The acquisition would push Kroger’s physical location count to roughly 5k (Kroger currently has roughly 2.8k) and bolster its presence most notably in the northeast while also furthering its penetration into urban markets. The inclusion of Albertson’s and its brands would push Kroger’s annual revenue to upwards of $210 billion.
Reasons for the Acquisition
With the acquisition, Kroger will grow its revenue, footprint and market share. The combined revenue total of Kroger and Albertson’s would rival that of Walmart, the nation’s largest grocer, making the grocery space that much more interesting.
Growth of Online
Online shopping’s trajectory has come back to earth recently, but it’s potential can’t be denied. Grocery benefited from the strictest days of the pandemic. Store closures were mounting, but consumers still needed to fill their pantries. They turned to online delivery, BOPIS, etc. to fill those needs.
The lessons learned during the pandemic have carried over post-pandemic. Kroger’s recent investments in online order fueled automation (both warehouse and in-store) are further proof.
Retail Media Clout
On the surface, Kroger’s acquisition looks to be footprint focused. But dig a little deeper and one can understand how information plays a part as well. Yes, Kroger will nearly double its location count, but it will also gain access to an additional consumer data source. The markets these Albertson’s locations reside in represent mostly untapped first-party data streams for Kroger.
Pulling all this consumer information into a single repository will be daunting. For reference, the combined reach of both brands would sit at roughly 85 million households. but if accomplished, it’d likely represent the single most comprehensive grocery-focused consumer data set available.
How the Largest Grocery Players Now Shape Up
Kroger’s footprint, customer base and revenue will increase aggressively if this deal becomes official. Their ability to reach consumers will also benefit. Once relegated to only specific markets, Kroger will now have a near nationwide footprint. It’s something they’ve been laying the groundwork for (and building capabilities around) for some time now.
Despite not having a national store-based presence prior to this deal, Kroger had been building up awareness and capabilities via their online-only efforts. Utilizing technology from UK-based Ocado Group, Kroger has been developing and realizing a series of automated warehouses focused on easing the online ordering and fulfillment process.
Using such automation, they entered the Florida marketing back in Q2 2021. But instead of opening a cache of physical locations, they opted to go the online, delivery-only route. They built out a 375k sq. ft. delivery hub in Groveland, FL with smaller “spoke” locations in Tampa Bay, Miami and Jacksonville.
At these hubs, more than 1k robots move across a giant 3D, automated grid. The technology behind this – dubbed The Hive – has been likened to an air traffic control system. The grid itself contains totes automated bots fill with products from orders, then pack for delivery. The spoke sites, which measure from 50k-70k square feet, are designed to extend Kroger’s reach. Providing logistical access for their same-day and next-day grocery delivery in areas where stores may not currently exist.
Kroger is also bringing advanced technology to their physical locations. For example, they’ve invested heavily in curbside automation. This technology – labeled the BrightDrop Trace Grocery Cart – is designed to aid employees focused on curbside activation. The mechanized cart, containing multiple, temperature-controlled compartments capable of holding 350 lbs., can be filled then wheeled out to the curb by a single employee. The initial roll-out (pun intended) will be limited, but if successful, Kroger plans to go wider by 2024.
Kroger’s ability to adapt with consumer needs is going to be pivotal to their upcoming expansion. They’re a brand whose identity has historically been heavily tied to in-store interactions. Their willingness to evolve as consumer needs shift is a positive sign, but investing intelligently will be key as well. They can’t outspend rivals like Amazon or Walmart, so their investments related to online, curbside, etc. will need to hit more often than not.
While Kroger is focused on getting smarter beyond its four walls, Amazon is looking to drive further intelligence within them. They’ve beefed up their Dash Cart functionality by adding:
• Increased Capacity: doubled the carts storage capabilities while making it lighter weight
• Weather Resistance: it can now travel to the consumer’s vehicle regardless of conditions
• Improved Tracking: More precise grasp of cart location/nearby products and deals
They’ve also added their frictionless checkout offering Just Walk Out to their Amazon Fresh locations in the past year. With this technology, Amazon customers simply:
• Enter: Scan a barcode or insert their credit card at entry to open the Just Walk Out gates
• Shop: Go about their normal shopping while the virtual cart tallies what’s added
• Exit: Once ready to leave, scan or insert the same method they used to enter when exiting
Last but not least, they’ve gone the in-store tracking route with their newest offering – Store Analytics. This capability, released during the second half of Q2, is probably the most ambitious. It works in tandem with the previously mentioned technologies and, as Amazon notes:
Provides brands with aggregated and anonymized insights about the performance of their products, promotions, and ad campaigns in Just Walk Out technology and Amazon Dash Cart-enabled Amazon Go and Amazon Fresh stores in the U.S.
Store Analytics was designed to help answer the age-old question of how consumers shop by providing insight into their path to discovery, consideration and purchase within physical locations. This information can then be accessed (in an aggregated, anonymized fashion) via secure dashboard and used to inform things like product selection, online promotions and advertising investment.
• Were consumers who viewed our display ad more likely to purchase in-store?
• Did our in-store digital signage drive the sales lift we were aiming for across specific locations?
• Were consumers who put our products back on the shelf more receptive to retargeting ads?
Amazon has always been a top destination for advertising dollars within the retail media landscape. But they’ve had one gap in their ability to drive outcomes – a lack of in-store presence. Unlike Walmart or Target, they can’t consistently tie ad exposure online to purchase in their physical locations.
But these technological advances, teamed with aggressive expansion of their footprint, could enable them to check that box. Proving out even more value in comparison to other retail media networks.
Even with Kroger’s potential acquisition of Albertson’s, Walmart would still be the largest grocer by revenue in the U.S. It accounted for more than one-quarter of all grocery revenues in the United States with FY22 sales of $467 billion. This includes more than $73 billion dollars in sales via Sam’s Club. Together, Walmart and Sam’s Club’s total store count exceeds 5.3k. A mammoth number.
Walmart also has the advantage of being seen as a lower cost option. Something that has struck a chord even more with consumers as inflation soars and talk of recession looms. Budget-conscious consumers continue turning to Walmart as price tags continue to rise across everyday staples.
And despite the recent growth seen across the online grocery format, Walmart is one of several retailers that continues to invest heavily in their brick-and-mortar locations. These updates are meant to not only make the in-store experience even better, but to aid omni-channel interaction as well.
What It All Boils Down To
Kroger has been vocal about envisioning their brand beyond local grocery. They’ve long viewed the Amazon’s and Walmart’s of the world as their top competitors, not other grocery chains. The waters they’d swim in if this acquisition becomes official would solidify that. They’d be fighting for share against the largest retailer – and the largest online retailer – in an even more direct fashion.
The acquisition would also shift Kroger’s consumer base – immediately making it much more diverse by infusing a healthier mix of both Hispanics and Asians. The added portfolio via Albertson’s would also be 25% more likely to reside in an urban area.
And as their consumer profile shifts, so does their approach to audience data. A more inclusive aggregate consumer means more opportunity for brands to diversify their media efforts. It also opens the door for different brands looking to reach these audiences via retail media.
With a merger of this size, it’s interesting to think of both the niche (and not so niche) interactions and adjustments Kroger has to account for. From the overarching need to fend off the likes of Walmart and Amazon in an online setting, to the effort required to build an improved in-store experience for underserved populations in their newly acquired physical locations. There are going to be many needs – both big and small.
Kroger has always viewed themselves – in a positive way – as something bigger than what they currently are. So, when these challenges truly arrive, one has to assume they’ll be up for it.