A Supermarket Super Merger
The 12% increase in prices on American supermarket shelves is not the only grocery news grabbing consumer attention in 2022. In October, two North American grocery giants, Kroger and Albertsons, announced their intent to merge in a historic deal worth $24.6 billion. This combining of forces is a competitive response to giants like Walmart and Costco. Such a consolidation would provide the financial and operational benefits necessary to compete against those industry leaders. A merger of this size will not come easy, and a long road lies ahead for Kroger. Amongst the obstacles are: regulatory approval and a minefield of vocal stakeholders with varied optimism for the deal.
Company Insight
Kroger and Albertsons are two of the largest supermarket chains in the United States, owing their success to years of regional acquisitions. Grocery Dive reports that currently, Kroger holds the second largest grocery store market share in the U.S. at 9.9% with Albertsons at 5.7%, compared to Walmart and Costco’s, 20.9% and 7.0%, respectively. Combined, Kroger and Albertsons currently employ 710,000 associates and operate 4,996 stores, 66 distribution centers, and 52 manufacturing plants. Together, they will serve 85 million American households.
The Arguments
There is a lot of speculation about the true impact this merger will have on stakeholders.
Kroger has defended the merger as essential in furthering their success in such a competitive market. In a statement, Kroger Chief Executive Officer Rodney McMullen said, “We are bringing together two purpose-driven organizations to deliver superior value to customers, associates, communities, and shareholders.” Kroger has stated that many benefits would result for those stakeholders, such as lower prices for consumers, further investment in their employees, fresher products for communities, and higher total shareholder returns. Yet, critics of the merger remain skeptical about who it will actually benefit.
Amongst these critics are Kroger-Albertsons employees who fear divestitures will lead to store closures and layoffs. In addition, politicians have pushed back with their concerns about what a merger this size would mean to consumers and the industry. Many feel that continued consolidation of the grocery industry could increase the likelihood of coordinated pricing behavior, facilitate the creation of food desserts, and be anti-competitive. A U.S. Senate Judiciary hearing took place in November 2022 to directly question Kroger and Albertsons executive leadership about these concerns.
In the upcoming year, Kroger will need to successfully navigate an intensive review by the United States Federal Trade Commission (FTC). The FTC will analyze the merger’s impact on competition and consumers. If approved, the deal is expected to close in early 2024.
What This Means for CPG Brands
While consolidation in the grocery industry presents significant opportunities for brands, it does require a degree of caution and planning before engaging with such a meaningful retailer. To be successful with the new Kroger-Albertsons group it will require a validated value proposition, a proven track record in the other retailers, a smoothly operated supply chain to service over 4000 stores, and significant investment in marketing, promotions, and team to unlock this opportunity.