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Kroger’s Entry into the Organic Food Market

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Growth trend in the organic food market

Over the past few years, the customer focus for supermarkets has moved toward organic and natural foods, and the market for such food items has grown significantly. According to the Organic Trade Association, organic food sales in the United States stood at $35.9 billion in 2014, representing almost 5% of total US food sales.

The organic industry has grown abundantly over the last two decades. Sales for organic food and non-food items increased from $3.6 billion in 1997 to over $39 billion in 2014.

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Kroger’s presence in the organic food space

Kroger (KR) has worked to tap this market by expanding its product line and offering high-quality products at competitive prices. The company carries than 15,000 natural and organic food items.

Kroger’s organic brands, Simple Truth and Simple Truth Organic, have been well-accepted by its customers, becoming billion-dollar brands within two years of its launch. During fiscal 2015, more than 20 million households bought one or more of the 2,600 Simple Truth or Simple Truth Organic items.

Rising competition in the organic food segment

Because the demand for organic products is rising, more retail chains offer organic and natural products. Kroger is facing increased competition from specialty grocers such as Sprouts Farmers Market Inc. (SFM) and The Fresh Market Inc. (TFM). It is also facing competition from mass merchandisers like Walmart Stores Inc. (WMT), Target Corp. (TGT), and Costco Wholesale Corp. (COST).

Kroger (KR) is taking a variety of steps in order to keep its position intact in the organic foods space. It recently committed to purchase the entire crop if the farmers move to organic farming. The company also purchased a dairy to shift to producing organic milk.

ETF exposure

Kroger (KR) is a part of the S&P 500 Index and is included in the holdings of the SPDR S&P Retail ETF (XRT), along with peers Wal-Mart (WMT), Whole Foods Market (WFM), Sprouts Farmers Market (SFM), and The Fresh Market (TFM). Together, these retailers account for ~5.1% of the total index weight of XRT.

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