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Food Deflation Is 'Great' For Consumers But 'Terrible News' For Grocery Chains

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Food Deflation Is 'Great' For Consumers But 'Terrible News' For Grocery Chains

Kroger Co (NYSE: KR) reported on Friday its second-quarter results in which revenue fell short of expectations and management revised its full-year earnings guidance lower.

For investors, this could be a concerning sign, but for consumers, Kroger's revenue shortfall is a good sign.

As noted by CNN Money, Kroger's revenue miss was due to food deflation, weak global demand for food and excess supply due to advances in agricultural technology. For example, the price of corn, cocoa and lean hogs futures are lower by 10 percent, wheat is lower by 20 percent and cattle futures have plunged 30 percent.

Related Link: Kroger Shares Lower As Q2 Sales Miss, Outlook Reduced

CNN Money suggested that this is "great" news for consumers but "terrible news" for grocery stocks such as Kroger's, which is lower by around 25 percent since the start of 2016.

While Kroger is forced to deal with food deflation, it also needs to thrive in a heightened competitive environment. Wal-Mart Stores, Inc. (NYSE: WMT), Target Corporation (NYSE: TGT) and Costco Wholesale Corporation (NASDAQ: COST) are all dedicating incremental resources towards grocery initiatives.

And then there is Amazon.com, Inc. (NASDAQ: AMZN), which is also aggressively expanding its grocery delivery service to new cities.

So, what is in store for Kroger's stock heading forward? According to the CNN Money report, the stock "may be stock in Wall Street's bargain bin until food prices start to stabilize."

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