Activist Alert: Kroger is next in Icahn’s Animal Welfare Campaign

by | Mar 30, 2022

Shareholder activism doesn’t have to be limited to economic returns

  • Icahn seeks two board seats at KR. Activist investor Carl Icahn is seeking two board seats at Kroger Co (KR), pushing the U.S. supermarket giant to make changes among its pork suppliers and to address a widening gap between worker and executive pay. Kroger has not yet set a date for its annual shareholder meeting.
  • Second company to be admonished for animal welfare practices. Recall that last month, Icahn launched a proxy fight at McDonald’s (MCD)seeking two board seats and challenging the practice used by some of McDonald’s pork suppliers of confining pregnant pigs in gestational crates as opposed to group housing. Currently, MCD’s practice is to move cows from crates only after they are confirmed pregnant four to six weeks into their 16-week term. Icahn and other animal activists would like to see use of these gestational crates banned altogether. 
  • Executive pay is cause for concern. In its May 2021 proxy statement, Kroger reported that CEO Rodney McMullen had an annual compensation of more than $22 million, while the median employee earned $24,617 in 2020. As Icahn states in his letter to the company, “even in a hard-nosed capitalistic system like ours, it is obscene that a CEO makes 900 times what workers earn. It is truly difficult to point to anything comparable, even when considering the grave injustices in the early days of the Industrial Revolution. At Kroger, amazingly, it will take an average worker 20 years to make what the CEO earns in one week.” Kroger says its executive compensation is aligned with shareholders’ interests and mostly based on performance. Kroger says it has raised the average employee wage by 25% to $17 an hour over the past four years.

Kroger has delivered solid returns 

Source: Boardroom Alpha 
  • Despite inflation fears, KR stock has performed well. Unlike many other underperforming activist targets, KR shares are performing well—up 24% YTD, versus a 4% decline for the S&P500 over the same period. Kroger delivered a beat-and-raise Q4. Despite inflation concerns and increased competition from big-box retailers pushing into the grocery space, the company has consistently reported better-than-expected earnings throughout the pandemic. Same-store sales, excluding fuel were up 4% in Q4, and up 14.6% versus pre-pandemic Q4 2019. For the 2022, management expects same-store sales growth of 2% to 3%.

KR: Not performing better than most  

Source: Boardroom Alpha 

Icahn’s nominees. Icahn is nominating Alexis C. Fox and Margarita Paláu-Hernández to Kroger’s board, the company said in a statement. Fox is the co-founder of Lighter, a startup that focuses on plant-based diet. Paláu-Hernández is the founder and chief executive at Hernandez Ventures, a private firm involved in Spanish-language media, business and real estate ventures. Kroger’s existing board reflects a fairly good mix across most diversity metrics as well as C-suite expertise.

Kroger: Board Diversity & Inclusion Snapshot 

Source: Boardroom Alpha
  • Other red flags: insider selling. Notably, insiders sold $42M worth of stock in the past 12 months. 
Source: Boardroom Alpha
  • Food giants are prioritizing profits as prices spike. With inflation hovering near multi-decade highs, it’s no secret that more retailers are passing increased costs to consumers. Even before the pandemic, global food prices had been trending upward as disease destroyed much of China’s pig herd. I.M.F. data indicates average food inflation across the world reached 6.85 percent on an annualized basis in December, the highest level since 2014.
  • It’s a tough time for retail stocks…but KR has more growth levers than most. The macro isn’t great: oil and food prices surging, making it more difficult for companies to demonstrate year-over-year earnings growth. While the labor market remains fairly strong, wages are not quite increasing as fast as inflation. That said, Kroger has some impressive growth initiatives in place. The company is expanding online through partnerships with Instacart and Bed Bath & Beyond (BBBY), and projects $20 billion in digital sales. EPS should improve as these partnerships scale. The company’s paid loyalty program Kroger Boost, which provides free delivery, is also rolling out in more markets.
  • Icahn’s campaign unlikely to move the needle on the stock in the near term….but that’s not what this is about. At 8x EBITDA, and 0.3x forward sales, we don’t think KR stock adequately reflects the growth potential associated with the company’s digital business. We continue to like this name as a core defensive holding. While Icahn’s campaign won’t reflect itself in forward sales or earnings, we are encouraged to see more activism around social causes and ESG weaknesses. 

Recent Analysis

Daily SPAC Update – June 13, 2024

Catcha Investment (CHAA) + Crown LNG Approved. DHAC + VSee Labs Deal Approved. SEDA Investor Deck. Feutune Light (FLFV) Updates Trust & Redemptions.

Daily SPAC Update – June 10, 2024

Bayview Acquisition Corp + Oabay Inc. SPAC deal announced. EVE extension vote today. BUJA sets extension vote. PWUP amends merger agreement. COOL postpones to June 26.

Activism Update – June 7

Wisdom Tree (WT) gets Glass Lewis, ISS, and Egon-Jones support. Medallion (MFIN) calls ZimCal self-serving. F9 Investments continues to hammer LL Flooring (LL).

Subscribe to Boardroom Alpha Newsletters

Subscribe to Boardroom Alpha's research to receive the latest on governance, SPACs, and people.


The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Boardroom Alpha cannot guarantee its accuracy and completeness, and that of the opinions based thereon. 

This report contains opinions and is provided for informational purposes only – it does not constitute investment, legal or tax advice. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional before you make any investment.  

None of the information contained in this report constitutes, or is intended to constitute a recommendation by Boardroom Alpha of any particular security or trading strategy or a determination by BA that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.  

No representation or warranty, expressed or implied, is made on behalf of Boardroom Alpha as to the accuracy or completeness of the information contained herein. Boardroom Alpha does not accept any liability for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on all or any part of this research and any liability is expressly disclaimed.