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FTC's Challenge to Kroger-Albertsons Merger: Boosting Walmart's Grocery Dominance

FLICKINGER ON Reuters: "The FTC challenge to Kroger's acquisition of Albertsons on antitrust grounds just makes Walmart stronger."

Discover how the Federal Trade Commission's move to thwart Kroger's $25 billion acquisition of Albertsons could inadvertently fortify Walmart's already formidable position in the grocery market. As Walmart intensifies its focus on maintaining competitive prices and expanding its reach, the scrutiny surrounding this merger presents an opportunity for the retail giant to solidify its dominance.

Burt Flickinger, Managing Director at Strategic Resource Group, emphasizes how this challenge enhances Walmart's influence over suppliers, potentially reshaping the landscape of the grocery industry. With insights from analysts and industry players, delve into the implications of this regulatory intervention on market dynamics and the competitive strategies of key players.

FTC Blocks the Merger only hindering food retailers to compete with Walmart

What Walmart may gain from FTC's Kroger-Albertsons Lawsuit

By Siddharth Cavale and Jessica DiNapoli

NEW YORK (Reuters) -The Federal Trade Commission's bid to block grocer Kroger's $25 billion acquisition of Albertsons could benefit Walmart, a rival whose close relationships with suppliers already gives it a price advantage over other chains, investors, consultants and analysts said.

Overall Walmart had a 24% share of the U.S. grocery market in 2022, according to CFRA Research. Walmart intends to focus on keeping its grocery prices as low as possible, a move that its executives said on an earnings call helps Walmart continue to draw shoppers into its 4,700 U.S. stores.

One factor in Walmart's success has been its buying power with major food and household staples suppliers, such as Procter & Gamble and Conagra. Walmart alone already accounts for 15% of P&G's total annual sales to retailers,and 28% of Conagra's.

The FTC challenge to Kroger's acquisition of Albertsons on antitrust grounds "just makes Walmart stronger," said Burt Flickinger, managing director at retail consulting firm Strategic Resource Group. If the deal fails following the FTC's challenge, companies that make consumer products like Tide detergent and Huggies diapers will continue to be "beholden to Walmart," Flickinger said.

"The government is de facto helping an entrenched competitor" - Walmart - "by not letting others get big enough to challenge them," said Walmart investor David Klink, senior research analyst at Huntington Private Bank, which also owns shares of Target and Amazon.

Bernstein analysts wrote in a note on Tuesday that they remain "cautiously optimistic" the deal will close, although the FTC lawsuit may delay completion by six months.

Just 10 chains - Walmart, Kroger, Costco, Albertsons, Sam's Club, Publix, Ahold-Delhaize, Dollar General, Target and Aldi - controlled 60% of the total U.S. grocery market in 2021, according to Bernstein research.

The National Grocers Association, a trade group that represents smaller independent food retailers and wholesalers, says that four big food retailers - Walmart, Kroger, Costco and Albertsons - leverage market share to "box out" suppliers, farmers, and ranchers, resulting in deals that shift higher prices onto smaller stores.

The deal falling apart could be good for packaged food makers— if that happens— because they would have a bigger pool of buyers, said Robert Klaber, a portfolio manager at Parnassus Investments, which holds P&G and Mondelez shares.

Store count is another area where Walmart may gain an advantage. Walmart declined to comment.

To counter concerns of overlapping stores in certain areas, Kroger and Albertsons have agreed to sell 413 total stores to C&S Wholesale Grocers, 104 of which are in Washington state, representing one third of the total.

But Walmart operates only 52 Supercenters and four neighborhood markets in Washington, according to a lawsuit filed by the state Attorney General challenging the merger. Walmart, meanwhile, plans to open 150 new stores over the next five years and renovate 650 others across 47 U.S. states and Puerto Rico this year. Walmart has not disclosed all the locations it will open and renovate.

Generally, Walmart tends to operate four Walmart Supercenters for every 25,000 to 30,000 people in a residential area. In California, Walmart has only has one Supercenter for every 100,000 people, indicating room for expansion there, Flickinger said.

The FTC lawsuit also poses a distraction, especially for Albertsons employees facing an uncertain future following any acquisition by Kroger. "We have seen it oftentimes. When the acquirer and the target are in limbo, they lose a lot of talent," D.A. Davidson analyst Michael Baker said.

Walmart's price gaps with competitors and curbside pickup and delivery options is also attracting a lot more high-end customers from rivals since the pandemic. Kroger and Albertsons will have to "play catch-up," he said.

The prolonged uncertainty surrounding the merger could also stymie Albertsons' progress on growth initiatives, while Walmart continues to demonstrate strong sales, according to Arun Sundaram, an analyst at CFRA Research. In their most recent quarterly performance, Kroger posted a 0.6% drop in U.S. comparable sales, while Albertsons posted a 2.9% increase and Walmart a 4% rise.

Kroger and Albertsons have cautioned that a blocked merger would empower Amazon and Walmart.

"This (FTC) decision only strengthens larger, non-unionized retailers like Walmart, Costco and Amazon by allowing them to further increase their overwhelming and growing dominance of the grocery industry," Kroger said in a statement on Monday.

(Reporting by Siddharth Cavale and Jessica DiNapoli in New York Editing by Nick Zieminski)

Burt Flickinger, Managing Director of Strategic Resource Group, speaks on FTC block Kroger and Albertsons Deal

Burt Flickinger III, the esteemed Managing Director of Strategic Resource Group, stands as a luminary figure in the realm of food retail, renowned for his unparalleled expertise and profound insights. With a distinguished track record, Burt has been a pivotal voice before the Federal Trade Commission (FTC), offering invaluable guidance and testimony derived from years of dedicated work.

His esteemed contributions extend beyond consultancy, as evidenced by his pivotal role in shaping The Los Angeles Times' Pulitzer Prize-winning series "Walmart Effect." From leading investment firms to CPG giants and beyond, executives worldwide have entrusted Burt's discerning analysis to navigate and capitalize on the intricate dynamics of the retail landscape, cementing his status as a trusted authority in the field.

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Strategic Resource Group is the lead retail and brand CPG consulting firm throughout the United States and the globe. With more than three decades of experience, our team strategically collaborates with top retail chains, wholesalers, suppliers, and investment firms. Our retail industry experts are highly skilled at illuminating retail trends, identifying opportunities to increase consumption, and growing retail sales.

Stay in the loop with SRG’s insights and latest news reportings as Burt Flickinger makes special appearances on the radio, TV, and a vast amount of other platforms. Explore the ways to drive your profitability, discover top resources, and uncover your competitive advantages!

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