Groceries of scale
Kroger, one of America’s largest grocery stores, is embodying their ideal customer as they go on a spending spree, with a $24.6bn offer to buy rival Albertsons, the parent company of Safeway, Vons and other chains. If approved, the combined entity (Krogersons?) would be a credible rival to Walmart’s scale in groceries, employing more than 700,000 workers across nearly 5,000 stores, with a ~16% share of the US grocery market.
In an industry in which margins can be razor-thin — Kroger’s average operating margin has been 2.6% over the last 10 years — bigger is usually better. More scale and more products tend to make retailers more competitive, which should be better for consumers — or at least that will be the argument that Krogers-Albertsons tell to regulators.
Self-checkout, help needed
At a time when food prices are rising sharply (see our recent inflation chart here), regulators are unlikely to let this deal pass through unchecked.
Kroger believes it can realize some $500m a year of cost savings with the deal, putting it in a better place to lower prices and compete against Walmart, Amazon and the fastest growing segment of US retail — dollar stores. To placate lawmakers, some analysts estimate that as much as one-quarter of Albertsons’ store base may need to be sold to a third-party to avoid limiting competition in certain overlapping regions.
