Would an Albertsons/Kroger Merger Be Good or Bad for Consumers?

Whether or not the merger happens, it’s a wake-up call for grocers.

It may be hard to believe, but we’re coming up to the second anniversary of the proposed merger of Albertsons and Kroger. They are in court this week with the FTC where the agency is seeking a ruling that it can block the merger. In the meantime, what many people want to know – as they have from the beginning – is how the merger impacts their pocket books and whether it results in lower prices or higher prices. In a bid to appease the regulators, the grocers vowed to slash prices by $1 billion, doubling the amount they had originally promised. The agency was not impressed, sticking with the argument that monopolistic consumer market moves like this ultimately result in higher prices.

Regulators are not alone in targeting high prices this season. Declining inflation factored into the Fed’s decision to cut interest rates by one full basis point – unexpectedly aggressive – by the end of this year, which is expected to lower prices. Price controls and tariffs became part of the popular lexicon as the presidential candidates unveiled their policy proposals. As for retailers themselves, losing customers because of high prices drove a summer “promotions race” where grocery and fast food retailers battled with over-the-top offers, clever couponing, and new spins on “value meals” (check out Starbucks’s “pairings,” where you can get a hot drink and a croissant for just $5).

It’s not like the grocery world would look a whole lot different should the merger become a reality … at least not right away. Despite the hope, high prices are not expected to decline immediately. But there’s another facet of the merger that concerns the fiscal health of grocers themselves. It starts with what should be an obvious question: just how are Albertsons and Kroger going to slash $1 billion without losing even more money? Part of the answer is that we’re talking about the application of sophisticated pricing and promotions technology, the kind that only a grocery behemoth could afford to build. Theoretically, that puts all other grocers at a distinct disadvantage. Recall the operative rationale for the merger: to enjoy the economies of scale and technology prowess of Amazon and Walmart. Kroger, which years ago acquired the technology assets of dunnhumby – a leader in customer data science – will have an opportunity to apply what it knows to a far larger market. If the merger happens, it would mean adding one more giant to the grocery market poised to outclass and outperform the competition.

Alas, for the rest of the market, there are ways to close the technology architecture capabilities gap. For a soon-to-be-released report, XCCommerce has teamed up with Columbus Consulting – a global leader in retail advisory services – to examine the evolving nature of price and promotions architecture and the options available to retailers of all types and sizes. Very few grocers, of course, are not in the position to build their architecture, the path that giants such as Amazon and Walmart have taken. For most, the right option will be to buy not build technology solutions that can be customized to provide the experience their customers demand. Think of this as a deeper phase of the “promotions race,” where architecture – not the entertaining promotions themselves – is the story.

“If the merger happens, it would mean adding one more giant to the grocery market poised to outclass and outperform the competition.”