The merger of Kroger and Albertsons, announced last week, will create a new grocery retail giant that could change the game for Amazon and Walmart.
So says Anat Alon-Beck, professor of business law at Case Western Reserve University. “We’re talking about the merger of two of the biggest grocery chains — one of the biggest mergers and acquisitions in this space,” she told the International Business Times in an email.
“It’s a deal that could completely reshape the current landscape. This new company would be so big that it could compete with companies like Walmart and Amazon in the grocery sector.”
Sean Turner, co-founder and CTO of Swiftly Systems, agrees, “Although Amazon and Walmart have dominated online grocery retail for years, the consolidation of two supermarket giants like Kroger and Albertsons will eventually lead to stiff competition in the market,” he told Opposite IBT.
Turner believes the merger can help the new company combine resources and implement the technologies it needs to accelerate and grow its online grocery business, as well as leverage a massive physical footprint and loyalty programs to grow its customer base to expand further.
Costas Mastoras, owner and president of New York-based Titan Foods and Optima Foods, sees the supermarket industry’s consolidation as a result of rising operating and overhead costs. They make it difficult to stay in business and make a decent profit.
“Our cost of doing business has increased across the board,” he told IBT in an interview. “And it’s becoming increasingly difficult to pass it on to consumers on a tight budget. Merging with a competitor could be a way to reduce those costs.”
The rising cost of doing business in grocery retail is a more acute problem for smaller supermarket chains operating on razor-thin profit margins. For example, Kroger and Albertsons have an economic value added (EVA) of about 3% over the past few years, half that of Walmart.
But that would change when the two companies merged, creating an entity with nearly $200 billion in sales and more than 5,000 stores across the country. Wes Wright, Founder and CEO of CookOut News LLC, provides further insight into the changing competitive landscape after the merger and notes the tremendous size of the new company.
“They will be about 50% larger than the next three largest supermarket chains (Ahold Delhaize, Publix and HEB) combined on a revenue basis in 2021,” he told IBT. “The bottom line is that this represents tremendous purchasing power. In addition, they will see benefits on the cost side by reducing advertising, storage and transportation costs from the size of a combined operation. It also brings the combined organization neck-and-neck (Walmart and Sam’s Club) in grocery sales and number of stores.”
Nevertheless, the merger is not a sure-fire success. According to Professor Alon-Beck, the need for FTC approval comes at a bad time. She notes that news of the merger broke when Republican-appointed FTC Commissioner Noah Phillips announced his resignation.
“Phillips’ departure comes at a time of tension between Republicans and Democrats on the commission chaired by Lina Khan,” she said. “There is a reference to termination fees in Section 8 of the SEC filings. If regulators reject a merger, then there’s termination, which means there would be a so-called ‘breakup fee’ — meaning Kroger would have to pay Albertsons $600 million.”
That could prove to be a deal breaker in one of the most important mergers in recent history.
https://www.ibtimes.com.au/why-kroger-albertsons-merger-could-change-game-amazon-walmart-1839597?utm_source=Public&utm_medium=Feed&utm_campaign=Distribution Why the Kroger-Albertsons merger could change the game for Amazon and Walmart