Are You Ready for the Kroger and Albertsons Merger?

By Todd Ruberg, Simpactful Senior Partner and former Procter & Gamble Vice President of Customer Business Development, and Jill McIntosh, Simpactful Senior Partner and former Kroger Vice President of Merchandising

We wrote an article about the potential Kroger-Albertson Merger a couple of months ago. At that time we cautioned that approval was far from assured, and even if approved there would be several months before integration begins. As to be expected, significant challenges were raised by the State Attorney Generals and US Congress. Those challenges led many industry observers to speculate the merger would not be approved.

Not long after the merger was announced, Albertsons disclosed that they intend to declare and pay a special cash dividend of up to $4B to their shareholders prior to close of the merger. The Washington Attorney General challenged this special dividend, but recently the Washington state Supreme Court rejected reviewing the case which removed the legal hurdles for the dividend payment. Given the fact the path to dividend payment has been cleared, many are speculating the merger will indeed be approved (with store divestitures yet to be determined).

While there will be time before any integration or changes occur, previous mergers in the last decade have provided great insight into the challenges ahead. Kroger says it is expecting to close the merger in early 2024. One thing is clear: with a merger of this magnitude, there is as much to be gained by a supplier, as there is the business to be lost. Brands should start to prepare now for the inevitable.

At Simpactful we believe one thing for sure: Planning for the eventual merger and its likely impacts to suppliers (based on our collective history) will be a valuable investment of time and effort.

We should know. Together, Jill and I have a deep understanding of the impact of Retailer mergers on Suppliers, and Kroger’s areas of focus. I (Todd) led Customer Business Development for a major CPG during both the Kroger and Fred Meyer mergers in the late 90s – and several Albertson’s transactions, starting with the American Stores merger, through the SuperValu acquisition. Meanwhile, Jill held various senior executive positions at Kroger in Merchandising, Legal, and Human Resources both at the General Office and in the Retail and Manufacturing divisions.

In our experience, things will start to develop in three different phases: Post Announcement, Integration Planning, and Integration Execution. While CPGs will have the benefit of time, subsequent announcements and information will guide their own changes and responses.

Here are things to get ready for now:

Phase 1 – Post Announcement

This period starts while merger approvals are underway. Expect retailer personnel distraction and speculation of possible outcomes: government approval, store closures, layoffs, early retirement, headquarter closures, management changes, and on and on.

CPGs can do two things to mitigate business risk due to these distractions. First, strong Joint Business and Merchandising Plans – with commitment for longer time frames will be key. This can safeguard merchandising and distribution as real change begins to occur in later phases.

Second, Sales leaders need to keep their Kroger and Albertsons teams focused on developing strong plans and executing with excellence. You run the risk of spill-over rumors, gossip, and fear of headcount reductions as buyers and merchandisers seek out all sources of possible information. For instance, the Kroger category managers may want to know what your Albertsons customer team is hearing. Strong, regular, consistent communication methods are the best way to have personnel remain focused.

Phase 2 – Integration Planning

Early integration planning has commenced with the due diligence required to map out the deal. The heavy lifting will start post Federal Trade Commission decisions, and approval of policies compliance with antitrust laws. In this phase, there are two things you can expect.

Compliance and execution at the Retail store level will become an issue. This is already a challenge today, and will become more so as integration, divestiture, and organizational changes are announced. CPGs will want to look carefully at how trade funds are structured – working towards payment vs. compliance measures. New distribution, planogram changes, and other in-store initiatives will likely face disruptions and require extra attention and effort if organizations have not moved timing to avoid this phase.

The new entity will compare a supplier’s pricing, funding, and shopper marketing across the two previous entities. Expect the “new” Kroger to start negotiating from what they perceive to be the better terms. Kroger is expecting to deliver $1B of annual run-rate synergies with 50% of that achieved within the first two years post-closure – so you can bet no stone will be left unturned – including more favorable payment terms. You can get ahead by analyzing your Kroger and Albertsons terms now in preparation for a new negotiation strategy. Suppliers have been caught unprepared in previous mergers, both in terms of their negotiation message tracks, and skill sets. Those who will be interfacing with the Retailers need to be expert negotiators.

Phase 3 – Integration Execution

As integration begins, brands will need to be ready for several things.

Distribution alignment: This is where business can be gained or lost. You can prepare for identifying strong distribution or merchandising programs working as one entity, but not yet implemented at the other. Selling this enterprise-wide can deliver big upsides. Preliminary pitch planning could start now.

Inventory issues: A strong Supply Chain team engaged with the merged Retailer will be key, as problems could occur as Distribution Centers and order fulfillment changes are executed. The Retailer will likely ask for inventory returns or markdowns of items losing distribution in the merger, and you may need to do supply planning for items that gain distribution.

Internal organization changes: As the new Retailer decision points are clarified, suppliers will undoubtedly have the opportunity to evolve their own Kroger/Albertsons team. The key is knowing when to implement the change during the merger process and monitoring evolving needs. At the right point, it will make sense to first connect the separate teams, and then perhaps to integrate them into a single team.

This merger will have an enormous impact on the retail and CPG landscapes. While we will all have time and more information to make necessary changes, history tells us that the brands who are “ready” with plans can advantage themselves.

At Simpactful, we have experienced leaders from both sides of the desk that have executed merger integrations across all functions. We can identify the best practice JBPs, offer negotiation training, develop retailer compliance plans, support supply chain teams, and develop capabilities to grow through mergers. Contact the Simpactful team today at contact@simpactful.com or 925-234-6394. Visit www.simpactful.com