When Coborn’s announced plans this spring to purchase Kessler’s Food and Grocery, the Midwestern grocer said it would run the South Dakota retailer under its existing name — preserving the two-store chain’s local identity while giving it access to efficiencies that the family that had owned Kessler’s for decades didn’t have.
Similarly, the family behind St. Louis grocery mainstay Schnuck Markets opted to maintain the 10 grocery banners it acquired when it bought Wisconsin-based Skogen’s Festival Foods and Hometown Grocers as distinct entities under a newly formed holding company. That investment vehicle, known as the 1939 Group, will provide shared support to Schnucks, Skogen’s Festival Foods and Hometown Grocers while operating them separately, according to Schnucks.
Both of those transactions are emblematic of a trend taking shape under which grocers have looked to gain cost advantages by merging while holding onto the community ties that set them apart from larger competitors, said Matt Hamory, co-leader of the global grocery practice at consulting firm AlixPartners.
Hamory said he expects to see more grocers joining forces through this model. “I think there’s going to be quite a bit of that, because there’s a lot of opportunity to take out cost and have better scale to help you have lower price,” he said.
Hamory pointed to Northeast Grocery as an earlier example of how regional grocers have been gaining scale without disrupting the local relationships they have with shoppers. Formed in connection with the 2021 merger of Price Chopper/Market 32 and Tops Markets, Northeast Grocery runs about 300 supermarkets in New York, Connecticut, Massachusetts, New Hampshire, Vermont and Pennsylvania.
“It’s really hard to create a brand name, and losing [one] is tough,” said Michael Infranco, assistant vice president of retail intelligence company RetailStat. “I think that’s why you saw that holding company structure with 1939, and they kind of followed that model that you saw with Northeast Grocery.”
Hamory noted that squaring the desire to keep operations locally focused while also drawing on the benefits of a centralized ownership structure can be challenging for grocers.
“After a while, you risk that your businesses become more similar than maybe you want,” he said. “I think there’ll be a lot of experimentation in this, and someone is going to find the right balance, and then people will copy it.”
A key issue grocers face is that Walmart has amassed an almost insurmountable level of market dominance, said Scott Mushkin, CEO of research and consulting firm R5 Capital. That puts added pressure on retailers looking to gain market power even as they strive to operate stores under multiple brands, he said.
“It is very difficult to operate all these independent banners” said Mushkin. “The economies of scale are just so tilted in the favor of Walmart, in particular.”
While some grocers have kept store names in place when making acquisitions, others are folding retail locations they buy into their own brand. For example, Brookshire Grocery Co. said that it would add two Uptown Grocery stores in the Oklahoma City metropolitan area that it bought in October to its Fresh by Reasor’s banner.
Sally Lyons Wyatt, global executive vice president and chief advisor at market intelligence company Circana, said conditions are ideal for M&A to accelerate because the grocery industry is at an investment-heavy stage that favors companies with deep pockets. Grocers are at a point where they need to invest in artificial intelligence along with store improvements and e-commerce — all of which are areas where larger retailers are ahead, she noted.
“When you look at that, you sit there and go, ‘OK, there probably is a window that is opening for more consideration for [M&A], so that you can stay relevant, stay in the mix with AI, so that you can find ways with critical mass for in-store experiences, SKU rationalization, price power,’” Lyons Wyatt said.
Another factor driving grocers to find ways to come together is the effort by Kroger to merge with Albertsons, which remains a potent memory for retailers a year after it failed, said Doug Munson, head of advisory services business development for RetailStat.
“My feeling has always been that the Kroger-Albertsons announcement … got all the regional guys thinking, ‘Oh, boy, you know, how are we going to compete?’” Munson said. “There’s still that momentum, because I think everybody saw that shot across the bow.”
