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Fast Company this morning is out with a story saying that Kroger and Target are discussing a possible merger.

According to the story, “The two companies first started conversations last summer about a partnership that could improve Target’s grocery business and give Kroger customers more access to merchandise and e-commerce. Target and Kroger spoke again in the fall and talks are ongoing this year. The companies appear to be struggling to decide whether a merger is the best path forward. Last year, Target and Kroger’s combined annual revenue added up to $195 billion.”

Neither company has commented on the report.

UPDATE/11 am EDT: CNBC reports that its sources say that no such talks are taking place, but neither Kroger nor Target are talking to it, either.
KC's View:
In some ways, this isn’t an enormous surprise, and the fact that talks are taking place should not be interpreted as meaning that a deal is inevitable or imminent. Remember, Kroger has been said to have been in recent discussions with both Alibaba and Overstock, and it made a bid for Boxed, which was rejected as inadequate. So stay tuned.

It is an interesting possibility to consider, on a number of fronts. I’ve been arguing here for some time that Target ought to partner with a major grocery chain and have it run its grocery departments, in the same way that it outsourced Rx/HBC to CVS. This would certainly improve Target’s grocery offering, expand Kroger’s national footprint, and would certainly go farther than just a strategic alliance. (Though, it also is possible that the talks could result in exactly that, and not a merger … which would still be an intriguing deal.)

Both companies also have worked on e-commerce and delivery to various degrees, and Target’s ownership of Shipt might make a deal seem more attractive to Kroger, which has achieved some measure of success with its ClickList initiative. While bricks-and-mortar is still where most of the action is, it is anticipated that more than $100 billion worth of grocery spending could move to online over the next few years, and that 15-20 percent of center store sales could move to e-commerce. A Kroger-Target deal could position both companies better to deal with these eventualities.

So, there are lots of synergies. I have no idea what the antitrust implications might be, so that remains to be seen. But there are a lot of companies making moves around the board at this point, and so I think it is fair to expect that anything could happen. As I’ve said in a different context, I’m out of the “never” business … it doesn’t pay well, and almost inevitably I end up being wrong.

But … as I’ve said here before about other deals … this cannot be just about size and efficiencies. It has to be about effectiveness, and about a vision for a new and compelling retail strategy that will differentiate both banners.