Wal-Mart Stores, Inc. (WMT): Mariano’s Fresh Market Doesn’t Justify Buying Roundy’s Inc (RNDY) and Its Dividend

When it comes to grocery stocks, there’s no more appealing dividend than Roundy’s Inc (NYSE:RNDY) 5.2% yield. The company has a dominant share of its home turf, and a promising new brand — Mariano’s Fresh Market in the Chicago area — that promises to drive future growth.

Yet I think investors are better off looking elsewhere if they want a solid investment. Read on to see why the company’s market position isn’t what it seems to be, and why Mariano’s won’t be enough to really make a difference in the coming years.

A dying giant?

Currently, Roundy’s Inc (NYSE:RNDY) operates 161 grocery stores, 75% of which are located in Wisconsin, many under the Pick ‘n Save banner. Though it currently has a dominant 42% market share of the greater Milwaukee area, that number doesn’t tell the whole story.

As recently as three years ago, Roundy’s Inc (NYSE:RNDY) had a 58% share of the Milwaukee market. Then Wal-Mart Stores, Inc. (NYSE:WMT) and other large grocers began making aggressive moves to offer lower prices to shoppers. Because Roundy’s Inc (NYSE:RNDY) doesn’t offer a fundamentally different shopping experience, it was thought, consumers would be more likely to gravitate toward the lower prices.

Three years later, it appears that this theory has played out. Not only has Roundy’s Inc (NYSE:RNDY) lost 16% of its home market in such a short time, but Wal-Mart Stores, Inc. (NYSE:WMT) has also gone from a 6% to a 16% share.

Just as alarming, sales at the flagship stores have been in a downward spiral ever since the company went public in 2012. Just look at how, even after adjusted for shifts in the reportable calendar months, the company has lost traffic in droves.

Source: SEC filings.

Though CEO Bob Mariano says his company is aggressively spending to provide a differentiated shopping experience for customers, it’s clear that the strategy isn’t working. Speaking from experience (I live right in the middle of Roundy’s Inc (NYSE:RNDY) home market), I can tell you that there’s nothing special about what Roundy’s core stores offer, and it’s just as easy to find competitive prices elsewhere.