Kroger’s proposed $24.6 billion bid to acquire smaller rival grocer Albertsons would create the third largest U.S. grocery retailer with sales of a combined $208 billion (trailing only Walmart and Amazon’s Whole Foods).1 Albertsons store locations complement Kroger’s national grocery footprint and will assist Kroger in regaining market share that had dropped to a three-year-low of 6.7 percent by 2022. In addition, the union of the companies will broaden Kroger’s Our Brands private label product portfolio and will potentially accelerate shareholder value (through cost efficiencies and added pressure to suppliers and labor unions).
Consolidation in the grocery industry has been accelerated recently by the COVID-19 pandemic, during which many shoppers opted to order online and get delivery through apps like Instacart rather than visiting stores. Big retailers such as Walmart and Amazon have been investing billions to improve their online shopping experience and automate to reduce costs, giving the larger firms an advantage because of their deeper pockets for technology investments.
In addition, high inflation in 2022 caused consumers to seek out retailers offering cheaper private label goods. These retailers tend to be the biggest in sales: Kroger, for example, boasts over 10,000 Our Brands products and said its private label sales surged by 10.4 percent in the third quarter of 2022.
Recently, most of the M&A activity in the sector has been among smaller regional players, such as Tops Markets’ February 2021 merger with Price Chopper/ Market32.2 The continuing consolidation in the grocery business is expected to put renewed pressure on such regional players that don’t have the financial heft to expand nationally or acquire expensive technology. Even within regions, it can be expensive to roll out the logistics to move items like meat and fresh vegetables from one city to another. Either they go into new markets or pick up distressed grocers that have only one or two outlets.
Without merging, the next phase for these regional players is likely to be combining forces in loose tie-ups rather than M&A to make technology investments in shared platforms that can accommodate customers who want to shop for groceries online.
- “The PG 100: Ranking Top Food Retailers in North America,” progressivegrocer.com, June 15, 2022.
- “Tops and Price Chopper to merge. What it means for customers,” Feb. 8, 2021, DemocratandChronicle.com