Kroger, Albertsons Reportedly in Talks to Join Forces Against Walmart

In the fight for share of stomach, the leading pure-play grocers are teaming up against mega-retailers.

The Kroger Co., the largest pure-play grocery retailer in the United States, is in talks with its competitor, second-largest pure-play grocer Albertsons Companies, to merge, according to sources familiar with the matter, as Bloomberg News reported Thursday (Oct. 13).

While the deal could still fall through, and while it seems likely that such a merger could be subject to federal interference on the basis of antitrust laws, the sources noted that the two companies could reach an agreement and announce the results within the week.

Such a merger would dramatically change the competitive landscape of United States grocery. Walmart is far and away the country’s leading grocery retailer, with the two pure-play grocers’ collective sales still not threatening the mega-retailer’s lead, but they would certainly come closer. Additionally, if no longer competing with each other, the new mega-grocer would have a greater ability to dedicate its resources to taking on Walmart head-on.

According to data from PYMNTS’ study “Decoding Customer Affinity: The Customer Loyalty to Merchants Survey 2022,” created in collaboration with Toshiba Global Commerce Solutions, which draws from a census-balanced survey of more than 2,000 U.S. consumers, 9.1% of grocery shoppers reported purchasing from Kroger in the previous month. Meanwhile, 2.4% had purchased from Albertsons’ Safeway brand. Even combining these two would not meaningfully compromise Walmart’s lead, with 27.5% purchasing that month, but it would bring the grocers that much closer.

Get the report: The Customer Loyalty To Merchants Survey 2022

As those figures would indicate, Kroger is a significantly larger company than Albertsons, with the former’s annual revenue coming in at $137.9 billion last year while the latter’s amounted to $71.9 billion.

Grocers have been in a challenging position this year, as rising food prices have compromised their margins. On the one hand, these trends have many consumers trading down from restaurants to more affordable at-home options, a tailwind for grocers. On the other, consumers have been doing everything that they can to pare back their spending.

Data from PYMNTS’ study “Consumer Inflation Sentiment: Inflation Slowly Ebbs, But Consumer Outlook Remains Gloomy,” which draws from an August survey of 2,169 consumers, finds that 62% are cutting down on unnecessary grocery expenses and 48% are switching to cheaper merchants. By combining their resources, the two companies can more effectively combat trade down to Walmart or to dollar stores.

Joining forces could also help the grocers pull well ahead of other major retailers with grocery businesses such as Amazon and Costco, as well as other notable pure-play grocers such as Publix and Ahold Delhaize’s U.S. branch.

Additionally, the two companies would be well-poised to take on the growing eGrocery market, with both grocers already having invested in free delivery membership programs to drive digital loyalty. Plus, Kroger has been rapidly building out its fulfillment network with its automation- facilities opening across different parts of the United States, built in partnership with United Kingdom-based grocery technology company Ocado Group.

Related news: Grocers Expand Direct Delivery to Cut Out Last-Mile Middlemen

Kroger and Albertsons did not immediately respond to requests for comment.