Operations
17 October 2022
Kroger-Albertsons merger: The digital and delivery implications
Data, supply chain and loyalty are big factors in the $24.6 billion grocery megadeal.

Kroger has its own delivery network. (Photo courtesy of Kroger)
Data, supply chain and loyalty are big factors in the $24.6 billion grocery megadeal.
Kroger has its own delivery network. (Photo courtesy of Kroger)
Two of the nation's largest grocers are set to pool data, loyalty and technology.
In a grocery megamerger, Kroger has agreed to acquire Albertsons, which also owns Safeway, Acme, Jewel Osco, Vons and other regional supermarkets. The deal, which is expected to close in 2024, is valued at $24.6 billion.
Coming after Albertsons conducted a monthslong strategic review, the acquisition has many layers of implications for the companies’ margins, buying power and how much groceries cost for consumers. But it may be just as much about where the businesses are heading. As they seek to compete in a changing grocery landscape, the companies are building digital capabilities that are reshaping grocery shopping, and the operations that get food to doorstep.
Here’s a look at what the deal will bring together in ecommerce:
The merger takes two big names at the top of the grocery market and puts them together. According to Numerator data cited by CNBC, Kroger and Albertsons are #2 and #4 in US share of grocery, and have about 15.5% of the market combined. Walmart is #1 with 20.9%. In ecommerce, Kroger and Albertsons are ranked third and fourth behind Walmart and Amazon, according to Insider Intelligence.
The merger could make the combined company a more formidable presence at a time when nationwide reach is becoming increasingly valuable in grocery. Walmart is building more capabilities through in-store fulfillment, delivery and distribution centers, while Amazon is ramping up expansion of its Fresh stores and in-store technology. Costco, which is the #3 grocer overall, already has a wide reach to 46 states and has been porting its loyalty and pricing advantages into ecommerce.
Kroger and Albertsons said their new footprint will span 48 states and DC, employing 710,000 associates. It will span nearly 5,000 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies and 2,015 fuel centers.
One question is how much the companies will have to give up to create this giant. The deal adds a presence in the Northeast and west for Kroger, but their stores have some overlap. Kantar North America also points out that there is some overlap in shoppers: Citing ShopperScape, it shared that 30% of Kroger shoppers are also Albertsons shoppers, while 33% of Albertsons shoppers go to Kroger locations.
Bringing together leading players with some shared geographic footprint means the deal could face regulatory scrutiny. This could lead the companies to exit some stores in a bid to curb that concentration in some regions. In a pre-emptive move, Korger and Albertsons have already said they plan to divest some stores, especially in geographic areas where they overlap. They also said they are prepared to establish an Albertsons subsidiary, called SpinCo, that would be the parent company of 100-375 stores.
Whether this move will satisfy regulators is one of the big open questions going forward.
Grocery ecommerce is proving to be one of the stickiest pandemic behaviors, setting the stage for grocers to continue to level up capabilities that they put in place to meet a spike in demand during lockdowns. As such, Kroger has put a priority on growing in delivery, opening a growing number of fulfillment centers in partnership with Ocado. Intriguingly, this has helped the grocer stand up delivery operations in areas where it doesn't have a walk-in store. In Florida, it has expanded through Orlando, Jacksonville and South Florida without opening any brick-and-mortar locations. These operations are anchored by automated fulfillment centers that are outfitted with robots that retrieve orders and picking processes orchestrated by algorithms.
Albertsons, in turn, has mostly worked with ecommerce services like Instacart and DoorDash, which deliver directly from stores, Grocery Dive points out. It also has existing grocery stores in areas where Kroger doesn't. Now, there could be potential for the companies to connect these pieces. With Kroger's model for hub and spoke ecommerce fulfillment in place, the scale offered by adding stores and locales becomes a huge advantage, and stands to help profitability of ecommerce operations in the process.
As grocers' websites become ecommerce stores, they are proving to be some of the most compelling retail media networks. These are ad networks on a retailer's website that harness the first-party data available from consumer purchases. In the case of groceries, these purchases are weekly, and on big baskets of items, which only ups the point-of-purchase data available. Both Kroger and Albertsons have such networks. Kroger has 84.51°, while Albertsons was a “late mover” in launching the Albertsons Media Collective last year. Adding scale will only grow this "alternative profit business," as Kroger calls it.
The first-party data available will not only benefit advertising, but it will also enable the companies to improve the online shopper experience. Together, Kroger and Albertsons would have a combined customer base of more than 85 million households. With this, the companies said they can leverage data science capabilities from 84.51° to create more recommendations and promotions that are relevant to shoppers.
It's worth noting that both companies already have membership programs. Kroger's Boost offers free grocery delivery, gas and food savings. Albertsons for U is more centered on savings and rewards. By combining data assets, the companies said they can “develop an even more compelling retail loyalty program.”
Amazon first talked about a flywheel, and Walmart has in recent years. Now Kroger has a flywheel, and adding more data is going to help it turn faster. The news release announcing the deal describes the flywheel like this:
"The addition of Albertsons Cos.' portfolio expands Kroger's core supermarket, fuel, and pharmacy businesses, bolstering the combined company's ability to drive additional traffic into stores and digital channels. The increase in customer traffic and data will in turn power the combined company's higher-growth, higher-margin alternative profit businesses to support continued reinvestment in the business."
This is not a done deal yet, and the details will be important going forward. Alongside regulatory scrutiny, the companies will have to integrate two massive operations. The differences in their current approaches in each of the areas above point to the complexity of the task. Labor unions have already voiced opposition to the deal, as well. At the same time, the companies will have to maintain the loyalty of many existing customers, each of whom have particular reasons they stick with a Kroger or Albertsons property. But there are signs that the companies are building for a future where the supply chain is more customer-facing, and data has increasing value. It’s also one where the ability to be everywhere becomes just as important as presence in a community. The companies felt it was the best move to build for this future together.
Shoppers at The Fresh Market can now ask about products featured in a livestream, long after a session is over.
Two of the most-talked-about emerging technologies in commerce are coming together in a new offering from video-based platform Firework.
On Tuesday, Firework is releasing the beta version of a live shopping platform assisted by generative AI. Firework already has live shopping capabilities. Now it is adding a generative AI tool it developed in-house to the mix.
Launched with The Fresh Market, the tool will enable customers to use the in-video chat tool of a livestream long after the initial session is over. Shoppers will be able to ask questions about the products or services featured in a livestream. Then, the AI engine will provide responses in real time.
For instance, a customer may ask “What is the recipe for the salad being made in this video?” Then, the generative AI tool will provide the ingredients.
"By asking questions related to the products or services featured in the video, users will receive accurate, real-time responses that are contextually relevant to the livestream," said Firework President Jerry Luk.
For the Fresh Market, the tool complements a slate of offerings bridging content and commerce that recently expanded to include a retail media network built around shoppable livestreams. The grocer is adding these capabilities to its own website.
"The Fresh Market is a long-standing partner of ours and the perfect fit to pilot our AI-assisted live shopping capabilities. Cooking demos are a prime example of a case where viewers will have questions – whether it’s about the recipe, drink pairings, food origins…and the list goes on," said Luk. "Now, they can get prompt, friendly, and personalized answers to their burning queries even if they watch the livestream video after it has concluded."
Firework is taking an in-house approach to building generative AI tools. While plenty of businesses are beginning to leverage engines like OpenAI’s ChatGPT, Firework’s tool was developed by the dedicated team of AI and machine learning professionals under the banner of Firework AI Labs. The team has previously created AI-enabled content creation and editing tools.
In particular, generative AI was a good fit with live shopping due to its ability to extend the experience, Luk said.
"Generative AI has the potential to revolutionize ecommerce by enhancing personalization and engagement, which are essential for establishing meaningful connections with customers. Firework's live shopping and interactive video features have already demonstrated significant success in this regard. We chose to leverage generative AI to further extend the benefits of these features," Luk said. "The appeal of live shopping lies in the ability for customers to have their questions answered during a livestream. However, once the event concludes, much of the interactivity is lost. Our generative AI-powered livestreams address this issue by providing an 'always-on' experience, allowing shoppers to enjoy personalized, real-time interactions and support whenever they choose to watch."
To build the product, Firework's team built a customized learned language model that incorporates product information, livestream content, user comments and responses from hosts and moderators. This enables the AI engine to provide "contextually relevant, accurate, and on-brand answers," Luk said.
"Firework's proprietary AI engine, powered by a large language model (LLM), can understand and respond in various languages and can be tailored to reflect each brand's unique voice," Luk said. "This ensures a personalized and context-driven experience for the user, making it feel as though they are interacting with a host or expert who is well-versed in the content of the livestream."
Firework’s platform is built around offering shoppable video, including livestreaming, that is embedded directly in the shopping journey. Often, this means it appears on a retailer’s website, rather than on a social media platform. Through generative AI, the company sees a pathway to extend a live shopping session, and the value of the content that it creates.
"Firework's proprietary AI engine, powered by a large language model (LLM), can understand and respond in various languages and can be tailored to reflect each brand's unique voice," Luk said. "This ensures a personalized and context-driven experience for the user, making it feel as though they are interacting with a host or expert who is well-versed in the content of the livestream."
The new tool arrives as more ecommerce companies are developing uses for generative AI, from product images to computer customization to product discovery. The integration with live shopping offers a reminder that multiple technologies can come together to advance the shopping experience. Innovation doesn’t have to happen in a vacuum. Perhaps, a new technology can even be the right ingredient to help another further mature. Given that live shopping remains nascent in the U.S., this seems primed as a test case.