The proposed merger between Kroger and Albertsons could present both challenges and opportunities for the specialty food industry, according to some in the industry whose companies stand to be directly impacted by the deal.
“This would be the biggest deal in history in our industry by far, and the repercussions…could be really significant,” said Neil Stern, CEO of Good Food Holdings, a retailer with stores under multiple banners in several West Coast markets where both Kroger and Albertsons operate.
Combined, Kroger and Albertsons would have nearly 5,000 locations, and presumably have more buying power and leverage over suppliers, he pointed out.
“If I were a supplier, I don’t think I would be too excited about this,” Stern said.
Jeffrey Landsman of Specialty Food Sales, a specialty food broker based in Baltimore, said the combined companies could open doors for some small producers, however. A local supplier with a limited presence in stores operated by Kroger or Albertsons, for example, might potentially have the opportunity to get picked up by the larger entity.
“There are some logistical issues that may change, but at the end of the day, the shelf basically remains the same,” Landsman said. “There may be different software, and different point of sale technology, but that’s always going to change anyway.”
Rahul Shah, president, and chief operating officer at GoodPop, a maker of better-for-you frozen treats with distribution in both Kroger- and Albertsons-owned stores, said he is optimistic about the implications for his company.
“The national reach is unquestionable—it’s exciting for both growing and mature brands to scale distribution via fewer touchpoints, and have the potential to get products on more shelves, in more stores, much more efficiently," he said.
In addition, since both retail companies are leaders in data-driven and digital business models, the merger could combine Kroger’s shopper data capabilities and Albertson’s loyalty programs, for example, to “make for pretty revolutionary shopper marketing,” he said.
Landsman agreed that having fewer companies to call on could streamline the sales process for some suppliers. He also pointed out that Kroger and Albertsons have programs to support minority- and woman-owned brands, which tend to help specialty producers.
Stern said that as a retailer that seeks to differentiate itself from traditional supermarket operators, Good Food Holdings would welcome the opportunity to take a look at specialty food items that lose space on the shelves of Kroger or Albertsons. Good Food Holdings operates the Bristol Farms, Lazy Acres Natural Market, Metropolitan Market, New Seasons Market, and New Leaf Community Markets chains.
“Our doors are open,” Stern said. “As a small retailer, we're always looking for products that those guys don't have. We hang our hat on our uniqueness. We want those specialty suppliers at our stores, and frankly, we don't want them in Kroger stores.”
Both Stern and Landsman pointed out that the merger could end up unfolding differently than planned, depending on how government officials view the implications of the deal. Landsman said he doubts that regulators will allow the merger to go through as proposed, and Stern said he thinks the companies may need to spin off more stores than they have suggested, in order to address antitrust concerns.
Kroger said it plans to spin off a new retail company, tentatively called SpinCo, that would operate between 100 and 350 stores.
Government regulators will likely examine the competitive situation market-by-market, and even store-by-store, said Stern. In some markets—such as Chicago, Denver, Las Vegas, Los Angles, Seattle, and Portland (Oregon)—Kroger and Albertsons combined would have a significant share of the market, and would likely need to spin off stores, he said.
Setting up SpinCo could be a challenging process, Stern explained, as the new company would need to remain a viable competitor across multiple markets. In Chicago, for example, spinning off all of Mariano’s Fresh Market might be an option, but it’s not clear that spinning off only a handful of those stores would yield a successful retail operation that could compete against the remaining Albertsons- and Kroger-owned stores in the market.
Although Kroger has said it would use the cost efficiencies it gains from the merger to lower prices, regulators will be concerned that a company with more market share would be free to take prices in the opposite direction.
“The timing of this is certainly interesting, with historic levels of inflation,” said Stern.
Regulators will also likely frown upon store closures, he pointed out, especially in markets where access to affordable groceries is limited.
Other operators could also step in and acquire some stores. If Kroger and Albertsons were forced to sell stores in Southern California, for example, Good Food Holdings might be interested in some locations, but some stores might not have any takers.
“That's dangerous, I think, from the government’s standpoint, because then you are creating less competition and you're potentially creating more food deserts,” said Stern.
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