krogers grocery store vegetable aislekrogers grocery store vegetable aisle

The grocery delivery wars have a new challenger.

Long a two-horse race between Amazon and Walmart, the playing field may have shifted with Kroger’s (NYSE: KR) acquisition of Albertsons (NYSE: ACI), combining the second- and fourth-largest grocers in the country in terms of market share.

finviz dynamic chart for KR
finviz dynamic chart for ACI

The $25 billion purchase is among the largest in the history of the U.S. grocery industry and is currently under scrutiny by regulators with the Federal Trade Commission. But if the deal holds up, Kroger and Albertsons look set to challenge the industry’s titans.

What would a combined Kroger and Albertsons grocery delivery and fulfillment network look like?

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.

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.”

Photo by Rithika Gopalakrishnan on Unsplash

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