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Is Retail Grocery Heading Toward a Final Showdown?
The Kroger-Albertsons merger is estimated to have a 75% chance of being completed, as reported by WCPO 9. If this merger is fully approved, Kroger and Albertsons would control approximately a quarter of the food retail market in the United States alone.
In light of this, “the secretaries of states from Colorado, Arizona, Maine, Minnesota, New Mexico, Rhode Island, and Vermont wrote Federal Trade Commission Chair Lina Khan asking the agency to stop the merger,” according to Supermarket News. This continued disapproval of the merger comes even after U.S. District Judge Vince Chhabria in San Francisco dismissed an antitrust consumer lawsuit that challenged the $25 billion bid by Kroger to acquire Albertsons, as reported by Reuters.
On the heels of this developing merger, ALDI has now revealed its plans to acquire Winn-Dixie and Harveys Supermarkets, according to RIS News. The financial terms of the deal have not yet been disclosed, but “the deal is set to include approximately 400 stores spread across the southeast in Alabama, Florida, Georgia, Louisiana, and Mississippi.”
This further moves along ALDI’s financial investments in the specific region since it entered the market in the mid-1990s. Currently, the supermarket retailer has its regional headquarters and distribution center in Loxley, Alabama. RIS News also states that “this strategic move is likely geared towards facilitating the growth of new stores, with a targeted rollout of 20 additional ALDI locations in the vicinity by year’s end.”
Both of these recent mergers signal that there might be increased pressure from shrinking margins, loss of profits, and the rise of inflation hurting supermarkets more than before. Although ALDI is not a publicly traded company, stock prices for Kroger Co. continue to steadily decrease as of August 2023.
Recent rivals have entered the grocery arena, with Target being a prime example of how the grocery sector was forced to expand with increased competition. These retailers have made their presence known, and as of 2023, Walmart has become the U.S.’s largest grocery retailer, further proving that dedicated supermarkets are in danger of being superseded.
Discussion Questions
DISCUSSION QUESTIONS: Do you think the future of grocery retail will involve only Walmart, Target, and the final one or two remaining grocery supermarkets that have merged? If supermarkets expand their products to non-grocery items, would they be able to increase foot traffic, customer loyalty, and profit?
Poll
Loading …BrainTrust
Dave Wendland
Vice President, Strategic RelationsHamacher Resource Group
DeAnn Campbell
Head of Retail Insights, AAG Consulting Group
A combined Kroger and Albertsons would absolutely NOT control a quarter of the US food market. This is errant nonsense. The US grocery market is one of the least consolidated in the mature retail world. The top five players account for 30.8% of food market share. In the UK this figure is 57.6%, in France it’s 43.1%, in Australia it’s a whopping 68.2%. The reason markets tend toward consolidation is because consumers demand low prices and great value and, in a margin thin category, this can best be delivered by very large corporations which trade on volume. As inflation bites and trading conditions become more challenging, this same dynamic is playing out in the US with the merger of Kroger and Albertsons, and the more recent acquisition of Southeastern Grocers by Aldi. Everyone is jostling for the advantage of scale. While competitive dynamics will intensify, we are a very long way from an endgame. The US market is still fragmented, and foodservice plays a much bigger role in share of stomach than it does in other markets, so adds even more competitive impetus.
Amen!
I’ve seen these percentages before, so have to point out that the UK or French markets are about the size of Greater Texas. And when we zoom in, then yes probably five players do control 3/5 of the grocery spend there. Australia is always a special case because two holding companies control essentially all the mass retail. There just isn’t any more cost that can be squeezed out once you get past a certain scale, because you always have distributed food production on this continent and thus the need for regional warehousing and buying teams. Even Walmart is at the edge of their skis, and in this forum we’ve discussed at length their problems in maintaining fresh meats and produce.
Good summary on that 30.8% market share reminder.
And while national mass chains are seeking continued growth and prominence, behind the scenes, there is a large supply chain feeding the remaining 70% of grocers. Many of these regional and small independent grocers do quite nicely, with the help of regional or local distributors, farmers, ranchers, fishers, brokers, and bakers who can’t possibly support national chains, nor to they want to.
We’re far away from a mega grocery chain apocalypse.
Popular chains like H-E-B and Publix prove there’s enough room for many grocers to win. Expanding beyond grocery makes supermarkets more convenient and helps them capture bigger, cross-category baskets.
I’m with you, Lisa. There’s proof all around the US that small or regional independents are not only strong, but are doing well, especially if they have a healthy supply chain. In many markets, you don’t have to shop Kroger, Albertsons or Walmart to find good products and at a deal.
Needless to say, the grocery market continues to be turbulent. Some (Walmart and Aldi come to mind) have become efficient destinations and attracted a large share of spend. While others, such as Target, have not yet captured the imagination of shoppers. Does this mean that the industry is consolidating to only a handful of survivors? I think not.
Food is essential in EVERY neighborhood across this country and a few mighty players cannot serve them all well. So, there will always be room for innovators, disruptors, and best-in-class leaders (e.g., H-E-B, Wegmans, Hy-Vee). Not to mention the community-based independent operators that dot our landscape.
To be successful at attracting shoppers and earning their loyalty, grocers need to rethink their assortment, their retail footprint, and their overall experience. Conventional grocers (dare I say, “legacy” operators), must reinvent themselves and rethink their market position, or they do run the risk of being left behind.
I have a front-row seat in Colorado to the tensions playing out here. The concern is over small towns and creating monopolies or even grocery deserts. That is a concern both out east on the plains, but also in the mountains too. When Kroger acquired King Soopers, they swore up and down that they wouldn’t shut down stores that would create grocery deserts, but then of course they did anyway. So Colorado has a lot of skepticism about whatever assurances Kroger is making this time around.
National chains or not, grocery is inherently local, and needs as short of a supply chain as you can get – and one that increasingly needs to keep even shelf-stable goods cool in the summer or not frozen in the winter while they’re being transported. I feel like that pressure will continue to act even on national chains – and I think there’s growing awareness from states and local communities of just how important a grocery store is to the health of a community. If these big chains aren’t careful, they will find their hands tied more and more about what they can and can’t do – which may make these mergers more difficult.
The root cause of the current wave of grocery mergers is debt, so I would argue that the coming landscape changes were inevitable. Aldi scored the deal of the decade because of the Bi-Lo debt that Southeastern Grocers never got out from under. Kroger’s investments in home delivery infrastructure have stressed their bottom line because eCommerce generates lower profit margins. They need the Albertsons markets to scale up their customer pool. It’s true these mergers will impact market competition and investor opportunity, but without them these communities risk losing access to any options other than Walmart. In fact, this merger might be the only way to keep Walmart from monopolizing the industry itself.
Neil Saunders’ data more accurately reflects the US market. That being said, the future of the non mega food retailers is the continued search for differential advantage to maintain their place in the market. While Walmart & Target were successful in going from non food to food, I am not as sanguine that smaller food retailers can go the other way.
Richard,
Well Meijer did it, i.e, went from a dairy store to a superstore, so it can be done.
Consolidation among traditional grocers operating nationally is inevitable, but there is plenty of space in this category for strong regional players like Publix, H-E-B or Wegmans (not to mention more local chains like Schnucks, Sendiks and Lunds-Byerly). Meanwhile, there is still plenty of food retailing happening at Walmart, Aldi, Target, Whole Foods and others.
So, there may be only a handful of traditional national grocers left standing but there is enough market share to go around — especially if some of those regional or local chains decide to do some merger activity of their own.
At our local coop, we’ve seen sales surge over the last several years. At first, I wrote it off the pandemic grocery bump. But, three years later, the trend is showing no sign of slowing down. It’s a very very tiny sample, but I’m convinced that there is a significant segment of the population who are very interested in local food systems. I have also noticed that as inflation has driven up prices for chains, the coop has been able to hold the line mostly. Part of this has to do with local sourcing of meat, dairy, and produce. The local producers haven’t been as impacted by price. During the pandemic, they also weren’t really impacted by shortages or supply chain issues. The coop was in stock on basics when Target and others were not.
The bottom line the, the coop, once an expensive niche option, is now in line with most grocers. They’re still a niche, but I think it’s proving a point that given choices, people will opt for better, local options.
Strong regional grocers will continue to be successful. For example, chains like HEB in Texas and Giant Eagle in Ohio. Both dominate their marketplaces. Smaller players, such as Heinen’s in Ohio, earn strong shopper loyalty because of outstanding customer service — something mega chains do not offer.
First of all, a little historical accuracy. The first Target Supercenter with a strong food statement opened in 1995, that’s almost 30 years ago, hardly a “recent” entry. Second, I agree with Neil Saunders to the extent that the proposed merger would not give Kroger/Albertsons a quarter of the US food market.That’s just bad math based on the erroneous foundation laid years ago by the major food trade associations when they established who were and weren’t competitors – a foundation, by the way, that for years didn’t include Walmart in the competitive set. Also, I’m hard pressed to think of an example from the supermarket industry where “Chain A” had a 30% share and “Chain B” had a 20% share and the merged Chain A&B had a 50% share. Share is actually lost in supermarket M&A’s, not retained. Finally, the idea that the future of grocery retailing (presumably in the US, although it isn’t stated) will come down to three or four competitors is laughable.Of course that won’t happen. And lastly, while it is presented as a new idea here, supermarkets not only have, “… expanded[ed] their products to non-grocery items … they have done so for decades. My local Kroger sells everything from clothing to patio furniture, and almost everything else. I suggest a visit to a few supermarkets might help clarify the question a bit.
While I do not support the merger of Kroger and Albertsons, the grocery market is as competitive as ever. While we have lost many of the independent grocers, the market for groceries has broken into many subsets. Low-end players such as Grocery Outlet, Winco, mid-range players such as Kroger and Albertsons, high end players such as Whole Foods, Trader Joes, New Seasons Market, Metropolitan Markets, Market of Choice, warehouse clubs such as Sams, Costco, and BJs and then of course the mass market stores such as Target and Walmart, who by the way probably do the worst job in grocery of any seller.
I struggle to believe that Walmart is the dominant player in grocery. Or that Target is much of a factor. When you remove panty goods and cleaning supplies, do either of these retailers dominate with fresh foods? I highly doubt it as both struggle with fresh foods that are so important to a healthy diet.
Speaking as a 30 year veteran of Target, you are spot on that Target is not a major player in grocery. They’ve really not wanted to be, they think of grocery as a frequency driver more than anything. Walmart on the other hand has 25% of the grocery market share in the United States.
“No” to all of the above (the poll responses, I wouldn’t exactly say validate this – the distribution is strange…to say the least! – but are consistent with it). Grocery isn’t like the department store segment – pretty much macy*s…or nothin! – and given the transience of many prior mergers, I don’t put a lot of stock in the current ones.
This article is incomplete in its defining of the top grocers, since it doesn’t even mention Costco and Amazon. Leaving out these 2 major players shows the gap in the article’s argument that a Kroger/Albertson’s merger would be bad because it would create this mega grocer, that would stifle competition and pricing.
Neil is dead on. The fragmentation of the U.S. grocery market continues. And there are plenty of innovative retailers ranging from employee-owned and small chain regional players to single store independents. Nowhere near the end game even after these consolidation plays.
We are in a period of consolidation but there is still plenty of variety across markets to have more than a Walmart+Target + 2 supermarkets reality. Many regional grocers play an important role in local markets and provide a competitive offering. Also, the demographics are changing in the US where the Hispanic-American, Asian-American, and African-American populations are growing faster than the average in the US. Formats catering to these growing demographics may offer more variety in certain markets and these customer needs may not be able to be met with the mega grocery chain’s typical formats.
There will be further consolidation in grocery and with it, the shrinking and blurring of the grocery channel as a whole; similar to Mass and Drug.
In the current state of retail and with the continued growth of retail media networks, smaller regional grocery increasingly need scale to compete for brand investments and they need modern infrastructure to meet the demands of today’s modern, omnichannel consumer. There is perhaps more safety in numbers than not for regional grocery today.
While adding non-grocery items may increase basket size, its doubtful it would increase foot-traffic. Grocery has reached a point of inflection and the Kroger/Albertson’s merger will be the tipping point of the next evolution of the grocery channel.
I don’t buy into the sky is falling narrative of a few national chains dominating the grocery landscape across America. There are too many successful small and regional independents in trade areas all across the country. Many of these stores are operating with healthy sales, customer counts and an EBITDA allowing them to re-invest in their stores. Key to success though, is each region must have ample supply chain options, good farms and ranchers to help them succeed. This pushes back on the false notion, wherever it came from, that there is no upside in grocery unless stores can achieve mega mass scale.