Report: Kroger and Albertsons in merger talks
The U.S. grocery landscape could shift if a reported possible acquisition goes through.
According to CNBC, sources indicate that The Kroger Co. may be preparing to purchase rival grocery conglomerate Albertsons Cos. Inc. in an all-cash deal that could be announced as soon as Friday, Oct. 14. Kroger is America’s largest grocer by store count and comes in second place behind Walmart in annual revenue.
CNBC estimates Kroger’s market cap at close to $32 billion and Albertson’s market cap at $15 billion. In its most recent fiscal quarter, Kroger reported total company sales of $34.6 billion, up 9% from $31.7 billion in the prior year period and $200 million more than Wall Street analysts had predicted.
Meanwhile, in its most recent fiscal quarter Albertsons’ revenue rose to $23.31 billion from $21.269 billion, topping estimates for $22.997 billion. The increase was driven by a 6.8% increase in identical sales and higher fuel sales, with price inflation contributing to the identical sales increase, the company said.
Earlier this year, the supermarket company entered into a review of possible strategic alternatives to enhance growth and stockholder value. As part of the review, Albertsons engaged a third party to review the value of its real estate portfolio. Based on the completion of appraisal, the total value of company-owned and ground-leased properties has increased approximately $2.5 billion to $13.7 billion, up from $11.2 billion in 2019.
If the acquisition goes through (and is approved by regulatory officials), it would create a grocery behemoth that would provide stiff competition to any U.S. grocer, including Walmart and Amazon. The purchase would be the most consequential acquisition in the U.S. grocery space since Amazon bought Whole Foods Market for $13.7 billion in cash in 2017.
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Kroger develops digital ecosystem
Kroger has been busy building wide-ranging digital ecosystem, with the goal of connecting the customer experience across all touchpoints. Kroger seeks to enable consumers to transition from one omnichannel option to another as seamlessly as possible. The retailer is optimizing what it intends to be a seamless ecosystem that includes stores and dedicated digital fulfillment facilities.
Kroger views this seamless digital ecosystem as critical to customer satisfaction, combining the proximity of its stores for immediate delivery in as little as 30 minutes. This fast delivery model is based on a partnership between Kroger and U.K.-based online grocer Ocado Group.
Introduced in 2018, the partnership leverages a fast delivery “hub and spoke” model relying on a leading-edge automated warehouse concept known as a customer fulfillment center (CFC). The CFC model combines vertical integration, machine learning, and robotics with affordable and fast delivery service for fresh food.
CFC facilities leverage proprietary technology solutions focused on artificial intelligence (AI) and advanced robotics and automation to create more seamless and efficient fulfillment, picking and delivery capabilities for enhanced digital commerce. Kroger is also leveraging CFC facilities to enable it to provide e-commerce delivery in markets where it lacks a store presence, such as South Florida.
[Read more: Kroger brings on big partner to fuel online grocery delivery]
Based in Cincinnati, Kroger operates 2,800 stores under a variety of banners in 35 U.S. states, including Kroger, Fred Meyer, Ralphs, Dillons, Smith's, King Soopers, Fry's, QFC, City Market, Owen's, Jay C, Pay Less, Baker's, Gerbes, Harris Teeter, Pick 'n Save, Metro Market, and Mariano's. It employs about 420,000 people.
As of June 18, 2022, Boise, Idaho-based Albertsons operated 2,273 retail food and drug stores with 1,720 pharmacies, 402 associated fuel centers, 22 dedicated distribution centers and 19 manufacturing facilities employing about 290,000 workers. The company operates stores across 34 states and the District of Columbia with 24 banners including Albertsons, Safeway, Vons, Jewel-Osco, Shaw's, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci's Food Lovers Market.