On October 14, 2022, Kroger and Albertson’s Cos. announced a merger valued at more than $20 billion. The news, perhaps unsurprisingly, raises concerns about antitrust violations and union issues. Still, a recent article published by Placer.ai reported that the merger (if it goes through) will allow both companies to cut costs and compete with retail and online giants.
Connect CRE posed a series of questions to RJ Hottovy, Head of Analytics Research at Placer.ai and author of the aforementioned article, “Kroger and Albertson’s: A Merging of Strengths.”
Connect CRE: How, exactly, will this merger impact Walmarts and other types of supercenters?
RJ Hottovie: This merger could put pressure on mass merchants like Walmart. Despite having a leading market share in the grocery category, Walmart has at times faced issues with fulfillment and merchandise assortment in groceries. The size of a combined Kroger/Albertsons—even adjusting divestments to gain regulatory approval—will give it the ability to compete with Walmart’s pricing while providing consumers with other perks like the Just-for- u and fast execution of online orders. The Kroger/Albertsons combination is unlikely to compete with hard discounters like Aldi, Lidl and Grocery Outlet. But they will likely prey on mass merchants on convenience and experience.
Connect CRE: Your article mentions a potential impact on online grocery shopping. Does the Albertsons/Kroger merger create the infrastructure needed to take on Amazon?
RJ Hottovie: Kroger and Albertsons have made significant investments on the digital front in recent years. Albertsons’ Just-for-U loyalty program and app has helped increase visitation patterns among its most loyal households.
Additionally, Kroger’s Ocado-supported fulfillment centers are experiencing strong visitor trends. While the company would need to open more Ocado fulfillment centers to compete directly with Amazon, it has been successful in every market it has opened so far and its online ordering experience can be replicated. Albertsons President and CFO Sharon McCollam – who has extensive digital commerce experience from her previous roles at Williams-Sonoma and Best Buy – is also positioning them as a disruptive presence in online grocery going forward.
Connect CRE: Is there potential for this to lead to more consolidations in this area? What impact would this have on commercial real estate space, especially in malls anchored by a grocery store?
RJ Hottovie: The ripple effect on the rest of the commercial real estate and grocery retail market will be interesting to watch. There is a strong possibility of further industry consolidation, not just from the eventual acquisition of stores that companies would have to divest to meet regulatory requirements. For example, we expect Koger/Albertsons to build a chain of 300-400 stores with locations in Southern California, Utah, Nevada, Colorado, and New Mexico. But other banners, like Mariano’s in Chicago, could become targets for other Midwest players. Assuming Kroger/Albertsons succeeds in improving the customer experience, they could become an even more preferred tenant for grocery-anchored malls. This could make it more difficult for smaller chains to secure space in upper centers.
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