and supermarket chains,
Kroger and Albertsons announcing plans friday to merge in a mega deal
worth close to $25 billion.
So the deal between the nation's 1st and 2nd biggest
supermarket chains could potentially transform
the grocery landscape across the country
as it involves nearly 5000 stores expected to generate annual sales
of about 210 billion.
So it's starting to draw intense
antitrust scrutiny from the Federal Trade Commission
and it will require sizable divestitures to gain approval.
So joining me now to break down some of these regulatory hurdles,
how these companies might be able to overcome them is ken,
president of Research and advisory at Corset Research,
a global firm specializing in retail and technology,
can thanks so much for coming on.
So two major players in the grocery space.
How do you think regulators will react to this?
Yeah, well, thanks for having me on Christian. I really appreciate it.
Um,
I think there's no doubt that the regulars are gonna give this very tough scrutiny.
You do have to very large companies as you mentioned,
hundreds of millions of hundreds of billions of revenue,
hundreds of thousands of employees.
5000 stores and I think we'd expect pretty tight uh, scrutiny of this,
particularly when you start looking in certain local markets where
both Albertsons and Kroger is have a lot of overlap.
A lot of stores in those markets like southern California texas
and a few other markets.
So I want to run through some of these names here on the screen.
Kroger of course also operates fred Meyer ralph's King
Soopers,
of course, his own name. State stores as well, like Kroger.
Albertsons has Safeway, Acme jewel, Osco
and then Albertsons
as well, ken what might this mean for the consumer?
Um, how might it impact in fact the price that they pay at checkout?
Yeah, it's a it's a great question.
Obviously we'll have to see as they get into the merger personally.
I believe it could actually be positive for pricing.
Kroger has been a price leader for years in the market. They invest in price.
They do it very smartly using their customer data to really understand which,
which products in which prices are going to work for the consumer.
Albertsons has not been quite as much a price leader.
So I think if Kroger can bring some of its mentality around price to Albertans,
it could actually result in reduced pricing for consumers.
Obviously that will have to depend on how the merger gets implemented,
but I think this could be a positive for consumers.
So it's also interesting because of course both of these grocers
operate their grocery stores but they also operate pharmacies as well.
And we've seen a lot of movement in the pharmacy space,
some of these big pharma giants trying to become more healthcare companies.
How does the pharmacy aspect play into all of this?
Yeah, I think the pharmacies are important part of the business.
I do think both Kroger and Albertson's are
trying to see themselves more as wellness providers.
So food is medicine, I think is an emerging trend. We see,
I think from a regulatory point of view, the pharmacies,
I'm sure will be part of the review at the same time.
They're smaller players when you think of CVS and Walgreens and the pharmacy space,
certainly in grocery will be the driver,
given how large they are both are within food sales versus pharmacy sales.
But I'm sure it'll be part of the regulatory mix. Are you surprised to see this?
Given that rates
are rising?
We've seen a lot of deal activity in fact,
and certainly the bank earnings that we've been covering can these past few days
have shown that there's just not a lot of deal activity out there.
So I guess the better question might be why now, why do this deal now?
It's a great question. Albertson has been going undergoing a strategic review.
So they have been looking whether to sell
themselves or some other transaction they might make.
So I'm sure Kroger and Albertsons have been chatting for
a while trying to understand if there was a deal,
it sounds like they spent a lot of time understanding the joint
opportunity as well as the stories they might have to divest.
So I think ultimately the opportunity to get more national scale to
reduce costs and for really to think about combining their data sources.
So this mass set of data they have on
consumers allows them to drive better decision making internally.
But increasingly they're using it for things
like retail media and personalized marketing.
So I think the pieces came together to really
have them see have them have the ability to create a much larger,
more competitive company with walmart with amazon.
And I think that drove it a lot more than the interest rates.
So here's another question is
is this space the grocery space?
I guess we could put the pharmacy space in
it as well since they both operate large pharmacies.
Is it a space that is more ripe for consolidation even in a rising rate environment?
I think.
So we've done some looking at regional grocery and we've we've believed for a while
that there is a going to be a consolidation trend ultimately with e commerce,
um, and inflation and all the things that are challenging the business,
it's just harder um, to make the economics work.
And so scale allows you to reduce overlap that allows you to reduce costs.
It allows you then to invest in all this new technology,
you need to deliver a next generation service, whether that's
digital tools of engagement, it's e commerce, all that requires investment.
And so we think consolidation is a way
to free up savings that can then be invested back in the business to deliver these,
this experience to consumers that I think is going to be important in the long run
interesting. Yeah, we were showing some stats there in terms of growth,
The giants in the market share that they have.
I'm surprised that target is actually so far down on that list. Take a look there.
2.7. No, they definitely,
I mean, I think when you look at it,
Walmart definitely has been much more aggressive investing in grocery
target, it's a part of their play.
It's certainly not, as you can see, it's certainly much further down the list.
That's I guess a big opportunity for them going forward.
So another question that I have ken, is,
what are the innovations that consumers shoppers can expect in the future
from a combined company like this or even really just in the space in general,
right delivery curbside pick up these are all I think such
important ease of use factors for the consumer these days.
And that's not even really to mention, I guess what the in store experience,
a more innovative in store experience might look like.
I think you're right,
both of the companies have invested heavily in automation
and robotics to make their e commerce more efficient.
So I think you'll see a lot faster delivery, a lot more robust set of services.
You can pick it up whether you want to pick it up in store at curbside,
have it delivered to your home, they're really gearing up to do that.
Whether that's through trucks today,
increasingly it might be through drones and autonomous vehicles.
We're seeing a lot of innovation in that space.
I'd say another big opportunity were really believe is about
to go mainstream would be more of the frictionless checkout.
And so using camera, computer vision and cameras in the ceiling,
you can actually start automating the checkout process.
So as people walk through the store,
you can see what they're putting in their cart and
then they can just walk out of the store.
We Without having to go through a checkout line.
And so that's just some of the innovation we're seeing. Actually.
I really believe the next 5 to 10 years may see more innovation
within the grocery space than really we've seen in the last 20,
even to 50 years.
So this is I think we're really poised for a period of fast innovation.
Let's hope we all need our groceries, right? Those are some of the basic essentials.
Can bend your president of research and advisory. Of course I thank you.