Kroger and Albertsons | Our Take

October 26, 2022
Written by: Jackie Lewis, VP of Content for CMA | SIMA
James Jackson, Director of Strategic Sales for CMA | SIMA
Phil Lempert, SupermarketGURU and CMA contributor

Kroger is buying Albertsons for over $24 billion, maybe the biggest merger to hit the grocery industry since Amazon and Whole Foods in 2017. Current market share estimates suggest a combined 15-20% share to rival Walmart’s estimated 24% of the US market. The new company is expected to divest 100-375 stores to mollify anti-trust concerns (likely closer to 600-750), leaving Kroger with nearly 5,000 stores and operations in more than a dozen new states. Competitor Walmart currently operates about 4,700 US supercenters, discount stores, and Neighborhood Markets across nearly all states.

It will be interesting to see what happens with stores and DCs that need to be divested. If small numbers and not heavily concentrated across an individual market, a regional player may purchase. However, if larger and concentrated (ie. West Coast or Great Lakes markets), there is the possibility for a larger player such as Ahold Delhaize to jump in to expand their footprint into new markets.

While the deal isn’t expected to close until early 2024, pending regulatory approval, it is important to reflect on what it means for both Kroger and Albertsons, their suppliers, and the grocery industry as a whole.

Map displaying all of Kroger and Albertsons stores in the US

What it Means for Kroger

Kroger CEO Rodney McMullen’s statement announcing the deal focused on how the combined company will reduce costs (which will be passed on to shoppers) and how the combined store brands (over 34,000 SKUs) from both companies will make it one of the nation’s largest CPG companies in the nation with sales of more than $43 billion. This will give it even more power to negotiate with suppliers (another concern of the Senate subcommittee) and potentially build greater store brand loyalty from shoppers.

Kroger dominates in the Midwest and has a large presence in the Southeast, operating its main Kroger banner in addition to Baker’s, City Market, Dillons, Food 4 Less, Foods Co, Fred Meyer, Fry’s, Gerbes, Jay C Food Store, King Soopers, Mariano’s, Metro Market, Pay-Less, Pick’n Save, QFC, Ralph’s, Ruler and Smith’s. Kroger’s foray into new markets including Florida and Boston with their microfullfillment centers fueled by Ocado should also expand into Albertsons’ market areas, the West being their strongest.  Albertsons banners include Acme, Balducci’s, Carrs, Haggen, Jewel-Osco, King’s, Pavilions, Randalls, Safeway, Star Market, Shaw’s, Tom Thumb, United Supermarkets and Vons. Many of these banners are regional and very local with little overlap; one of the reasons that the Senate subcommittee may find it difficult to simply block the overall deal. 

Decision-making is possibly the largest functional area and most daunting hurdle to overcome in an acquisition of this size, similar to previous mergers in the grocery industry.  With Kroger assuming the lead, Albertsons employees in Boise and around the country at the division/banners will be asked to adjust. Swift and decisive action by Kroger to unite the company as a stronger grocery competitor overall should establish culture – perhaps the most important aspect of the merger.

Item-level, data, systems, and other alignments will be challenging to tackle as is the case with any organizational change of this significance. Incremental work “on the side” will require additional time from internal project teams and outside support (contractors, consultants, etc.) and stakeholders should anticipate some level of disruption to the regular course of business during the integration.

What it Means for Albertsons

Albertsons will spin off a new public company, with current divestiture estimates at 100-375 stores. The Senate subcommittee recommendations likely come in higher, probably closer to 600-750.  California will experience the biggest impact, as California is Albertsons number one market with close to 600 stores (Kroger has about half that amount).

Kroger’s eCommerce offering, loyalty card data, and operational efficiencies are the obvious benefits on the table for Albertsons. Combined loyalty card data suggests a robust panel of 85 million households, with similar overall shopper profiles (Albertsons shoppers skewing slightly more affluent and Hispanic). Kroger is also already leading the charge in areas such as Plant-Based, Organic, and Private Label which Albertsons can benefit from.

What it Means for Suppliers/Manufacturers

Numerous aspects of supplier teams will be impacted from staff location/resourcing, financial (ie. promotional funding), supply chain, etc. This is marrying the #2 and #4 grocers who already have an incredibly high level of focus from suppliers now joining forces. Reallocation of resources based on the importance of the new combined business will be substantial, and Cincinnati teams will likely grow even in the wake of remote work.

Many decisions will hang in the balance until Kroger/Albertsons communicates where decision making will happen.  Will all decisions move to Cincinnati, or will it be a model similar to Albertsons with a corporate point of contact and division/banner decision making still in play? In co-located markets, will the Kroger DC remain open and the Albertson’s DC close or vice-versa?  Does your cost of doing business get better because the volume is now concentrated at one retailer or skyrocket with the aggregate volume all in one place?  Scenario planning could be beneficial for suppliers heavily weighted to one retailer or the other.

What it Means for the Rest of Retail

Competing retailers will now be faced with both Walmart, the consistently low-priced leader with scale, and a Kroger/Albertsons powerhouse with strength beyond low prices in superior quality in the perimeter/fresh area and service. The advent of this merger will most likely bring on more consolidation (and closures) among other grocery players, as competitors seek out partners to combat now 2 incredibly dominant players.

Amazon’s quest to solve the grocery/grocery delivery conundrum will be exacerbated by this merger. However, Amazon Fresh and Instacart have huge bankrolls and want to expand their brick & mortar footprints – especially in California. Divestitures in this and other areas like Chicago, Washington, D.C., the Pacific Northwest, Dallas, Houston, Denver and Phoenix could open up an opportunity for these players.