What the $24.6B Kroger-Albertsons Merger Could Mean for Groceries

I’ve noticed it across all the grocery stores - even Walmart(!!) - I think the upscale stuff is an attempt to maintain some profit when faced with squeezing margins. Though I have to wonder how much of the upscale stuff never sells and gets thrown away, dumpsters behind grocery stores are depressing, never look in them.

If anything, Albertson's took their acquisitions lower-end.

You can't talk about grocery stores in the US without mentioning the roles of "dollar stores", "pharmacies" and the food desserts that created such a demand for these alternative grocers. Maybe traditional grocers moving upmarket is a reaction to the low end needs being serviced by these market gap-fillers.

Edit: Fixed one spelling mistake but not the other that I was called out for ;-)

I think Aldi's strategy of cheap, quality staples will continue to get traction. Lidl's trying to have it both ways and doesn't seem to be as successful.

Dollar stores however are growing rapidly. Where I grew up used to be upscale now there's dollar stores everywhere.

I think Kroger also own QFC and King Sooper's. Hence you have to include their locations as well. Apologies if you were already implicitly referring to them when you mentioned Kroger.

Monopoly? I thought so too, until I found out that Walmart is the largest grocer. This is a merger of #2 and #3 (at least in the West - Safeway (Albertsons) isn't even #3 nationwide).

They're going to create a lot of shareholder value.

The real cartel is in the grocery suppliers. Grocery stores all get their food from the suppliers.

https://en.wikipedia.org/wiki/Performance_Food_Group

https://en.wikipedia.org/wiki/Core-Mark

These are the people all the farms sell to.

Depends where you live I suppose. I live in an area where there must be at least a dozen different grocery stores in a twenty miles radius. But I'm sure there's plenty of places in the country where that's not the case.

Many, many places don't have that competition. Plenty of communities are at risk of losing their two local grocery stores and seeing them become just one.

Grocers are not evenly distributed, so while you are correct that at a national level there exists competition, it doesn't exist everywhere.

And while a monoculture in an area might represent an opportunity for a grocery store to disrupt things, the people living in that monoculture gain no benefit from that opportunity - they have to live with the monoculture until someone maybe fixes the problem.

As I posted elsewhere, Seattle has about 30 standard chain grocery stores within city limits and all are owned by Albertsons or Kroger. The rest are smaller operations, boutiques like like Trader Joe's, or higher-priced like Whole Foods. There is no Walmart in Seattle, and many of the 4-5 Targets are smaller stores with limited selection.

Keep in mind that both Kroger and Albertsons each already own several other large grocery store brands, so some of that abundance of choice is an illusion.

Both brands are the parent companies for quite a few grocery chains. I wonder if this gives them more overlap than appears on the surface.

In DFW metroplex there is major overlap. They will have HEB competition here soon though.

There's major overlap of sub-brands in some regions:

* Mountain states: King Sooper vs Albertson's

* PNW: QFC/Fred Meyer vs Safeway

* California: Ralph's vs Safeway

And that's only the regions I'm familiar with.

I think the next battle is grocery pickup/delivery and the tech needed for it.

Many more locations, cusyomers and more money would surely help there.

The back end logistics of grocery stores get complicated, but lager networks are strictly better because they get more leverage with suppliers.

They can also spread the expense for R&D/training materials etc across more stores and wider advertising channels without significant viewers being outside the range of their stores.

groceries are traditionally thin margin so you can reduce overhead in the administrative, marketing, supply chain parts of the business. you also get bargaining power with producers. most packaged food producers are already "massive" and you generally see the same brands with only minor regional variations (like some different kinds of bread) from store to store across the country. they would also have a better ability to purchase from local producers, pushing out smaller grocers and making it harder for them to access the limited supply of local farms and creameries etc. basically all the advantages of a streamlined supply chain would happen here (instead of running two competing supply chains in the same region they can now run one which knows the stocking demands of all the stores). There are actually a lot of good reasons for the food business especially to have only one retail outlet, since it would reduce food waste from overbuying, and simplify consumer choice problems (i have to go to a few stores if i really want to get all the brands I like) except for the fact that it means inevitable monopolisitic pricing and ends up punishing producers because they have no other options for who to sell to.

The economies of scale on grocery store mergers is that you can reduce the number of stores you maintain, because typically competitors will have stores near each other. Don't need Albertsons and Kroger stores a block away from each other after you operate as a single company.

Recently, Market Basket (a family-owned New England chain) was rated #1 during inflationary times (https://www.supermarketnews.com/retail-financial/market-bask...). Market Basket made news a few years back because their non-union employees basically organized a strike to save management - yes, the workers were standing up for the CEO that got ousted. The chain was co-owned by two sides of a family and one side wanted to oust the CEO and co-owner - but the workers loved how he treated them and basically forced the other side of the family to sell to the CEO. Not only employees, but a lot of suppliers wanted to stand up for the ousted CEO. See: https://en.wikipedia.org/wiki/Market_Basket_protests

One of the reasons that they wanted to oust the CEO is that they wanted a dividend while the CEO instead decided to cut prices by 4% for the entire year. It was kinda amazing going grocery shopping and looking at the receipt and literally seeing 4% come off the price of every item. No, they didn't hike prices just to give the feeling of 4% off.

I bring this up because while Market Basket has economies of scale, it isn't an international company like Ahold Delhaize of the Netherlands which owns Stop & Shop, Giant, Hannaford, Food Lion, and over 2,000 stores in the US (and tons around the world); it isn't Walmart or Amazon; it isn't Albertsons with 2,250 stores or Kroger with 2,700. It has 90 stores. Yet they seem to be incredibly profitable while offering better pricing to consumers.

A friend of mine who worked in the supermarket business in Nebraska knew about Market Basket because they were such an example of how well-run a supermarket could be. No loyalty cards, no self-checkout, employees have profit-sharing, healthcare, and sick time, and instead of hiring outside execs they've tended to promote from within - people who have worked for the company for decades, sometimes starting part-time as teenagers. At the same time, this seemingly old-fashioned company is thriving.

In some ways, it makes me question a lot of what companies do to optimize things. Yes, there are all sorts of things companies can do like surge pricing, but that can leave a bad taste - and it leaves people wanting to do it back to you if they ever have the power. Sure, you can try and exploit suppliers, but that can create a hostile, unstable relationship. How much money are you burning trying to see exactly how little you can pay? Do you hire expensive execs, an army of data scientists and economists, etc. to see how you can use your power to get a little bit extra?

I do think the Kroger-Albertsons merger will be good for the companies/shareholders. Before, if you were a supplier, you'd have these two 2,000+ store chains to sell to. Now there's one less buyer and economists research this a lot (and there's been a lot of good work on monopsony/oligopsony recently). If you're a worker, there's one less supermarket employer to work for. However, those aren't economies of scale - those are just market power gains.

I do think there are still economies of scale, but they do become smaller. When you already have 2,000+ stores sharing an inventory system, its cost can be pretty small and moving to 4,000+ stores might not really change things much. Plus, there's a lot of cost and pain integrating systems to save that money and companies spend years doing it.

Still, it certainly doesn't seem like a necessary merger to remain competitive. Small chains like Market Basket (90 locations), Wegmans (109 locations), Central Market (10 locations), and Heinen’s (23 locations) get top marks from Consumer reports (https://www.consumerreports.org/products/grocery-stores-supe...) way ahead of the mega chains (many of which are near the bottom including lots of Albertson's brands, lots of Ahold Delhaize's brands, Walmart, etc).

Kroger is unionized

Monopolies can and do occur outside of mergers. And sometimes mergers allow smaller firms to join together to better compete with more dominant firms.

I think the answer is to better enforce anti trade laws to ensure competition.

Like anything in the real world, an absolute rule like this is inappropriate, but I agree that we need a much higher bar of scrutiny on these kinds of mergers before they are approved.

A rather simple solution is to tax corporations progressively more with higher revenue or assets. This would counteract the economic incentives to merge towards ever bigger entities.

>IMHO mergers should be illegal. Just never allowed, maybe exceptional circumstances like charities that wouldn't otherwise be able to survive.

Disagreed. In dying industries, mergers make a lot of sense.

They would just not merge. They would instead sell the trademark and buildings and then close down and payout their shareholders.

Thank you - and to everyone that provides these links.