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After reports indicated that a massive grocery merger was imminent this week, Kroger announced that it is acquiring Albertsons Co. on Friday in a deal that will bring together two of the country’s largest supermarket chains.
Kroger is set to pay $34.10 per share in a deal that values Albertsons at $24.6 billion. This includes the assumption of about $4.7 billion of Albertsons' net debt. The price is a premium of 32.8% on the closing price of Albertsons stock on Oct. 12. Kroger also plans to invest an incremental $1.3 billion will also be invested into Albertsons Co. stores to enhance the customer experience, and invest $1 billion to continue raising associate wages and comprehensive benefits following the closing of the deal.
In a country where many supermarket chains are still regional, the megamerger creates a company that spans the country. It will have a presence across 48 states. In all, the company will employ 710,000 associates. It will operate 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies and 2,015 fuel centers. Along with its eponymous chain, Albertsons also operates a variety of other grocers, including Safeway, Vons, Jewel Osco and Shaw’s.
In a news release, Kroger CEO Rodney McMullen said the companies have a “complementary footprint,” and that Albertsons “operates in several parts of the country with very few or no Kroger stores.”
The companies said the deal will also create advantages in the supply chain as they seek to deliver fresh food more quickly, bolster logistics as they seek to provide pickup and delivery for customers, expand private label offerings and increase personalization. The ability to drive more traffic to stores and digital channels and ability to reach about 85 million households will in turn bolster retail media offerings, the companies said.
The deal is expected to close in early 2024, subject to regulatory approval. In a deal that brings together two category leaders that do have some shared geography, that could be an area to watch. In anticipation of scrutiny, the companies have already agreed to create an Albertsons subsidiary called SpinCo to oversee between 100 and 375 stores that are divested from the primary company.
The merger comes as grocery is being reshaped. Grocery ecommerce is proving to be one of the stickiest pandemic behaviors, leading businesses to continue ramping up their digital and fulfillment operations. Walmart is mounting a big expansion, tying together its membership program, retail media and a growing delivery network. Meanwhile, Amazon continues to make a stronger push into grocery through its own stores and Whole Foods. Instacart and Costco are changing the landscape in their own ways, as well. Digital growth means companies must be present everywhere, while still being able to provide local-level delivery. Kroger and Albertsons are both growing their ecommerce capabilities, and have layered on membership and retail media. Now they've made a decision to join forces to grow.
This is a developing story. Stay with The Current for more updates and analysis.
Trending in Economy
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.