Recapping the Kroger / Albertsons Merger, When Social Mission Meets the Board Room and More

One way to mess up a merger is to try and slip four billion dollars past regulators.
Eric Gardner 5 min read
Recapping the Kroger / Albertsons Merger, When Social Mission Meets the Board Room and More
Photo by Roman Kraft / Unsplash

November 2022

  • Recapping the Kroger-Albertsons deal
  • Canada Joins the Grocery Concentration Fight
  • The On-Demand Bubble Pops
  • When Mission Meets the Board Room
  • Liquid Death, Cereal Shakeup and Shrinkflation

Recapping the Kroger / Albertsons Merger

The Kroger-Albertsons deal is on everyone's mind for a good reason. It's not every day that the second-largest grocer in America tries to purchase the fourth-largest. Like most major acquisitions in modern America, there are dozens of angles to the transaction. How will the combined market power impact suppliers? What about shareholders? Workers? Local communities? Is it even legal?

Yesterday, the Senate Judicial committee held a hearing on the merger itself. It went about how'd you would expect. Rodney McMullen and Vivek Sankaran, the CEOs of Kroger and Albertsons, defended the merger, while everyone else was against it. Senator Klobuchar (MN - D) and Lee (UT - R) did a solid job of questioning the witnesses; McMullen and Vivek did an even better job running out the clock with detailed but non-substantive answers.

The most interesting points came from Sumit Sharma, a Senior Researcher from Consumer Reports. He rightly argued that one of the key stated benefits of the merger is nonsense. Kroger and Albertsons have argued (and argued in this hearing) that the merger will enable the companies to provide lower prices through several avenues, including personalized deals for consumers.

To be clear, both Kroger and Albertsons are already offering personalized promotions.

Here's a portion of his testimony.

The difference seems to be that a combined Kroger Albertson will be able to analyze data from approx. 85 million households post-merger rather than 60 million households pre-merger. No evidence is presented to suggest that the ability to analyze data on an additional 25 million households would materially improve capabilities to personalize experiences.

The reason no evidence is presented is that there is no evidence! Each company already has plenty of data to run through its models.

The argument is wild to begin with.  

Personalized promotions are price discrimination. This isn't a value judgment; it's a statement of fact. Personalized promotions offer lower prices on items, but only if the person joins a data-sharing program that small competitors can't offer. It's their version of Amazon Prime and their fabled flywheel. It's anti-competitive by it's very nature!

There are still a lot of moving pieces around the merger. In November, Democratic Attorney Generals filed suit against a $4 billion dividend payment from Albertsons to shareholders. A Washington judge postponed the transaction pending review.  I wrote a bit about the payment at More Perfect Union. Essentially, Albertsons' management wants to borrow money to pay shareholders billions. The transaction will throw off the company's current ratio--making its cash position strikingly similar to now bankrupt Toys-R-Us.

That hearing kicks off next week. In the meantime, I'll highlight a few interesting articles below:

Medium Picture

  1. Why A Kroger/Albertsons Merger Is A Bad Idea – Forbes
  2. Kroger Wants to Create a $210 Billion Grocery Titan – More Perfect Union

Big Picture

  1. Kroger and Albertsons are merging because everything is an ad network – MobileDevMemo
  2. The Kroger-Albertsons Merger: Implications for Consumers and the Future of Retail - Numerator
  3. The Smash and Grab og Kroger-Albertsons - BIG

Cerberus Capital

In modern America, winners are taking all or most of the spoils. In this case, Cerberus Capital is the big winner. The firm purchased a portion of Albertsons in 2013 and took it public in 2020. Albertsons is well run—beating Kroger in same-store growth for six of the last eight years. But that's not enough. Earlier in the year, Cerberus (who controls a big chunk of the company's stock and the board) called for a strategic review. That means executives aren't happy, and something needs to happen fast.

The strategic review is done, and they're looking to sell. The company is presumably named after the three-headed dog in Greek mythology that kept the dead from leaving Hades. Right now, it's just looking for everything to pass through. Cerberus is set to make billions in a special dividend if the transaction completes.

  1. Cerberus' 16-Year Albertsons Bet a Tale of Twists, Turns – Bloomberg
  2. Albertsons Wants Out of the Discount Aisle – WSJ

Things I wrote

  1. With the Kroger and Albertson merger, why trust market forces when you can just enforce the law? – Slotting Fee
  2. Despite slowing sales, Trade Promotion Optimization has P&G looking good – Slotting Fee
  3. Conagra shows sometimes it's better to be a big fish in a small pond – Slotting Fee
  4. Clorox beats Wall Street expectations but posts big volume losses after two years of price increases - Slotting Fee
  5. Wealthy consumers head to Walmart as inflation takes its toll - Slotting Fee
  6. After years of price increases, J.M. Smucker boosts sales guidance - Slotting Fee
  7. Dollar Tree Announces a Push Into Private Label - Slotting Fee

Canada joins the grocery concentration fight.

  1. The FCC isn't the only North American regulator looking at grocery concentration. Last week the Competition Bureau Canada announced it planned to investigate competition in food retailing. "Grocery prices are increasing quickly, so we are going to study how governments can take action to improve competition in the sector," the agency said in a statement. The probe will focus on how concentration impacts prices, what other countries have done to combat raising prices, and what the government can do.

The On Demand Bubble Pops

  1. A money-losing network play seems reasonable when money is free. With rising interest rates? Not so much. Instacart announced it would not pursue an IPO in 2022. In 2021, the company spent over $700m expanding, only to hit the reality of raising interest rates. It's now pivoting to an ad network--which is smart.
  2. Not to be outdone, Bloomberg had a nice profile on GoPuff, a delivery app that purchased and held inventory—instead of acting as a middleman. It turns out, it's not really possible to make money delivering individual candy bars to consumers' houses in an hour or less. I don't blame the founders. It has to be hard to turn down tens of millions in funding. "We'd build a plan, and they'd [investors would] say you're not spending enough," one told Brad Stone. "It's easy to get caught up when you're having a lot of things go right."

When Mission Meets the Board Room

  1. Ben & Jerry's has been an absolute star for Unilever since it was acquired in 2000 for $326 million. Euromonitor estimates that this year the premium ice cream brand should bring in over $2.2 billion in sales for Unilever. A portion of those sales is because of the company's ethos.

 Writing in the Financial Times, Judith Evans describes the approach:

As the company grew, it developed a three-part mission, encompassing ice-cream, sustainable economic growth and social improvements. It campaigned on issues as wide ranging as climate change and bovine growth hormone. In 1988 it began selling "Peace Pops" as part of a bid to divert 1 per cent of the US defence budget to cultural and economic exchanges with the Soviet Union.

 Well, now, Ben & Jerry's is owned by a multinational conglomerate and facing a       sagging share price; management isn't too happy with the brand's activism.

Odds and Ends

18. In a testament to great brand building, Liquid Death, the beverage found on most podcasts, is now worth $700m. The company, which just sells canned water, booked $130 million of revenue last year and is on pace to nearly double.

19. After facing declining sales for a decade, cereal came roaring back with COVID. Cereal offered a cheap, safe meal while having a conglomerate triopoly over the category. Post, General Mills and Kellogg were content passing on price increases to consumers and reaping the benefits. With Kellogg's splitting off its cereal business, the industry is expecting a battle—although it might not be profitable for anyone involved.

20. One way consumer goods manufacturers increase profitability is through shrinkflation. Essentially, it's finding a way to reformulate or repackage a product that saves the company money--while charging the same amount. The New York Times has a fun profile on Edgar Dworksy, arguably the world's foremost expert, on the topic.

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