There was a provocative piece in Forbes the other day by columnist Richard Kestenbaum in which he suggested that it is time for Kroger and Albertsons to merge, allowing them to better compete effectively with Walmart and Amazon.
"With both Walmart and Amazon having virtually unlimited capital and technology expertise to succeed in online grocery, existing grocers are in a tight spot. They have to invest enormous resources and reconsider their store locations just to survive as the industry transitions.
"There’s no indication that the two companies are exploring a combination but putting Kroger and Albertson’s together would combine the #2 and #3 competitors in the market … as a combined company, Kroger-Albertson’s would be able to marshal the capital to develop technology and build the human resources to implement training, operations and customer service to compete effectively in online grocery. As we’ve seen in many industries, succeeding online is different than just opening another store. The leadership, attitude, operational efficiencies and approaches are not the same as traditional retail. If the two companies combine their resources and top leadership commits to make the investment and changes required, it can happen.
"Without that commitment, Kroger and Albertson’s will find their leading positions will continue to fall. Their physical stores will simultaneously become less competitive as customers make fewer store visits. Stores will close and the downward spiral we have seen at so many retailers that take old approaches to new threats will take hold. Kroger and Albertson’s have to adapt now while they’re still strong. If they wait, they may never catch up."
As for antitrust issues, Kestenbaum writes, "In any time until now, two such large competitors would not be permitted to combine. The government and competitors would object, saying the transaction is anti-competitive and that would effectively prevent a deal from happening. But now, because of the acceleration to online catalyzed by the pandemic, there’s a much greater competitive threat to both companies and the argument supporting the transaction is much stronger. Both companies’ long-term survival is at stake and they must act."
You can read the piece here.
- KC's View:
It is a provocative thought, albeit one that has absolutely no chance of becoming reality.
But … it does make the same point that was talked about a lot here on MNB back when the Obama administration prevented Staples from merging with Office Depot. I argued then and would argue now that antitrust laws that look to preserve competition actually are outmoded and don't reflect 21st century realities. While the feds said that a Staples-Office Depot combination would hurt consumers by removing a competitor, I thought that it was at least possible that letting them merge would actually give them greater competitive heft to do battle with Amazon and Walmart, each of which sells many/most of the items sold by office supply stores.
Same potentially goes for Kroger and Albertsons. I'm not sure I would go so far as to say that they can't compete against Amazon and Walmart without merging, but I take Kestenbaum's point.
You can't build a competitive 21st century economy by observing 19th and 20th century rules and trends.