The prospect that grocers like Kroger Co. could soon see the return of pricing power has some investors salivating. But their appetites easily could be spoiled.
Early this year, investors cheered signs of food inflation in the hope it would allow grocers to boost profits by increasing prices more than their costs were rising. That didn't quite pan out. Grocery shares came crashing down in late April when Safeway Inc. said it was struggling to pass along cost increases in some categories like milk and meat. A similar story played out at Kroger, which saw its second-quarter gross margins, excluding gasoline sales, fall slightly from a year earlier.
Shares of Safeway and Kroger have since recovered most of their losses. And when Kroger reports third-quarter results Thursday, investors hope to hear that the company finally has gained the upper hand over consumers, or, at the least, that it was able to hold profit margins steady.
Certainly, there is some reason to be optimistic. Grocers have been less aggressive lately with discounts than they were a year ago, when commodity prices still were falling and consumer finances weak.
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