business news in context, analysis with attitude

by Kevin Coupe

The Wall Street Journal has a long piece postulating that the merger of Kroger and Albertsons - assuming it is approved by the Federal Trade Commission (FTC) - will help to shape the future of the supermarket industry.

"As the country’s two biggest supermarket chains envision the future of their planned megamerger, you’ll be able to purchase groceries, a coffee, patio furniture, and your allergy medicine prescription," the Journal writes.  "The store deduces you might also like a humidifier to help the sneezes and some local honey, all of which it has ready for you. At dinnertime, order in sushi, which was made by a kitchen owned by the supermarket … Just what this new emporium will look like is at the center of the Federal Trade Commission’s antitrust review, and central to any potential battle will be the shape-shifting definition of the markets in which Kroger and Albertsons are competing. Regulators are examining the possible combined company’s impact on grocery markets around the country as well as specific areas like online delivery, digital advertising and pharmacy operations, said people familiar with the matter."

The story points out that both companies maintain that the merger is necessary so that they can better compete with Walmart and Amazon, but here is the money quote, from Kroger CEO Rodney McMullen:

“You used to make money selling a can of corn,” but now “you have to figure out other ways of creating value for the customer.”

This merger, both companies say, will give them the muscle to do so.  For example:

"Stretching the definition of a grocery store has helped both supermarket chains tap into faster-growing businesses and help fund operations. Kroger’s digital advertising business is one of its fastest-growing areas, and Albertsons’ sales and gross profit rose during the pandemic partly because it administered Covid-19 vaccines at its stores, executives at both companies have said.

"Kroger uses consumer data to build loyalty programs and sell advertising to brands, putting it in emails, coupons and on its website. This brings it into competition with tech giants’ data-driven advertising arms at Facebook parent Meta Platforms Inc. and Alphabet Inc.’s Google. The supermarket is also staking out a presence on platforms such as Snapchat and smart TVs, another venue where the company can sell ads for products. 

"Albertsons in late 2021 started its digital advertising business, and the company is using data to offer coupons and rewards through its loyalty programs, which have grown to 33 million users. Albertsons’s digital offerings now include recipes and health-related content."

I think this is all legitimate business, and I completely understand Kroger and Albertsons, as well as a lot of other retailers, are seeking alternative sources of revenue.  Beyond the idea that more money to the bottom line can serve as a reward to shareholders and a way to keep prices lower (the ratio of one to the other almost certainly is a focus for the FTC as it probes this proposed merger), these new business offshoots are ways to compete for shopper eyeballs in a very competitive environment.

The Eye-Opening point that Kroger's McMullen makes is a good one, and ought to be at the core of any FTC probe:  Why can't you make money selling a can of corn?  And how will allowing this merger make it easier for you top compensate for what would appear to be a basic flaw in the food retailing business construct?