These huge grocery store empires have largely pursued a strategy of moving upscale in the last 5 years or so. While this has been very successful, it may prove a challenge in the next 5 years or so, as less shoppers care about finding the perfect cave-aged cheese and more care about affording staples.
I’ve noticed it across all the grocery stores - even Walmart(!!) - I think the upscale stuff is an attempt to maintain some profit when faced with squeezing margins. Though I have to wonder how much of the upscale stuff never sells and gets thrown away, dumpsters behind grocery stores are depressing, never look in them.
Retail as a whole has split into economy and luxury. Brands serving the middle struggle. Since Walmart is tough to compete with on economy pushing most traditional stores towards luxury. They’ve also seen the growth at Whole Foods and such in an otherwise low growth, low margin business. I think Walmart is just constantly experimenting and their overall strategy is to be the economical choice.
You can't talk about grocery stores in the US without mentioning the roles of "dollar stores", "pharmacies" and the food desserts that created such a demand for these alternative grocers. Maybe traditional grocers moving upmarket is a reaction to the low end needs being serviced by these market gap-fillers.
Edit: Fixed one spelling mistake but not the other that I was called out for ;-)
Doh! I'm one of those guys who spell checks every meaningless post to death and this was the ONE TIME I didn't lol - oh well I love this place ¯\_(ツ)_/¯
I think Aldi's strategy of cheap, quality staples will continue to get traction. Lidl's trying to have it both ways and doesn't seem to be as successful.
I am Traders Joe fanatic. I luuuuv Traders Joe. I know TJ is owned by one of the Aldi brothers though I can never remember which one. It doesn’t matter I like both TJ and Aldi (America). My other favorite grocer is Costco and Hmart (Korean).
Monopoly? I thought so too, until I found out that Walmart is the largest grocer. This is a merger of #2 and #3 (at least in the West - Safeway (Albertsons) isn't even #3 nationwide).
I rarely shop at Walmart, for a number of reasons, but on a couple occasions I've picked up some milk at Walmart, because I needed some and wasn't near my other grocery stores. Never again though. The last time was ridiculous: Walmart marked up every brand of milk to absurd prices much higher than other grocery stores, except for their "store brand" milk, which wasn't cheap either. I didn't even bother getting a full gallon, just the smallest I could find and got the hell out. I couldn't imagine shopping there every week.
I do grocery shopping for the family and for reasons I have to shop at Kroger, Walmart, Target, and Aldi. Walmart far and away has the lowest prices against a consistent basket of goods. Kroger will only beat it on a loss leader. And it’s not just ten or fifteen cents: Regular purchases are dollars cheaper at Walmart.
The effects are local, though. The existence of Walmarts somewhere doesn't affect people living in Seattle, for instance, since there are no Walmarts within the city. We have 16 Kroger-owned stores (QFC and Fred Meyer), 15 Albertsons-owned stores (Safeway), and no other "normal" grocer chains (there's Trader Joe's, Whole Foods, etc.)
I don't think it's super productive discourse to call an entire country, especially one as large, diverse, and developed as Canada, "mediocre" in its entirety.
IMHO mergers should be illegal. Just never allowed, maybe exceptional circumstances like charities that wouldn't otherwise be able to survive.
The reason is I think it tends to reduce the usefulness of the free market. We want a bunch of firms competing to create value for consumers. A bunch of little experiments that say "hey I bet people want purple toothpaste", with a bunch of little failure domains that keep the damage small when it turns out blue is the best color.
Mergers incentivize people to make businesses for reasons other than creating and sharing value with consumers. For instance, a lot of VC backed firms get bought by a larger giant without ever turning a profit. This basically blurs the market's view of whether the widget they're selling is of any use.
Creating larger firms also encourage monopolistic practices about which plenty has been said. But also it means failed products take longer to be taken down as they share infrastructure with non-failed products. And when a giant dies, a lot of fallout happens.
You're right - and we might want additional rules to address that.
But IMHO it's one thing if facebook gains market dominance because users choose their product - that might just be a sign they've got an excellent product. On the other hand, if facebook feels the need to buy Instagram and Whatsapp because users aren't choosing facebook's product? That's a completely different matter.
Like anything in the real world, an absolute rule like this is inappropriate, but I agree that we need a much higher bar of scrutiny on these kinds of mergers before they are approved.
A rather simple solution is to tax corporations progressively more with higher revenue or assets. This would counteract the economic incentives to merge towards ever bigger entities.
What are the economies of scale in groceries? Seems like at a certain point there will be more overhead due to the management required for managing the entire chain of stores, and also lower quality of product due to only being able to source products from massive producers.
The back end logistics of grocery stores get complicated, but lager networks are strictly better because they get more leverage with suppliers.
They can also spread the expense for R&D/training materials etc across more stores and wider advertising channels without significant viewers being outside the range of their stores.
groceries are traditionally thin margin so you can reduce overhead in the administrative, marketing, supply chain parts of the business. you also get bargaining power with producers. most packaged food producers are already "massive" and you generally see the same brands with only minor regional variations (like some different kinds of bread) from store to store across the country. they would also have a better ability to purchase from local producers, pushing out smaller grocers and making it harder for them to access the limited supply of local farms and creameries etc. basically all the advantages of a streamlined supply chain would happen here (instead of running two competing supply chains in the same region they can now run one which knows the stocking demands of all the stores). There are actually a lot of good reasons for the food business especially to have only one retail outlet, since it would reduce food waste from overbuying, and simplify consumer choice problems (i have to go to a few stores if i really want to get all the brands I like) except for the fact that it means inevitable monopolisitic pricing and ends up punishing producers because they have no other options for who to sell to.
Do those advantages continue to scale last a certain point? I use a service called Fresh Direct for groceries. They serve nearly the entire NY metro area, so they’re pretty big, but not nearly as big as a national chain. The quality provided by Fresh Direct is so much better than Whole Foods or Shop Right. The reason is that they partner will smaller producers that sell really good stuff. Like they have really good yogurt from Brooklyn, amazing organic produce from a cooperative in Pennsylvania, pasture raised meat, etc. Whole Foods used to have similar items before they were purchased by Amazon. At least for my personal shopping habits, bigger doesn’t necessarily mean better.
The economies of scale on grocery store mergers is that you can reduce the number of stores you maintain, because typically competitors will have stores near each other. Don't need Albertsons and Kroger stores a block away from each other after you operate as a single company.
Recently, Market Basket (a family-owned New England chain) was rated #1 during inflationary times (https://www.supermarketnews.com/retail-financial/market-bask...). Market Basket made news a few years back because their non-union employees basically organized a strike to save management - yes, the workers were standing up for the CEO that got ousted. The chain was co-owned by two sides of a family and one side wanted to oust the CEO and co-owner - but the workers loved how he treated them and basically forced the other side of the family to sell to the CEO. Not only employees, but a lot of suppliers wanted to stand up for the ousted CEO. See: https://en.wikipedia.org/wiki/Market_Basket_protests
One of the reasons that they wanted to oust the CEO is that they wanted a dividend while the CEO instead decided to cut prices by 4% for the entire year. It was kinda amazing going grocery shopping and looking at the receipt and literally seeing 4% come off the price of every item. No, they didn't hike prices just to give the feeling of 4% off.
I bring this up because while Market Basket has economies of scale, it isn't an international company like Ahold Delhaize of the Netherlands which owns Stop & Shop, Giant, Hannaford, Food Lion, and over 2,000 stores in the US (and tons around the world); it isn't Walmart or Amazon; it isn't Albertsons with 2,250 stores or Kroger with 2,700. It has 90 stores. Yet they seem to be incredibly profitable while offering better pricing to consumers.
A friend of mine who worked in the supermarket business in Nebraska knew about Market Basket because they were such an example of how well-run a supermarket could be. No loyalty cards, no self-checkout, employees have profit-sharing, healthcare, and sick time, and instead of hiring outside execs they've tended to promote from within - people who have worked for the company for decades, sometimes starting part-time as teenagers. At the same time, this seemingly old-fashioned company is thriving.
In some ways, it makes me question a lot of what companies do to optimize things. Yes, there are all sorts of things companies can do like surge pricing, but that can leave a bad taste - and it leaves people wanting to do it back to you if they ever have the power. Sure, you can try and exploit suppliers, but that can create a hostile, unstable relationship. How much money are you burning trying to see exactly how little you can pay? Do you hire expensive execs, an army of data scientists and economists, etc. to see how you can use your power to get a little bit extra?
I do think the Kroger-Albertsons merger will be good for the companies/shareholders. Before, if you were a supplier, you'd have these two 2,000+ store chains to sell to. Now there's one less buyer and economists research this a lot (and there's been a lot of good work on monopsony/oligopsony recently). If you're a worker, there's one less supermarket employer to work for. However, those aren't economies of scale - those are just market power gains.
I do think there are still economies of scale, but they do become smaller. When you already have 2,000+ stores sharing an inventory system, its cost can be pretty small and moving to 4,000+ stores might not really change things much. Plus, there's a lot of cost and pain integrating systems to save that money and companies spend years doing it.
Still, it certainly doesn't seem like a necessary merger to remain competitive. Small chains like Market Basket (90 locations), Wegmans (109 locations), Central Market (10 locations), and Heinen’s (23 locations) get top marks from Consumer reports (kotlin2↗
That’s my observation too. Grocery chains need to be big enough to stock a wide variety of goods. But after a certain point, getting bigger makes the stores worse.
As a frequent Kroger customer, my immediate gut reaction was no way should this happen.
But then looking further, how much geographic overlap is there between the two companies? Not much from my quick search. Certainly not in the area I live.
And a stated goal of this merger is to fight the evil empire, Walmart. So I'm warming up to it...
So, if I wanted to build a map that showed where competition would be eliminated by this merger, does anyone have any good datasources (other than trying to scrape google maps, or the Kroger/Albertsons/Subbrand websites)?
I think Kroger also own QFC and King Sooper's. Hence you have to include their locations as well. Apologies if you were already implicitly referring to them when you mentioned Kroger.
I don't understand all the talk here about grocery store monopolies - there's still Walmart, Target, and Aldi, with Lidl now starting to move in on that action, not to mention the regional chains such as Giant Eagle, Meijer, Marc's, Publix and Piggly Wiggly amongst several others. At least where I live I'm seeing more and more competition in the grocer space, not less. I don't see how this merger is going to change that.
Depends where you live I suppose. I live in an area where there must be at least a dozen different grocery stores in a twenty miles radius. But I'm sure there's plenty of places in the country where that's not the case.
Many, many places don't have that competition. Plenty of communities are at risk of losing their two local grocery stores and seeing them become just one.
Grocers are not evenly distributed, so while you are correct that at a national level there exists competition, it doesn't exist everywhere.
And while a monoculture in an area might represent an opportunity for a grocery store to disrupt things, the people living in that monoculture gain no benefit from that opportunity - they have to live with the monoculture until someone maybe fixes the problem.
What I want to see is the the change in the percent of people who only have access to one brand umbrella of large grocery store crosstabbed against various distances (5,10,20 miles).
Will this take the number of people with a single brand of grocery stores within 10 miles from 10% to 20% or 5% to 7%? I really have no idea.
Even so, my understanding is there's not much overlap between Kroger and Albertsons so I'd expect their merger to have minimal impacts to local markets.
The last time this happened (Albertsons/Safeway), many of my local Albertsons locations were spun out to another company to appease regulators. That company failed almost immediately and Albertsons bought those locations back.
In my area the chain grocers are now Albertsons and Kroger. That’s it.
The regional chain is Stater Bros.
I don’t know if Southern California is an anomaly or not though.
I was guessing that you were in Oregon or Washington because something similar happened here: a local chain (Haggen) tried to take over a bunch of stores and ended up in bankruptcy.
Trying to take over 5X times as many stores as you were running before is a huge operational challenge. Haggen also alleged bad information from Albertson's.
Nope. California, but yes it was Haggen. Thanks for reminding me of the name, I had forgotten it! I remember going there once and being gobsmacked at how expensive the place was. Like they were trying to charge Whole Foods prices for a regular grocery store.
> Trying to take over 5X times as many stores as you were running before is a huge operational challenge.
It reminded me of Frontier (tiny little telco) buying up a huge chunk of Verizon's wireline business in 2009. They still run it, but it's been rough.
The firm that owned Haggen paid for most of those stores by selling off most of the real estate and sticking the stores with rental payments. As I recall they expanded into CA, AZ, and NV before failing.
I don't have a good timeline in my head but I remember they did a push to make the stores nicer, adding things like a wine bar. And then suddenly they were heading downhill. They had good produce, but I think some of that was turnover. Once the customers moved stores that went away.
Anecdotally, there areas of my town (and adjacent towns) with a Kroger-owned store across the street from an Albertson's-owned store. I expect this merger will quickly result in the overlapping stores to be closed, those jobs to be lost and for the large empty retail space to negatively impact other adjacent businesses.
This merger feels like it'll be bad for consumers and bad for the local economy of markets with overlap.
Only grocers in my gigantic city are Kroger, Albertsons, and Target(which basically no one uses as a pure grocer), plus boutique places like trader joes. We don't have walmart. Aldi is starting to move in, and Amazon has a couple whole foods and seems to be building more, but that's a few stores for millions of people. The vast majority of people only have Albertsons or Kroger within a reasonable distance.
Millions of people are being served by three grocers? The metro area for my city is just shy of two million. We have Walmart, Kroger, Meijer, Giant Eagle, Target, Aldi, Trader Joe, Whole Foods, Marc's, IGA, Sam's Club, Costco, and Saraga (which is an international supermarket with every kind of produce from around the world) - not to mention all the specialty stores like the Mexican, Mediterranean, Indian, and Asian grocers. Almost all of these stores are within 5 miles of my house - the Costco is an outlier and the IGA is 6 miles away. I wonder how our cities came to be so different - especially when it sounds like yours is a larger city yet has fewer options?
As I posted elsewhere, Seattle has about 30 standard chain grocery stores within city limits and all are owned by Albertsons or Kroger. The rest are smaller operations, boutiques like like Trader Joe's, or higher-priced like Whole Foods. There is no Walmart in Seattle, and many of the 4-5 Targets are smaller stores with limited selection.
Keep in mind that both Kroger and Albertsons each already own several other large grocery store brands, so some of that abundance of choice is an illusion.
What it could mean is nothing good. Less competition, more worker exploitation, fewer brand options, less incentive to provide good quality service.
Just like ISPs merging to become the one and only ISP in some markets, this could absolutely create a trend of only one grocery chain in certain markets.
My town has two krogers and two safeways, so i’m interested to see how this might play out. Thankfully there’s also a costco and a local co-op nearby. Support local co-ops if at all possible! And costco, as i’m a shareholder ;)
78 comments
[ 4.7 ms ] story [ 132 ms ] threadEdit: Fixed one spelling mistake but not the other that I was called out for ;-)
I rarely shop at Walmart, for a number of reasons, but on a couple occasions I've picked up some milk at Walmart, because I needed some and wasn't near my other grocery stores. Never again though. The last time was ridiculous: Walmart marked up every brand of milk to absurd prices much higher than other grocery stores, except for their "store brand" milk, which wasn't cheap either. I didn't even bother getting a full gallon, just the smallest I could find and got the hell out. I couldn't imagine shopping there every week.
https://en.wikipedia.org/wiki/Performance_Food_Group
https://en.wikipedia.org/wiki/Core-Mark
These are the people all the farms sell to.
The reason is I think it tends to reduce the usefulness of the free market. We want a bunch of firms competing to create value for consumers. A bunch of little experiments that say "hey I bet people want purple toothpaste", with a bunch of little failure domains that keep the damage small when it turns out blue is the best color.
Mergers incentivize people to make businesses for reasons other than creating and sharing value with consumers. For instance, a lot of VC backed firms get bought by a larger giant without ever turning a profit. This basically blurs the market's view of whether the widget they're selling is of any use.
Creating larger firms also encourage monopolistic practices about which plenty has been said. But also it means failed products take longer to be taken down as they share infrastructure with non-failed products. And when a giant dies, a lot of fallout happens.
I think the answer is to better enforce anti trade laws to ensure competition.
They can, but often you find a firm that has grown organically ends up swallowing up a load of smaller firms.
For sure trade laws need to actually be followed, but there's a discretion there that is vulnerable to lobbying.
You're right - and we might want additional rules to address that.
But IMHO it's one thing if facebook gains market dominance because users choose their product - that might just be a sign they've got an excellent product. On the other hand, if facebook feels the need to buy Instagram and Whatsapp because users aren't choosing facebook's product? That's a completely different matter.
Efficiency of production is only one axis, and we absolutely can over optimize that axis.
Disagreed. In dying industries, mergers make a lot of sense.
Many more locations, cusyomers and more money would surely help there.
They can also spread the expense for R&D/training materials etc across more stores and wider advertising channels without significant viewers being outside the range of their stores.
One of the reasons that they wanted to oust the CEO is that they wanted a dividend while the CEO instead decided to cut prices by 4% for the entire year. It was kinda amazing going grocery shopping and looking at the receipt and literally seeing 4% come off the price of every item. No, they didn't hike prices just to give the feeling of 4% off.
I bring this up because while Market Basket has economies of scale, it isn't an international company like Ahold Delhaize of the Netherlands which owns Stop & Shop, Giant, Hannaford, Food Lion, and over 2,000 stores in the US (and tons around the world); it isn't Walmart or Amazon; it isn't Albertsons with 2,250 stores or Kroger with 2,700. It has 90 stores. Yet they seem to be incredibly profitable while offering better pricing to consumers.
A friend of mine who worked in the supermarket business in Nebraska knew about Market Basket because they were such an example of how well-run a supermarket could be. No loyalty cards, no self-checkout, employees have profit-sharing, healthcare, and sick time, and instead of hiring outside execs they've tended to promote from within - people who have worked for the company for decades, sometimes starting part-time as teenagers. At the same time, this seemingly old-fashioned company is thriving.
In some ways, it makes me question a lot of what companies do to optimize things. Yes, there are all sorts of things companies can do like surge pricing, but that can leave a bad taste - and it leaves people wanting to do it back to you if they ever have the power. Sure, you can try and exploit suppliers, but that can create a hostile, unstable relationship. How much money are you burning trying to see exactly how little you can pay? Do you hire expensive execs, an army of data scientists and economists, etc. to see how you can use your power to get a little bit extra?
I do think the Kroger-Albertsons merger will be good for the companies/shareholders. Before, if you were a supplier, you'd have these two 2,000+ store chains to sell to. Now there's one less buyer and economists research this a lot (and there's been a lot of good work on monopsony/oligopsony recently). If you're a worker, there's one less supermarket employer to work for. However, those aren't economies of scale - those are just market power gains.
I do think there are still economies of scale, but they do become smaller. When you already have 2,000+ stores sharing an inventory system, its cost can be pretty small and moving to 4,000+ stores might not really change things much. Plus, there's a lot of cost and pain integrating systems to save that money and companies spend years doing it.
Still, it certainly doesn't seem like a necessary merger to remain competitive. Small chains like Market Basket (90 locations), Wegmans (109 locations), Central Market (10 locations), and Heinen’s (23 locations) get top marks from Consumer reports ( kotlin2 ↗ That’s my observation too. Grocery chains need to be big enough to stock a wide variety of goods. But after a certain point, getting bigger makes the stores worse.
But then looking further, how much geographic overlap is there between the two companies? Not much from my quick search. Certainly not in the area I live.
And a stated goal of this merger is to fight the evil empire, Walmart. So I'm warming up to it...
* Mountain states: King Sooper vs Albertson's
* PNW: QFC/Fred Meyer vs Safeway
* California: Ralph's vs Safeway
And that's only the regions I'm familiar with.
Grocers are not evenly distributed, so while you are correct that at a national level there exists competition, it doesn't exist everywhere.
And while a monoculture in an area might represent an opportunity for a grocery store to disrupt things, the people living in that monoculture gain no benefit from that opportunity - they have to live with the monoculture until someone maybe fixes the problem.
Will this take the number of people with a single brand of grocery stores within 10 miles from 10% to 20% or 5% to 7%? I really have no idea.
In my area the chain grocers are now Albertsons and Kroger. That’s it.
The regional chain is Stater Bros.
I don’t know if Southern California is an anomaly or not though.
Trying to take over 5X times as many stores as you were running before is a huge operational challenge. Haggen also alleged bad information from Albertson's.
https://en.wikipedia.org/wiki/Haggen
> Trying to take over 5X times as many stores as you were running before is a huge operational challenge.
It reminded me of Frontier (tiny little telco) buying up a huge chunk of Verizon's wireline business in 2009. They still run it, but it's been rough.
https://en.wikipedia.org/wiki/Frontier_Communications#Purcha...
I don't have a good timeline in my head but I remember they did a push to make the stores nicer, adding things like a wine bar. And then suddenly they were heading downhill. They had good produce, but I think some of that was turnover. Once the customers moved stores that went away.
This merger feels like it'll be bad for consumers and bad for the local economy of markets with overlap.
Just like ISPs merging to become the one and only ISP in some markets, this could absolutely create a trend of only one grocery chain in certain markets.