Two top Kroger Co. executives took the stand Monday in the Denver District Court antitrust trial seeking to block the grocer’s $24.6 billion merger with Albertsons Cos., arguing the combination is key to competing with Walmart and will not harm Colorado consumers.
“We are maniacally focused on Walmart and their pricing. For 20 years we have been focused on getting our prices closer to Walmart’s,” testified Stuart Aitkin, chief merchandise and marketing officer for the nation’s largest grocery store chain.
Kroger operates as King Soopers and City Market and Albertsons as Safeway in Colorado, where they account for about half of grocery sales. Colorado Attorney General Phil Weiser has sued to stop the combination, arguing it would reduce competition, saddle consumers with higher costs and harm employees and suppliers.
To ease anti-trust concerns, the two companies will spin off 579 Albertson/Safeway stores to C&S Wholesale Grocers for $1.9 billion. Colorado plays heavily in that transition, contributing 91 stores to C&S, which has been around 106 years but has limited retail experience.
Consumer advocates and worker unions have criticized the proposed sale, viewing C&S as a weak buyer that won’t survive long. State attorneys pursued that line of questioning on Monday, pushing Kroger CEO Rodney McMullen on whether the company chose what would be a weaker competitor without adequate management talent.
McMullen testified that C&S pledged to honor the labor contracts in place, and that it would be gaining the expertise it needs as part of the transition.
He also testified that consumers would benefit given that Albertsons’ prices are 10% to 12% higher across the board than those of Kroger stores. In Colorado, where there is more direct competition, the cost gap is 10.8%.
Kroger aims to align Albertsons’ prices with its lower costs, benefitting consumers and boosting its sales. By the fourth year, Kroger forecasts that Albertsons and Safeway customers will enjoy $1 billion a year in savings, McMullen said.
Another $1.3 billion will go into store upgrades and $1 billion to employees, who are called associates.
Colorado, however, won’t see the same level of benefits. That’s because only 19 stores will come under the Kroger umbrella.
Customers of those stores can expect to see about $40 million a year in cost savings, but the savings should come sooner, given the need to rebrand the properties as King Soopers or City Market, Aitken testified.
Kroger will have no say over what C&S will do when it comes to pricing for the 91 stores it would acquire in the state if the combination were to go through, Aitken acknowledged when pressed by Colorado’s Deputy Attorney General Steven Kaufmann.
McMullen and Aitken emphasized that Walmart, with 3.5 times the grocery sales of Kroger, is the key competitor not Albertsons. Kroger has built its business strategy entirely around matching Walmart’s prices and staying ahead of a host of other rivals like Costco, Whole Foods, Trader Joe’s, etc.
The gap with Walmart has narrowed, in part because Kroger has developed additional revenue sources that allowed it to pass on smaller price increases than Walmart during the latest round of rising prices, the executives said.
On cross-examination, Kaufmann produced multiple emails showing that Kroger executives closely tracked what Albertsons was doing when it came to pricing, promotional offers, advertisements and e-commerce.
He also peppered Aitken with questions about price increases in eight mountain stores located in what the company called a no-competition zone. Those increases had allowed the company’s gross margins in that zone to double. The concern is that once Safeway leaves the scene, replaced by a weaker competitor, a similar pattern could emerge.
While acknowledging that gross margins did double, Aitken said the added revenues didn’t drop to the bottom line because higher transportation and labor costs ate up much of the gains. McMullen also noted the difficulty the retailer has had in finding workers.
“We have 66 units up in the mountains for our associates so they can afford to stay up there. These costs are costs we are looking to recoup,” McMullen said.
Kroger developed a “flywheel” strategy to close the gap with Walmart. Lower prices on essential food staples so more customers come in the door. More sales generate more money that can be pumped back into price reductions.
Kroger initially focused on fueling lower price with savings in operating costs. For example, it achieved a 30% reduction per square foot in its energy costs, McMullen said.
Starting in 2016 and 2017, Kroger focused more heavily on generating outside revenue streams through technology and data, marketing that to consumer goods producers.
For example, if Coca-Cola rolls out a new product, Kroger can offer a coupon or free sample to the consumers in its database most likely to try it out, avoiding Pepsi loyalists. That understanding of consumers’ preferences and patterns offers a growing revenue source.
If someone is searching for a specific food item on its website, it can throw up an online advertisement from a related product maker, not unlike what Google does with its searches.
The U.S. grocery market is about $750 billion a year, with Kroger stores reaching about two-thirds of the U.S. population representing $501 billion of that market, Aitken said.
Owning Albertsons would put the retailer in 48 of the 50 states and give it the nationwide reach that it now lacks. That in turn would make its consumer data much more valuable to manufacturers, generating more revenues to funnel into price reduction. It could further close the price gap with Walmart, now down to 3.8%.
“Selling a can of corn is not something we make a living at,” McMullen testified.
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Originally Published:
In the increasingly competitive and ever-evolving world of retail, mergers and acquisitions have become a go-to strategy for many organizations seeking to bolster their market dominance, share risks, and gain synergy benefits. One such possible merger drawing attention is between two food retail giants: Kroger and Albertsons. If agreed upon, this merger could propel the combined entity to new heights, with company executives pointing towards the need to compete effectively with Walmart as a major rationale.
With the rise of one-stop shopping and digital commerce, the competition within the retail industry has escalated to an unprecedented scale. At the heart of this competition is Walmart, which has been the undisputed leader in the U.S. retail industry, holding a profound dominance in the grocery sector. A merger between Kroger and Albertsons, they argue, is necessary to compete on the same level as retail behemoth Walmart.
Kroger, already the second-largest grocery retailer in the United States, boasts a strong portfolio that includes a range of supermarkets, multi-department and convenience stores, jewelry stores, and manufacturing facilities. Albertsons, on the other hand, operates through numerous supermarket brands spread across the country. Together, they would hold a significant portion of the food and retail grocery market, giving them the scale and resources necessary to compete more effectively with Walmart.
Both Kroger and Albertsons have made significant strides towards expansion and growth in recent years. Kroger’s ongoing Restock Kroger plan has been driving cost savings, fueling investments in technologies, and enhancing customer experience, while Albertsons, under the leadership of CEO Vivek Sankaran, who joined from PepsiCo, has been revamping its e-commerce capabilities and increasing its omnichannel presence. Nevertheless, the threat from Walmart still looms large and has grown more prominent amidst the ongoing pandemic, which has seen Walmart’s grocery business flourish.
A merged entity could help Kroger and Albertsons gain a stronger foothold in the market by leveraging each other’s strengths. Albertsons’ strong private-label brands can benefit from Kroger’s established supply-chain infrastructure. Furthermore, a fusion would also result in a substantial customer base united under a single banner.
Executives assert that to protect against the Walmart-effect, consolidating resources are necessary. Walmart’s success is fueled by its expansive product range, aggressive pricing strategies, and an impressive online presence – factors that a prospective Kroger-Albertsons merger could match and potentially supersede.
However, there are regulatory hurdles to overcome. Mergers, particularly those that could potentially create a monopoly, often come under intense scrutiny from anti-trust regulators. Balancing this will be key to the success of any merger.
There are also logistical and cultural challenges to bring together two companies of such magnitude, each with unique business models, work cultures, and targeted customer segments. These complexities underline the need for careful and strategic planning.
In conclusion, while the merger appears necessary from a competitive standpoint, it’s execution will be a detailed and challenging process. The potential merger of Kroger and Albertsons promises a new chapter in the tale of retail competitiveness. Should the merger be successfully executed, it stands to mark a significant turning point not just for the two companies, but for the entire U.S. retail and grocery sector as they band together to compete against industry titan, Walmart.
Develop a training plan for a half marathon runner who is a beginner and has 6 months to prepare. Please consider a slow yet steady increase in the running distance each week.
Week 1-3:
Monday: Rest
Tuesday: 1 mile easy run
Wednesday: Strength Training (Gym)
Thursday: 1 mile easy run
Friday: Cross-Training (Cycling or Swimming)
Saturday: 1.5 mile run at easy pace
Sunday: Stretch and Rest
Week 4-6:
Monday: Rest
Tuesday: 2 miles easy run
Wednesday: Strength Training
Thursday: 2 miles easy run
Friday: Cross-Training
Saturday: 2.5 miles long run at easy pace
Sunday: Stretch and Rest
Week 7-9:
Monday: Rest
Tuesday: 2.5 miles easy run
Wednesday: Strength Training
Thursday: 2.5 miles easy run
Friday: Cross-Training
Saturday: 3 miles long run at easy pace
Sunday: Stretch and Rest
Week 10-12:
Monday: Rest
Tuesday: 3 miles easy run
Wednesday: Strength Training
Thursday: 3 miles easy run
Friday: Cross-Training
Saturday: 4 miles long run at easy pace
Sunday: Stretch and Rest
Week 13-15:
Monday: Rest
Tuesday: 3.5 miles easy run
Wednesday: Strength Training
Thursday: 4 miles easy run
Friday: Cross-Training
Saturday: 5 miles long run at easy pace
Sunday: Stretch and Rest
Week 16-18:
Monday: Rest
Tuesday: 4 miles easy run
Wednesday: Strength Training
Thursday: 5 miles easy run
Friday: Cross-Training
Saturday: 6 miles long run at easy pace
Sunday: Stretch and Rest
Week 19-21:
Monday: Rest
Tuesday: 5 miles easy run
Wednesday: Strength Training
Thursday: 5 miles easy run
Friday: Cross-Training
Saturday: 7 miles long run at easy pace
Sunday: Stretch and Rest
Week 22-24:
Monday: Rest
Tuesday: 5 miles easy run
Wednesday: Strength Training
Thursday: 6 miles easy run
Friday: Cross-Training
Saturday: 8 miles long run at easy pace
Sunday: Stretch and Rest
Tips:
1. Don’t forget to properly warm up before every run and cool down afterwards.
2. Stay hydrated and follow a balanced diet plan.
3. Listen to your body signals. If you feel unusually tired or experience any pain, take a rest day.
4. Cross-training could be any activity that you enjoy, such as cycling, swimming, yoga etc.
5. The strength training should include a mix of exercises that work on different muscle groups, including core, legs, and back.
6. Your long runs should be done at a slow, conversational pace.
7. It’s alright to walk during your long runs.
8. Consistent training is more important than intense training.
9. Consider getting a physical check-up before embarking on this training plan.,
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Kroger-Albertsons merger needed to compete with Walmart, executives say
