The proposed Kroger-Albertson’s supermarket merger in the US could usher in significant changes in the way US grocers sell wine — a massive boost for private label SKUs (stock keeping units), for one; a reduction in the number of traditional wine SKUs for another; and even, perhaps, an increase in trendy, more celebrity-oriented products and localised, e-commerce wine marketplaces.
That’s because the two companies, and especially Kroger with its decades-long commitment to wine, are among the biggest wine retailers in the country. So anything the combined company does, could reverberate up and down the grocery and wine supply chains.
More innovation or higher prices?
“This would be about big changes in the wine industry,” says Phil Lempert, a supermarket consultant in Los Angeles, who sees the merger as an opportunity for the new company to bring innovation and change to the wine category.
Of course, this assumes that the $24.6 billion merger — which has encountered ferocious opposition from almost everyone who isn’t Kroger, Albertson’s, or their biggest suppliers — takes place. The deal was announced in October 2022 and was supposed to close early this year, but may not be finalised until the end of summer. And this assumes that US government regulators don’t quash the proposal or request more changes.
“I think one of the reasons so many are opposed to this merger is that they see it resulting in less competition and higher prices, including wine,” says David Patterson, an associate partner in the CPG and Retail practice at North Carolina’s Clarkston Consulting. “The idea for the merger is to chase better margins and cut costs wherever they can, and many of their suppliers will be caught in the middle.”
By the numbers
Kroger, with about an 8% market share, and Albertson’s, with some 5%, are the second- and third-biggest US grocers behind Walmart and its 15%. The combined company would be second after Walmart, with some 5,000 stores in 48 states and the District of Columbia, as well as 66 distribution centres, 52 manufacturing plants, 2,015 fuel centres and more than 710,000 employees. It would also would be the fifth-largest retail pharmacy operator in the US, with nearly 4,000 outlets.
All told, the new company would reach two in three US shoppers, according to consumer data specialist Numerator.
Its impact on wine could be just as substantial, says Christian Miller, who runs Full Glass Research in the San Francisco Bay area. Roughly, he says, because of the vagaries in tallying US wine retail sales, outlets like supermarkets, large discounters, and wholesale clubs such as Costco account for about 40% of volume and 25% of dollar sales. Given each chain’s overall market share, he estimates that the merged company would have a combined share of about 2.7% of wine retail revenue and 4.3% of volume.
And it might be much larger.
“This assumes that neither chain indexes high or low for share of wine within grocery,” says Miller. “And I suspect in some states the Kroger and Albertson’s share of grocery is much larger than those estimates.”
“Distributors and wine brands who do a lot of their business in grocery chains will be facing a single buyer in many states and regions, where before they had two.”
It’s also important to note, says Miller, that a typical 20,000-case higher end winery that doesn’t have supermarket distribution probably won’t notice much change from the merger. On the other hand, his analysis probably underestimates the impact on larger distributors and the biggest wineries, US or otherwise: “Distributors and wine brands who do a lot of their business in grocery chains will be facing a single buyer in many states and regions, where before they had two.”
This probably won’t be a problem for the biggest US wholesalers and their top 10 brands, but it could be worrisome for other large wine companies, domestic and imported, who aren’t big enough to command the attention of a single chain that wants to reduce SKUs.
“I am not a wine guy, but in my opinion, what you’ll see in the wine world is the same as in the food world,” says Rick Wolverton, partner, Grow Foodservice, in Santa Rosa. Calif. “So fewer decision makers on what to buy and therefore a more limited selection. If you are in a market, like Seattle or Phoenix, where both chains exist, you will end up with very similar selections in each store after the merger.”
More complications
Further complicating matters, three of the biggest US wine markets — New York, Pennsylvania, and New Jersey — restrict or forbid supermarket wine sales. This means two things: First, the combined company would almost certainly have a bigger overall market share than Miller’s estimates in the rest of the country, and, second, it could well increase pressure on those three states to add supermarket wine sales. Kroger lobbying and dollars have been influential in legislation allowing wine to be sold in supermarkets in Colorado and parts of Texas over the past 15 years.
Which accounts for much of the opposition to the merger, says Patterson, who doesn’t expect US regulators to approve the deal as it is currently structured. There are too many groups, from seafood suppliers to unions to consumer organizations to state officials to free market advocates, who oppose the deal because they say it will result in less selection and higher prices. Adds Wolverton: “Less competition always leads to price increases.”
“Less competition always leads to price increases.”
There is also concern about slotting fees, trade allowances, and product placement, says Patterson. In 2016, Kroger proposed hiring the world’s biggest wholesaler, Southern Glazer’s Wine & Spirits, to manage its alcohol inventory. The federal government’s Tax and Trade Bureau, which regulates US alcohol sales, refused to approve the proposal.
It’s still not clear what the Federal Trade Commission, the lead US regulator, will do. The Biden Administration has consistently opposed this sort of merger, and, in a 2021 report, called for more competition in a variety of industries, including alcohol wholesale and grocery. Lina Khan, the chair of the FTC, has criticized similar past mergers. But the supermarket business has changed so much, given the addition of e-commerce and companies like Amazon, that this is uncharted territory for regulators.
Effects on the wine trade
Kroger and Albertson’s point to Amazon’s heft as a reason to let the merger go ahead; to meet other objections, they said they will sell some 400 stores and set aside about one-half of a billion dollars for pricing relief. There’s no indication if or how any of this might affect the merged company’s wine SKUs.
More private labels
There are indications, however, that a Kroger-Albertson’s combination could be aggressive in wine in several areas, including and most importantly, private label. Between them, they have 35,000 CPG private label SKUs, says Lempert, and each has made significant strides in moving away from the typical $3 US supermarket private label wine. Albertson’s, in fact, has scored some success with its $15-$21 Vinaforé Collection.
“If you look at most supermarket private label,” says Lempert, “it tends to be more like Trader Joe’s than Aldi and Lidl — OK, but nothing special. Aldi has managed to bring in high quality wines at lower prices and that win awards. I don’t see why the new company, given its investment in private label, won’t push private label wines.”
Celebrity wine
If so, that could force some traditional wine SKUs off the shelf, as several analysts previously noted. Also putting pressure on those traditional wine SKUs — the chance to add celebrity-oriented wines, either as private label or in deals with third-party companies. Lempert, for one, sees this as a key trend in future supermarket assortments, wine and otherwise.
Wine shipping programs
Moreover, each company has invested heavily in e-commerce, including alcohol e-commerce. Kroger, just before the pandemic, made inroads with a wine shipping program; today, it is available in 19 states and the District of Columbia. Albertson’s, meanwhile, has a super-premium e-commerce program called Vine & Cellar.
Localization
“I can see some sort of localized marketplace that could include wine,” says Patterson. “That way, they would be able to harness the investments they’ve made in their e-commerce capabilities, and they could use that to resonate with local consumers who would otherwise see the merger as not being very local at all. They might offer local products to show these consumers they are interested in their local market areas.”
All of which depends on what happens to the merger. Which, at this point, is anyone’s guess.
