Warren Buffet’s Berkshire Hathaway conglomerate made a multimillion-dollar investment in shares of supermarket operator Kroger in the fourth quarter, according to the Securities and Exchange Commission. Kroger shares surged in late trading on Friday, with the stock up 5.6% to $29.81.
Buffet bought 18.9 million shares of Kroger during the fourth quarter worth $549 million. This is the first time that Berkshire Hathaway has invested in the supermarket chain, after selling its stake in retail giant Walmart Inc. in 2018.
This investment makes the Buffet conglomerate the seventh largest owner of Kroger shares, according to Kroger’s list of investor relations on its website.
Buffett’s company is betting on a business that is trying to navigate a changing retail landscape, with challenges from online grocery stores and discount stores, including Walmart, Bloomberg reported.
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In an analysis written by the financial publication 24/7 Wall St. they indicate that “with the rise of the so-called “Amazon Apocalypse” and “Retail Armageddon” some investors would wonder why on earth Buffett would want to or allow his portfolio managers to risk over $500 million in a grocery store chain. This is where investors need to understand that Buffett has historically been a deep value investor. ”
The 24/7 Wall St. analysis adds that “it turns out that Kroger would fit into the acquisition patterns of companies that Berkshire Hathaway has rolled into its conglomerate structure. Despite the grocery store dilemma of operating on razor-thin margins, Kroger has the fortitude, size and merchandising that can survive in good times and bad times. Kroger is also likely to withstand the rise of Amazon’s Whole Foods, and unlike the big-box retailers, shoppers do not have to pay an annual fee to buy groceries there.”
Buffett and his team are betting that Kroger will remain one of the main grocery destinations for years to come. It is probably a safe bet because the food will not go out of style, even if some food trends increase and disappear over time, analysts conclude.