Did Kroger and Albertsons just create a grocery delivery powerhouse?

A larger footprint

One perk of the merger is that the two companies have stores in different regions. In the West the overlap is greater, but there are a few places where the grocers can add real density to their network, particularly in the Northeast.

The expectation, per The Wall Street Journal, is that Kroger and Albertsons will sell off about 350 to 450 stores in order to appease regulators.

“There is overlap in the two store estates, particularly in the West, and there will, no doubt, be some closures if a merger goes ahead,” wrote Neil Saunders, a retail analyst at GlobalData.

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But even after that, the combined company will still have more than 4,500 stores in nearly all 50 states, employing more than 700,000 workers. According to J.P. Morgan analysts, that kind of footprint could give the new company a 13% market share of U.S. food-retail sales. 

That’s still below Walmart at 22%, but it’s a boost from Kroger’s current 8% share and Albertsons’ current 5% share.

“Albertsons Cos. brings a complementary footprint and operates in several parts of the country with very few or no Kroger stores,” said Rodney McMullin, chairman and CEO of Kroger. “This merger advances our commitment to build a more equitable and sustainable food system by expanding our footprint into new geographies to serve more of America with fresh and affordable food.”

Combined supply chains

As part of the deal, the two companies said they would be combining their supply chains to deliver “from field to table” as quickly as possible. The result? About 34,000 private-label products will be available for delivery.

Of course, combining supply chains means combining distribution and fulfillment capabilities. Albertsons currently operates 22 distribution centers and a handful of microfulfillment centers, while Kroger has 39 DCs and five high-tech customer fulfillment centers.

Forbes contributor Errol Schweizer, who has more than 25 years of food industry expertise, also pointed out that a nearly 5,000-store chain could dominate in other areas — setting payment terms, negotiating shelf space and extracting greater trade allowances, to name a few.

He criticized the deal, explaining that the scale of the combined network could limit opportunities for smaller suppliers.

“For suppliers, especially smaller and emerging brands, doing business with the combined chain would not get easier,” Schweizer wrote. “Grocery shelves, while seemingly abundant with choices, are already heavily concentrated among just a handful of companies in many packaged foods categories.”

Watch: More changes to the grocery store supply chain

He also noted that the merger could impact wholesale supply chains. Both Kroger and Albertsons contract to third-party wholesalers, and combined contracts could place additional cost and delivery pressures on suppliers. For the grocers, though, that means more money.

“Such consolidation would, in theory, improve the economics for both businesses, giving them even more buying power than they currently enjoy and providing an opportunity for significant savings in central operations,” Saunders remarked.

However, Kroger and Albertsons may need to work out a few kinks in their combined distribution and fulfillment network. Kroger has partnered with Ocado to build e-grocery fulfillment centers and with Knapp to automate its distribution centers, while Albertsons has worked closely with Takeoff Technologies to add tech to its facilities. It’s unclear if all three will stick around.

New delivery opportunities

Both Kroger and Albertsons have invested in technologies and partnerships to explore new forms of delivery, and the combined company could expand upon those efforts.

On Kroger’s side of things, emerging technology has been the focus. The grocer has worked with robot delivery company Nuro since 2018, expanding that partnership at the beginning of this year to roll out grocery deliveries in Houston and later other U.S. cities.

The company also began looking into drone delivery last year, launching a pilot program in Ohio to fly groceries and other items straight from the store to the door.

Albertsons, meanwhile, has put its energy into other services. The company has inked a number of delivery partnerships with platforms like Uber Eats and DoorDash, leveraging third-party apps to provide more convenience to shoppers.

It also rolled out an Amazon Prime-like grocery delivery subscription service in August 2021, which includes perks like free delivery, two-hour delivery and a digital wallet. On the same day, it introduced its own app for online shopping.

Now that the companies have agreed to merge, the potential for omnichannel fulfillment is tremendous. By combining robots, drones, third-party apps, subscription services and other features, they could offer endless ways for customers to shop and receive their orders.

“The combined company could be more productive and profitable than either of them individually,” said Joseph Feldman, a retail analyst at Telsey Advisory Group, noting that combining technologies and growing new businesses could be key to fueling growth.

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