KROGER IN COURT: Grocer Trying to Keep Up With Walmart
Day three of Washington state’s antitrust case against the proposed $24.6 billion Kroger-Albertsons merger commenced on Sept. 18 in a Seattle courtroom.
Attorney General Bob Ferguson filed a lawsuit back in January to block the grocery merger, claiming that the deal of the two largest supermarket companies in Washington state will severely limit shopping options for consumers and eliminate vital competition that keeps grocery prices low.
“This merger is bad for Washington shoppers and workers,” Ferguson said. “Free enterprise is built on companies competing, and that competition benefits consumers. Shoppers will have fewer choices and less competition, and, without a competitive marketplace, they will pay higher prices at the grocery store. That’s not right, and this lawsuit seeks to stop this harmful merger.”
[RELATED: Kroger in Court - Washington State Wants to Avoid Another Haggen Fiasco]
Kroger contended that merger opponents are ignoring the fiercely competitive and rapidly evolving environment that Kroger and Albertsons operate in. The company insisted that it must expand, adapt and, most importantly, continue to lower prices to compete with global behemoths like Walmart, Costco and Amazon, which have moved rapidly and effectively to dominate grocery retailing.
Kroger CEO Rodney McMullin testified in the recent FTC hearing that “anybody who sells food and grocery products is somebody Kroger competes with. From club stores to discount stores and dollar stores and natural and organic stores, it’s an extensive list.”
The grocer specifically has its eyes on Walmart, the biggest food seller in the United States.
According to Kroger, Walmart is singularly focused on being the national leader in price, and Kroger is singularly focused on closing the gap with Walmart on pricing. Through the merger, Kroger said that it will drive down pricing at Albertsons (which is currently priced relatively high compared with other retailers) so those stores can better compete with Walmart.
Kroger also points out that customer behavior continues to change, and that the myth of “one-stop shopping” that merger opponents raise doesn’t accurately represent where customers are spending their food dollars today.
This cross-shopping trend was recently covered in Upside’s "Consumer Spend Report 2024." The report highlights the rise of the "uncommitted customer" – an opportunistic consumer group that shops across different locations and formats, prioritizing its own needs over brand loyalty. Upside’s survey shows that shoppers visit about three different stores monthly. Price sensitivity is driving uncommitted customer behavior.
[WEBINAR: 2024 Grocery Shoppers - Spending Trends and What’s Next]
To further help ease competition concerns, Kroger and Albertsons have already agreed to divest 579 stores to C&S Wholesale Grocers, the largest grocery wholesale distributor in the United States, and the eighth-largest privately owned company in the United States.
Kroger believes that C&S’s existing distribution network positions it well for retail expansion, and that its procurement network and deep industry experience will enable C&S to aggressively compete in the grocery retail market. The company currently operates 25 retail supermarkets and is a franchisor of 165 additional locations.
As part of the merger, C&S is getting a clone of the technology stack that Albertsons currently uses to run its business. It will also receive three years of historic customer transaction data from Kroger and Albertsons to help develop a loyalty program.
C&S is already budgeting $150 million per year to bring down prices and better compete with large competitors. According to Kroger, prices at C&S post-merger will be lower than many current prices at Albertsons stores.
Albertsons COO Susan Morris, an industry veteran with nearly four decades of grocery experience, will lead C&S’s retail division post-merger. Of the 579 stores in the divestiture package, Morris is already running 486 of those stores today. These are teams in geographies that already report to Morris.
C&S was already approved as a divestiture buyer of retail grocery stores in 2021 by FTC. The company continues to operate all but one of the stores it acquired through the 2021 and 2022 Piggly Wiggly Midwest and Tops Market divestitures.
Cincinnati-based Kroger serves more than 11 million customers daily through a digital shopping experience and retail food stores under a variety of banner names. The grocer is No. 4 on The PG 100, Progressive Grocer’s 2024 list of the top food and consumables retailers in North America.
As of June 15, Albertsons Cos. operated 2,269 retail food and drug stores with 1,725 pharmacies, 403 associated fuel centers, 22 dedicated distribution centers and 19 manufacturing facilities. The Boise, Idaho-based company operates stores under more than 20 banners. Albertsons is No. 9 on The PG 100.
Keene, N.H.-based C&S is No. 18 on PG’s list.
