In a significant upheaval of the grocery sector, retail giant Walmart (WMT) is solidifying its hold as the leading player, expanding its market share during the second quarter. The company reported “high single-digit growth” in its quarterly results, further widening its leadership gap. As Walmart’s influence over the industry strengthens, competitors are compelled to seek partnerships to remain competitive.
Burt Flickinger, Managing Director of consulting firm Strategic Resource Group, characterized the impact of Walmart as an “unstoppable” force driving a “revolution” in the grocery sector. Flickinger stated that the industry landscape is undergoing reshaping, where Walmart’s power remains unrivaled.
In a recent development reflecting the ongoing consolidation trend, Aldi has moved to acquire Winn-Dixie and Harveys. This move aligns with broader efforts in the sector, such as Kroger’s (KR) $24.6 billion acquisition of Albertsons (ACI) announced last October. The merger between Kroger and Albertsons, two of the largest supermarket operators in the US, is regarded by experts as a necessary strategy to counter the dominance of big box retailers like Walmart.
Flickinger emphasized the critical nature of Kroger’s move, asserting that it represents the “last, best, and final chance to level the playing field.” The shift toward large-scale acquisitions is emblematic of the changing landscape, as traditional local and regional grocery stores lose ground to supercenters and supermarkets. Presently, the top five grocery chains collectively capture nearly half of the market share, with Walmart alone controlling approximately a quarter.
The ascent of supercenters and club stores like BJ’s (BJ) and Costco (COST) is considered one of the prevailing narratives in the food and grocery sector, as noted by Eric Fruits, Senior Scholar at the International Center for Law & Economics. Amazon’s (AMZN) acquisition of Whole Foods for $13.7 billion has similarly intensified competition, adding another layer to the evolving industry dynamics.
However, consolidation has led to a decline in independent grocers across the United States. Data from advocacy group Food & Water Watch indicated a roughly 30% decrease in the number of US grocers between 1993 and 2019. Furthermore, a study by the US Department of Agriculture highlighted a 41% decline in market share held by independent grocers across the country’s counties from 2005 to 2015.
As mergers and acquisitions gain momentum, the importance of scale within the industry becomes more pronounced. Larger companies possess increased bargaining power with suppliers, putting smaller players at a disadvantage. Chris Jones of the National Grocers Association expressed concerns over diminished choices, higher prices, and decreased convenience for consumers due to the concentration of power among a handful of firms.
The impending megadeal between Kroger and Albertsons has encountered significant resistance. Trade associations and state officials from seven states have urged the Federal Trade Commission (FTC) to intervene in the consolidation, citing potential negative impacts on workers and livelihoods. The California attorney general’s office is also scrutinizing the merger’s potential consequences on access to medications, especially in lower-income areas.
Addressing these concerns, Flickinger argued that the Kroger-Albertsons merger is favorable for consumers, workers, suppliers, and communities. A spokesperson from Kroger supported this viewpoint, noting that competitors like Walmart and Amazon would be the primary beneficiaries if the merger were halted.
Despite the obstacles facing the Kroger-Albertsons merger, Walmart’s continued dominance has fundamentally transformed the grocery industry. Its unassailable presence is poised to reshape the landscape for years to come, prompting industry-wide adaptations and shifts to remain relevant in the evolving market.
Source: Yahoo Finance
