Wall Street is getting a taste of the Kroger Effect.

Grocery store industry watchers long believed that when Wal-Mart entered a market where the century-old Kroger Co. dominated, the Cincinnati-based grocer lost customers and cash to the bare-bones retailer from Bentonville, Ark.

But an analysis of regions where Kroger went head-to-head with Wal-Mart last year shows Kroger usually came out with a marginally greater slice of the market.

The results indicate that a recent building binge of supercenters by Wal-Mart not only failed to garner it more market share, but may have led a growing number of shoppers to seek out Kroger's neighborhood shopping approach.

In addition to emphasizing convenience, Kroger is closing the price gap.

A pricing analysis by Bank of America analyst Scott Mushkin last fall found that Kroger's prices were 7.5 percent higher than nearby Wal-Mart supercenters, compared to 20 percent to 25 percent five years ago.

Wall Street is rewarding Kroger's strategy by driving its share price to record levels last week, closing Friday at $29.73.

Kroger thrives when Wal-Mart comes calling, David B. Dillon, Kroger chairman and chief executive, told Wall Street analysts during a March conference call.

"There are 34 major markets in which supercenters have achieved at least a No. 3 market share," Dillon said.

"Our share increased in 27 of those 34 markets."

Kroger competes against 1,262 supercenters - a 10 percent increase in stores from 2005 - and of those centers, 1,000 are operated by Wal-Mart.

Yet in the 44 major markets in the United States where Kroger operated nine or more stores in 2006, the company increased its market share, Dillon told the analysts.

Kroger lost market share in six markets and remained unchanged in one region.

That means Kroger is more than four times more likely to sell more groceries than to sell fewer groceries in markets with a strong Wal-Mart presence, according to the Kroger report.

Meanwhile, Wal-Mart is seeing its largely suburban supercenters losing same-store sales - a retail measure comparing annual sales at stores open more than a year.

Kroger officials declined to comment on the battle for dominance with Wal-Mart beyond the statistics cited by Dillon in March.

But the numbers tell the story: In 2006, the company earnings jumped 16 percent to $1.11 billion. Earnings per share were $1.54 per share - up from $1.31 in 2005 - and it projects 2007 earnings of $1.60 to $1.65 a share - a growth of 9 percent to 12 percent over 2006. The fourth quarter 2006 earnings were 54 cents per share, or $384.8 million for the quarter - a 36.4 percent increase over fourth quarter 2005.

WAL-MART DISAGREES

Wal-Mart had no trouble rebutting the Kroger market share analysis.

"We continue to grow and have regained position as No.1 on the Fortune 500 list of companies," said Mia Masen, director of corporate affairs for Wal-Mart's Midwest Division. "We are a No. 1 shopping destination for Americans. New customers continue to go to supercenters, particularly in Ohio."

Kroger has done a pretty good job in trying to update its stores, and that has helped with shoppers, said Britt Beemer, chairman and founder of America's Research Group, a consulting firm based in Charleston, S.C. One challenge for Wal-Mart may be customer service, said Beemer.