Warren Buffett went grocery shopping the other day and ended up spending half a billion dollars. Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) revealed after the stock market closed on Friday that it had spent $549 million to acquire nearly 19 million shares of grocery store chain Kroger (NYSE: KR), the largest supermarket operator in the country.
The tranche of stock amounts to about a 2.3% ownership stake in the company, and makes Berkshire one of the top 10 shareholders in the grocer.
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A simple business in a complicated world
The purchase was very much in keeping with the Oracle of Omaha's traditional investing strategy. Although in recent years, he has begun acquiring shares of tech companies, which he once avoided because he said he didn't understand them, and airlines, which he long derided as money-losing operations, supermarkets are right in his classic wheelhouse.
Despite its thin margins, Kroger is the sort of consumer-oriented business that customers return to again and again. Buffett famously owns a sizable stake in Coca-Cola, and also has positions in Kraft Heinz and Mondelez International.
Indicating Buffett's knowledge has been updated, Berkshire Hathaway acquired a $900 million stake in Amazon.com, which has been responsible for creating an upheaval in the businesses of many companies he owns. It's also growing its presence in groceries.
While Kroger has struggled for several years to respond to the twin threats of Amazon and Walmart, its investments in curbside grocery pickup and home delivery have improved its prospects. Kroger's stock was trading more than 5% higher around 1:45 p.m. Tuesday after the long holiday weekend.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short March 2020 $225 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
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