The planned merger of Kroger and Albertsons has captured attention, as it would create a superstore that ranks second in size only to Walmart. This potential combination of two major U.S. supermarket giants could have wide-ranging effects, bringing about doom for some, gloom for others, and a boom for a select few. In this article, we will explore the implications of the Kroger-Albertsons merger on the food and beverage industry, the companies involved, their competitors, suppliers, and consumers.
Gloom on the Horizon
Is Walmart about to face some serious competition? The proposed Kroger-Albertsons mega-merger would result in a company with approximately 5,000 U.S. stores, putting it in a close second position to Walmart’s 5,335 stores across the country. According to Arun Sundaram of CFACFA Research, this deal could create a “more formidable competitor to its largest competitor, Walmart.” The question arises: how will this new multi-billion-dollar company impact the food retail landscape beyond store count?
In fiscal year ’21, Kroger and Albertsons collectively generated $210 billion in revenue and $3.3 billion in net earnings, as reported by Supermarket News. Bank of America Securities’ Robert Ohmes estimates that, even before any store closings, the merged entity would control approximately 19 percent of the U.S. grocery market share. With Walmart already holding 25 percent (or 30 percent when including Sam’s Club) and Costco holding 9 percent, the top three grocery retailers would command over half of the market. This consolidation would result in a few major players exerting significant influence, potentially challenging Walmart’s position.
It’s worth noting that the Kroger-Albertsons merger distinguishes itself from Amazon or Walmart, as both Kroger and Albertsons already operate multiple retail brands, creating the appearance of numerous independent players. This merger would consolidate all these brands under one entity, potentially reshaping the competitive landscape.
The Landscape of Brands
Apart from their respective company-owned stores, Kroger operates various brands such as Ralphs, Dillons, Smith’s, King Soopers, Fry’s, QFC, City Market, Owen’s, Jay C, Pay Less, Baker’s, Gerbes, Harris Teeter, Pick N’ Save, Metro Market, Mariano’s, Fred Meyer, Food 4 Less, and Foods Co. Similarly, Albertsons operates Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets, and Balducci’s Food Lovers Market.
Potential Doom for Some
The entrance of another major grocery retailer could intensify the pressure on smaller players and disrupt the power balance in supplier relationships. According to Stacy Mitchell from the Institute for Local Self-Reliance, the top two retailers would control more than 70% of the grocery market in over 160 cities. This consolidation could lead to the closure of competitors’ stores, potentially driving local grocers out of business.
Greg Ferrara of the National Grocers Association believes that the merger could give “a single supermarket giant” even more control over “the nation’s food supply chain.” This could further increase competition for smaller stores. However, Kroger and Albertsons argue that the consolidation might lead to better prices for consumers. Ferrara expresses concerns about the potential disadvantage faced by smaller competitors and the increased anticompetitive buyer power over grocery suppliers, which could ultimately harm consumers.
Potential Boom for Consolidation
Kroger Chairman and CEO Rodney McMullen views the merger as an opportunity to bring together two purpose-driven organizations that deliver superior value to customers, associates, communities, and shareholders. This merger could signal the beginning of a consolidation trend, with more mergers likely to follow. Ken Fenyo from Coresight Research anticipates further consolidation as companies seek to expand through mergers and acquisitions.
The regional consolidation of grocery chains from 2015 to 2020, as highlighted in Coresight’s report, has already demonstrated the market share growth of national giants through the acquisition of midsize regional competitors. Dominant players like Hy-Vee in the Midwest, Wakefern in the Northeast, Publix in the South, and Grocery Outlet in the West have already reshaped the market. The Kroger-Albertsons mega-merger could trigger additional changes in market share and drive further consolidation.
Embracing the Future: Zooming Ahead
Mergers like Kroger-Albertsons could expedite the adoption of technologies such as big data and e-commerce in the food and beverage industry, fostering the growth of online sales. Albertsons has experienced rapid growth in e-commerce sales, leveraging a successful click-and-collect strategy. Their digital sales grew by 36 percent in the second quarter of 2022. Kroger, through its partnership with the Ocado Group, has already implemented automated customer fulfillment centers. Meanwhile, Albertsons has focused on collaborations with Instacart, DoorDash, and Uber Eats.
The introduction or expansion of technologies like robotics and customer fulfillment centers can enhance profit margins and contribute to the overall success of the merged entity. The increased scale resulting from the merger may provide both Kroger and Albertsons with the necessary resources to invest in cutting-edge technologies. This could drive a boom in the utilization of big data and high-tech solutions, bolstered by substantial financial backing. Numerator.com reports that Albertsons’ e-commerce share nearly tripled during the 12 months ending September 30.
Room for Growth and Blooming Opportunities
Despite the potential challenges, there may still be opportunities for smaller players to thrive. In response to antitrust regulations, Kroger-Albertsons is likely to divest or close overlapping stores, particularly in California, Texas, Washington, D.C., Phoenix, and other regions. These closures may create opportunities for competitors to expand their presence and gain market share.
Additionally, the scale resulting from the merger could lead to operational efficiency, potentially translating into lower prices and increased bargaining power. This could ultimately benefit consumers. However, some customers may embrace a “small-is-beautiful approach,” seeking a sense of community in smaller, independent grocery stores. Independent grocers, with their focus on customer service, flexibility, and passion, could find their niche in the market.
The potential merger between Kroger and Albertsons carries significant implications for the food and beverage industry. It has the potential to reshape the competitive landscape, challenge established players, and drive consolidation. The adoption of new technologies and the growth of e-commerce may revolutionize the industry and create new opportunities for innovation. However, it is essential to monitor how this consolidation impacts smaller players and the overall market dynamics. As always, factors such as price, selection, convenience, location, service, and customer loyalty will continue to shape the industry’s future.