Digging into the Kroger/Albertson’s Merger: Q&A with Placer.ai’s R.J. Hottovy

On Oct. 14, 2022, Kroger and Albertson’s Cos. announced a merger valued at more than $20 billion. The news, perhaps unsurprisingly, is generating concerns about antitrust violations and union issues. Still, a recent article published by Placer.ai reported that the merger (should it go through) will allow both companies to lower costs and to go up against the retail brick-and-mortar and online giants.

Connect CRE posed a series of questions to R.J. Hottovy, Placer.ai’s Head of Analytical Research and author of the above-mentioned article, “Kroger and Albertson’s: A Merging of Strengths.”

Connect CRE: How, exactly, will this merger impact the Walmarts and other supercenter types?

R.J. Hottovy: This merger could put pressure on mass merchants like Walmart. Despite having a leading market share in the grocery category, Walmart has struggled with execution and merchandise assortment issues in grocery at times in the past. The size of a combined Kroger/Albertsons–even adjusting for divestitures to gain regulatory approval–will give it the ability to compete with Walmart’s pricing while offering consumers other benefits like the Just-for-U app and rapid online order fulfillment. It’s unlikely that the combined Kroger/Albertsons will compete with the hard discounters like Aldi, Lidl and Grocery Outlet. But they will likely go after mass merchants on the convenience and experience front. 

Connect CRE: Your article mentions a potential impact on online grocery. Does the Albertsons/Kroger merger create the necessary infrastructure to go head-to-head with Amazon?

R.J. Hottovy: Both Kroger and Albertsons have made significant investments on the digital front in recent years. Albertsons’ Just-for-U loyalty program and app have helped drive increased visitation trends among its most loyal households.

Also, Kroger’s Ocado-backed fulfillment centers are seeing strong visitation trends. While the company would need to open more Ocado fulfillment centers to compete head-to-head with Amazon, they’ve been successful in every market they’ve opened so far and that their online ordering experience can be replicated. Albertsons President and CFO Sharon McCollam–who has extensive digital commerce experience from her prior roles at Williams-Sonoma and Best Buy–also positions them to be a disruptive presence in online grocery going forward

Connect CRE: Is there a potential that this could lead to more consolidations in this field? How would this impact commercial real estate space, especially within grocery-anchored shopping centers?

R.J. Hottovy: The ripple effect across the rest of the grocery retail and commercial real estate market will be interesting to watch. There is a strong possibility of additional industry consolidation, and not just the possible acquisition of the stores that the companies would have to divest to satisfy regulatory requirements. For instance, we expect Koger/Albertsons to spinoff a 300-to-400-store chain with locations across Southern California, Utah, Nevada, Colorado and New Mexico. But other banners, like Mariano’s in Chicago, could become a target for other players in the Midwest. Assuming that Kroger/Albertsons is successful in driving an elevated consumer experience, they could become an even more preferred tenant for grocery-anchored shopping centers. This might make it more difficult for smaller chains to secure space at top centers.

Don’t miss a chance to connect with retail experts from around the Western United States at Connect Retail West on Nov. 9, 2022. Follow this link for details on the event, registration and sponsorship opportunities.