The U.S. grocery market is largely dominated by four major players: Walmart, Kroger, Costco, and Albertsons Companies. These retailers boast competitive pricing, extensive market reach, and broad product assortments.
Until December of last year, Albertsons (ACI) and Kroger were expected to merge and create one giant grocery chain that would employ more than 700,000 people across about 5,000 stores. The deal was valued at $24.6 billion.
Then, a U.S. judge blocked Kroger’s pending $25 billion acquisition of Albertsons, siding with the U.S. Federal Trade Commission. The FTC argued that the merger would remove head-to-head competition, resulting in higher prices and reduced bargaining leverage for unionized workers, reported CNBC.
Kroger argued the deal would actually lower prices, as Albertsons’ stores already had prices 10–12% higher than Kroger’s, and that the merger is their way to compete with global giants like Walmart and Amazon.
Soon after, Albertsons sued Kroger, alleging willful breach of contract and breach of “the covenant of good faith and fair dealing arising from Kroger’s failure to exercise ‘best efforts’ and to take ‘any and all actions’ to secure regulatory approval of the companies’ agreed merger.”
Albertsons also claimed that Kroger willfully breached the merger agreement in several ways, including by refusing to divest assets necessary for antitrust approval. The company asked for a $600 million termination fee and billions of dollars in damages.
On March 25, Kroger filed its answer and counterclaims to the complaint brought by Albertsons arguing that Albertsons was engaged in “a secret and misguided campaign, together with C&S Wholesale Grocers, the divestiture buyer, to pursue its own regulatory strategy,” undermining Kroger’s efforts.
Kroger further stated that “as a result of its misconduct, Albertsons is not entitled to the $600 million termination fee” nor other damages it sought.
Albertsons sued Kroger over a failed merger, and Kroger answered with counterclaims.
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Albertsons posts fiscal 2024 earnings, excludes tariffs in its outlook
On April 15, the Boise, Idaho-based Albertsons posted its fourth quarter and full fiscal year 2024 earnings results, with quarterly revenue rising to $18.8 billion from $18.3 billion a year earlier. The growth in sales was driven by a 2.3% increase in identical sales, especially pharmacy sales.
For the full fiscal year, the company disclosed $80.4 billion in sales, which compares to $79.2 billion in the prior year. Operating income for the year amounted to $1.55 billion, versus $2.07 billion in fiscal 2023.
For fiscal 2025, Albertsons projects identical sales growth in the range of 1.5% to 2.5%, while FactSet consensus projects a 1.8% rise, according to Morningstar. It also expects fiscal 2025 adjusted earnings in the range of $2.03 to $2.16 a share, below the $2.28 FactSet average.
“While fiscal 2025 will be an investment year, beginning in fiscal 2026 we expect to drive growth consistent with our long-term algorithm of 2+% identical sales and Adjusted EBITDA growth higher than identical sales growth,” stated Susan Morris, COO and incoming CEO.
Albertsons excluded the potential impact of tariffs from its 2025 outlook, underscoring the challenges in evaluating the emerging trade conflict, according to Bloomberg. During the earnings call, executives did not explain why the potential impact of tariffs was excluded from guidance.
However, Morris highlighted that Albertsons sources 90% of its products within the U.S. placing it in a “very different position than some of the competitive front out there.” Still, she acknowledged the impacts in certain ingredients being sourced from areas subject to tariffs.
So far, Albertsons hasn’t seen a significant change in consumer behavior.
“The situation, as you know, is very fluid,” she said. “We’re staying very close to it. We’ve deployed a task force to help us understand the complexities of this situation as it evolves, and we’ve got some very good plans in place to help mitigate the impacts accordingly.”
Morris is set to assume the role of CEO on May 1, following the retirement of current CEO Vivek Sankaran.
Investing in technology platforms to drive incremental growth
Sharon McCollam, the company’s president and CFO explained that capital expenditures of $485 million in the fourth quarter were primarily driven by investments in digital technology platforms and modernization of its stores.
Albertsons built a real-time data platform to enable data science and artificial intelligence across e-commerce, store pharmacy, supply chain, merchandising and medical collective operations, explained Morris.
The CEO added that the company plans to increase AI use to improve product quality by driving increased freshness, higher sales, and better net promoter scores. It also plans to rely on AI to reduce inventory loss, empower merchants to optimize pricing decisions, and provide personalized offers, writes CIODive.
“Our North Star is to use technology in everything that we do,” Morris said.
