business news in context, analysis with attitude

by Kevin Coupe

Yahoo Finance had an interview with Scott Moses, managing director at PJ Solomon, in which he discussed the acceleration of e-grocery during the pandemic (he judged it "sustainable," with plenty of room for growth) and the growing dominance of companies like Amazon and Walmart (he said both understand that "if you're going to be the leading retailer in the world, you've got to be the leading grocer in the world").

Moses, who is one of the leading M&A facilitators in the grocery segment, also suggested that this dominance meant that there also certainly will be more mergers and acquisitions going forward as smaller retailers look for ways to compete:

Amazon, he said, has a AA minus credit rating, "which means they borrow cheaper than most countries. Their market cap is more than literally every grocer combined by a wide margin, that's Walmart, Target, Costco, BJ's, Dollar General, Family Dollar, CVS, and Walgreens. All of them combined are worth well less than Amazon today.

"And as Amazon uses its low cost of capital to make investments to strengthen its Prime ecosystem … Most folks can't keep up with that. And as a consequence, it's going to require more transaction activities so that regional businesses can become part of larger ecosystems that will help them retain customers."

Moses added:

"Scale matters in grocery. Like I said, cost of capital is important to acquire and retain customers. And the bigger you are statistically, the better your credit rating, the better your cost of capital.

"So we happen to think that transactions are going to continue because the cost savings that these combinations can generate, from procurement to logistics to store management and corporate contracts, they are significant. And in many cases, they're actually bigger than the EBITDA of the companies involved.

"So I think it's really important that, when folks are evaluating these transactions, they remember just how important they are coming back to the beginning to protect the grocers that have been doing such a great job protecting us during this crisis and really serving heroically.

"We need our local grocers. We need to protect them with these kinds of transactions that help them compete with the biggest guys who continue to grow and gain scale."

As always, Scott Moses gets it right - and delivers an Eye-Opener that lays out the likely future of food retailing.