Greg Abel-Led Berkshire Hathaway Owns 3 Consumer Stocks. Here's the One I'd Buy First.

Kroger shares have pulled back 20% from their March high after fiscal Q2 same-store sales growth slowed to 0.25% from 3.4%, gross margin fell 10bps year over year, and the company cut full-year sales guidance. However, Kroger maintained its outlook for operating profit, free cash flow, and EPS, suggesting CEO Greg Foran's price-cutting strategy has not materially impaired earnings expectations. The stock's forward dividend yield has risen to 2.6%; its quarterly dividend increased 11% most recently and has risen for 20 consecutive years, while shares outstanding have declined by roughly one-third since 2016 through buybacks.

Analysis

KR’s investability hinges less on the near-term traffic response to lower prices than on whether management can fund price investment through procurement, shrink control, labor productivity, and retail-media economics. Grocery is structurally a low-margin category: even modest gross-margin pressure can overwhelm a weak top-line recovery if operating-cost leverage does not materialize. The unchanged profit framework is therefore only a provisional positive; the next two quarterly gross-margin and SG&A prints matter more than reported sales growth.

The competitive read-through is mixed. WMT has greater ability to sustain price gaps through higher-margin advertising, marketplace, and membership revenues, while Aldi’s private-label model limits KR’s ability to win purely on price. KR can defend earnings by shifting mix to private label and monetizing loyalty data, but that creates a longer-term risk that price-led share stabilization comes with a permanently lower merchandise-margin rate. Suppliers to branded food companies—including KHC—could face tougher promotional and shelf-price negotiations if grocers intensify value positioning.

Consensus may be over-crediting Berkshire ownership and capital returns as a fundamental signal. Berkshire’s position is too small to establish a valuation floor, while repurchases only create value if KR’s underlying return on incremental capital exceeds the cost of defending share. The more constructive contrarian case is that a successful reset can normalize comparable-sales growth before margins recover; that sequence would allow the multiple to expand 1–3 months ahead of visibly better earnings, particularly if food inflation remains benign and discretionary basket attachment improves.

Near term, this is a watch-to-buy rather than a conviction chase after any headline bounce. A 6–18 month rerating requires evidence that private-label penetration, digital/loyalty monetization, and operating discipline offset the price investment; falsification is two consecutive quarters of margin deterioration beyond management’s implied plan, reduced operating-profit/FCF guidance, or accelerating share losses to WMT/Aldi.

Key Decisions for Investors

• Initiate a small long KR only on confirmation from the next earnings release that operating-profit and FCF guidance remain intact; target a 6–12 month rerating driven by stabilized comps, with exit/reassessment if gross margin declines materially for a second consecutive quarter.
• Prefer a market-neutral long KR / short KHC pair over an outright staples allocation for 3–6 months: KR has potential execution upside from a successful value reset, while KHC is exposed to retailer pricing pressure and strategic-disruption risk. Size modestly because promotional intensity can pressure both legs.
• Do not use BRK.A/BRK.B as a proxy trade for KR. Any valuation impact from this holding is immaterial to Berkshire; BRK remains driven by insurance underwriting, operating-company earnings, and capital deployment.
• Maintain WMT as the defensive quality benchmark rather than shorting it against KR. If KR’s price actions fail to improve traffic or share within 1–2 quarters, WMT is the likely beneficiary and KR should be closed rather than averaged down.