© Reuters. FILE PHOTO: An undated photograph showing a Kroger worker delivering groceries in the U.S. obtained by Reuters on June 15, 2022. Kroger/Handout via REUTERS ATTENTION EDITORS: THIS IMAGE HAS BEEN PROVIDED BY A THIRD PARTY./ stock photo
By Siddharth Cavale and Jessica DiNapoli
NEW YORK (Reuters) -The Federal Trade Commission's bid to block grocer Kroger's (NYSE ) acquisition of Albertsons (NYSE ) could benefit Walmart (NYSE ), a rival whose close relationships with suppliers already give it a price advantage over other chains, investors, consultants and analysts said.
Overall, Walmart had a 24% share of the US grocery market in 2022, according to CFRA Research. Walmart intends to focus on keeping its grocery prices as low as possible, a move its executives said on an earnings call helps Walmart continue to attract shoppers to its 4,700 U.S. stores.
One factor in Walmart's success has been its purchasing power with major suppliers of food and household staples, such as Procter & Gamble (NYSE:) and Conagra. Walmart alone already represents 15% of P&G's total annual sales to retailers and 28% of Conagra's.
The FTC's challenge to Kroger's acquisition of Albertsons on antitrust grounds “simply strengthens Walmart,” said Burt Flickinger, managing director of retail consulting firm Strategic Resource Group and an adviser to Kroger. If the deal fails after the FTC challenge, companies that make consumer products like Tide detergent and Huggies diapers will remain “beholden to Walmart,” Flickinger said.
“The government is de facto helping an entrenched competitor” – Walmart – “by not allowing others to grow enough to challenge them,” said Walmart investor David Klink, senior research analyst at Huntington Private Bank, who also owns shares. from Target and Amazon (NASDAQ:).
Peter Cohan, associate professor of management practice at Babson College, said that “non-union grocers like Walmart and Amazon, as well as Aldi, will gain a competitive advantage” if the merger fails. “The FTC noted that grocery prices have increased substantially and wants the winners to be retailers that offer good quality at lower prices,” he said.
Just 10 chains (Walmart, Kroger, Costco (NASDAQ , Albertsons, Sam's Club, Publix, Ahold-Delhaize, Dollar General (NYSE ), Target and Aldi) controlled 60% of the total US grocery market in 2021, according to Bernstein Research.
The National Grocers Association, a trade group representing thousands of smaller, independent food retailers and wholesalers, says four big food retailers – Walmart, Kroger, Costco and Albertsons – are leveraging their market share to “crowd out” suppliers. , resulting in deals that go up. prices to smaller stores.
The failure of the deal could be good for packaged food makers – if that happens – because they would have a larger pool of buyers, said Robert Klaber, portfolio manager at Parnassus Investments, which owns shares of P&G and Mondelez (NASDAQ:) .
PLAY TO CATCH UP
Store count is another area where Walmart can gain an advantage. Walmart declined to comment. Generally, Walmart tends to operate four Walmart Supercenters for every 25,000 to 30,000 people in a residential area. In California, Walmart only has one Supercenter per 100,000 people, indicating room for expansion there and in other states with a similar store-to-customer ratio, Flickinger said.
Walmart has announced plans to open 150 new stores over the next five years and renovate another 650 in 47 U.S. states and Puerto Rico this year. Walmart has not revealed all of the locations it will open and renovate.
The FTC lawsuit also represents a distraction, especially for Albertsons employees who face an uncertain future following any acquisition by Kroger. “We've seen it many times. When the acquirer and the target are in limbo, they lose a lot of talent,” said Michael Baker, an analyst at DA Davidson.
Walmart's price differences with its competitors and curbside pickup and delivery options are also attracting many more high-end customers since the pandemic. Kroger and Albertsons will have to “catch up,” he said.
The prolonged uncertainty surrounding the merger could also hinder Albertsons' progress in its growth initiatives, while Walmart continues to demonstrate strong sales, according to CFRA Research analyst Arun Sundaram. In its most recent quarterly performance, Kroger posted a 0.6% drop in U.S. comparable sales, while Albertsons posted a 2.9% increase and Walmart posted a 4% increase.
Kroger and Albertsons have warned that a blocked merger would strengthen Amazon and Walmart.
“This (FTC) decision only strengthens the largest non-union retailers like Walmart, Costco and Amazon by allowing them to further increase their overwhelming and growing dominance of the grocery industry,” Kroger said in a statement Monday.
