Kroger Co. said it may sell its convenience stores and cut other costs, as the nation's largest traditional grocer battles Amazon.com Inc. and other new competitors.
The nearly 800 convenience stores, most of which sell gas, will likely fetch Kroger a higher return than profits delivered to the company currently, executives told investors at an annual meeting Wednesday at the New York Stock Exchange.
"It just looks like the economics make sense to do it," said Chief Executive Rodney Mc- Mullen in an interview. "It's obviously a decision you don't do lightly. The C-stores have been in the business for a long time."
Mr. McMullen said the move toward a sale was part of a routine analysis of the company's sprawling assets conducted several months ago, and not in response to Amazon's announcement it would buy Whole Foods Market in June. The e-commerce giant's most concerted play yet into grocery has upended the food retail industry.
Mr. McMullen said he didn't know if the company had bidders yet, nor did he say how long it would take to decide whether to sell. The grocer has hired Goldman Sachs & Co. to review options for the stores, operated in 18 states under 68 franchise operations, including Turkey Hill Minit Markets, Loaf 'N Jug, KwikShop, Tom Thumb and QuickStop.
The grocer has been trying to fend off competition from Amazon, other rivals.
The stores' 11,000 employees were notified of the possible sale, Kroger said.
The grocer's stock rose 1.2% Wednesday to $20.78. Kroger's stock has shed more than one-third of its value this year as investors worried about the company's plans for fending off competition from Amazon and others. Shares in many food sellers have tumbled since Amazon said it was buying Whole Foods this summer.
Selling the convenience stores could deprive Kroger of one means for reaching its goal of capturing more of the roughly $1.5 trillion spent in the U.S. each year on food and consumables. The stores generated $4 billion in revenue last year and have delivered more than five years of identical store-sales growth.
Convenience stores and other nontraditional retail outlets are one place consumers are buying more food instead of traditional grocery stores and, thanks in part to fuel sales and lower operating costs, convenience stores tend to have higher profit margins than traditional grocery stores.
But Kroger and other food retailers are cutting costs swiftly and abandoning plans to build new stores, investing instead in e-commerce offerings and other technologies. The company said Wednesday that it would roll out a system that allows customers to ring up their groceries through a wireless hand-held scanner. The system will be introduced to 400 stores by next year, up from 20 today.
"We need to move faster on digital," said Mr. McMullen. Executives also said that, under a program dubbed "Restock Kroger," they will seek to sell more advertising, generate new income from a data-analytics division, rethink how to restock shelves and continue to cut prices on some items to avoid losing customers.
BY HEATHER HADDON