certain business segments.

Even with these recent share value gains, Kroger has seen its stock fall by 37% this year.

The grocery chain is evaluating its operations at a time when Amazon is pushing into the brick-and-mortar supermarket business.

As well as this, the outlook for the grocery sector, already a low-margin business is being further complicated by the arrival of low-cost competitors Aldi and Lidl into the US market.