By Chairman and Chief Executive Officer Marc S. Cooper
Scott Moses, Head of our Grocery, Pharmacy & Restaurants practice, has been advising supermarket grocers for more than 25 years. He shares his perspective on grocery M&A, the impact of global competitors, and why scale has become essential to competing against the world’s largest retailers.
Scott you’ve been busy with multiple transactions every day since the day I met you over 10 years ago. What is driving all this M&A activity in the grocery industry?
The grocery industry today looks similar to like the department store industry a generation ago, before Walmart scaled supercenters; before Target evolved from Dayton-Hudson; and before Amazon, e-commerce, and specialty retail developed into major competitive forces. Traditional supermarket grocers have been marginalized over the past few decades by many of those same forces.
This is not theoretical; we’ve all watched it happen in real time: Walmart, Amazon, Costco, Aldi, Dollar General and other national, if not global, grocers now control over 60% of US grocery share, having taken more than 30% share over the past 20 years. Almost all of that share growth has come from local supermarket grocers. The high-margin general merchandise these enormous global grocers sell subsidizes lower grocery prices, which helps them attract and retain grocery customers, which is Retail 101.
So, the key driver is scale, which leads to cost savings in procurement, logistics, store contracts, and corporate contracts, among others. Most acquirers’ lower cost of capital facilitates increased investment in lower prices, higher wages, more marketing spend, technology investment and growth, both for new stores and online. Finally, many transactions are defensive, preventing other competitors from acquiring peers with strategically important businesses.
Who are the largest grocers today?
Walmart is the world’s #1 grocer by a wide margin; together with Sam’s Club, it controls nearly 30% share of US grocery. Roughly 90% of the US population lives within 10 miles of a Walmart or Sam’s store. Amazon has announced it is now the world’s #2 grocer, with same-day perishable delivery available in 2,300 US towns. Costco is the world’s #3 grocer and will likely eclipse Kroger this year as #3 in the US. Aldi is #4 in the world with over 13,000 stores. It’s the fastest-growing US grocer by stores and square footage, with about 2,800 stores in the country.
Consumers today regularly shop at more than five grocers, rather than relying on one primary store like we all did in the 1980s. As a result, profit margins are down to 1 to 2% for the largest supermarket chains in the US; for smaller operators, profit margins are often even lower.
I know you spent an enormous amount of time helping Albertsons try to merge with Kroger. What are the key takeaways from that experience?
First, it was, unfortunately, very political; the foundation of the Federal Trade Commission’s case was to scapegoat supermarket grocers for food inflation, during the presidential election year. This was literally the first point the FTC — under its prior leadership — made at the Kroger / Albertsons trial.
In my view, that willful blindness was very unfair to grocers and ignored the real reasons for food inflation: Covid drove extreme food-at-home demand; stimulus dollars gave people more money to buy more groceries and less incentive to go back to work, thereby increasing labor costs; supply-chain issues and ecological challenges like avian flu and the Ukraine war caused shortages — eggs in recent years — and energy cost spikes; finally, food manufacturers systematically raised prices on grocers — and openly talked about it on their earnings calls.
Second, I attended most of the Kroger / Albertsons trial in Portland, Oregon; I was “in the room where it happened.” The FTC argued — in 2024(!), not 1984 — that supermarket grocers comprise their own competitive market because, they claimed, supermarket grocers alone offer one-stop grocery shopping. Notwithstanding the fact that Walmart, Costco, and Amazon / Whole Foods all testified in court that they also offer one-stop grocery shopping and compete directly with supermarket grocers as they do so, and that there are literally more than 20 grocers near the courthouse outside of the supermarket grocers owned by Kroger and Albertsons, most of which offer one-stop shopping either in-store or by convenient delivery, the Court ultimately sided with the FTC.
I was shocked by the FTC’s arguments and extremely disappointed with the Court’s decision, which belies the facts I’ve witnessed over 25 years advising grocers across the country.
And then you wrote a book in response to all of this?
Yes, that’s why I wrote A ‘Grocery’ Christmas Carol — The Ghost of Supermarkets Future.
Kroger / Albertsons was over, but I thought it was important to clarify a few basic facts:
First, the suggestion that Kroger and Albertsons were some kind of grocery duopoly operating on an insulated “supermarkets-only fantasy island” was insulting to the intelligence of any American grocery shopper, let alone any experienced market observer.
Second, when regulators delay or prevent smaller grocers from building the scale they need to compete, they are effectively putting their “thumb on the scale” in favor of Walmart, Costco, Amazon, Aldi, and the other global grocers. That may not be their intention, but it’s undeniably the result. It’s not fair, it’s not good for consumers, and it’s not good for the country.
Third, the world keeps turning. There will be another landmark, necessary US grocery transaction. I thought it important to set the record straight for the future. As I tell my grocery friends around the country, next time it might be your existential transaction; it might be your thousands of teammates, your stores, and your communities that need the scale support only a strategic merger can provide.
The book also supports a great cause. All proceeds (and more) are being donated to Feeding America and Nourishing Neighbors, two outstanding anti-hunger organizations.
What do you think of the potential state-run grocery stores in New York?
As a New Yorker and long-time advisor to dozens of family-owned grocers all around the country, I am concerned that adding a Soviet-style, state-run grocery store will only make these competitive dynamics more difficult — if not prohibitive — for smaller, often family-owned grocers around the City.
It’s also extremely unlikely that inexperienced managers can sustainably operate these stores in the long run without meaningful scale and corporate support, suggesting it may be an ill-conceived use of taxpayer dollars that ultimately removes competition and leads to job losses as independent stores close, which would then ironically increase prices on consumers.
A better answer might be to provide more local support to independent grocers (such as tax incentives) to enhance their ability to offer lower prices to consumers and still be profitable, whether in-store or online/delivery.
I know how passionate you are about your work. Why is this so important to you?
The average supermarket has about 100 teammates. With approximately 26,000 US supermarkets left today, that means there are roughly 2.6 million supermarket grocery jobs across the country. These jobs and these stores have been pillars of thousands of American communities, for generations.
My job may be to maximize value for shareholders, but I keep score on how many supermarket jobs and stores we save or strengthen with our transactions. Over my career, it’s been thousands of stores and several hundred thousand jobs. I’m really proud of that.
But, to get even more personal, in the spring of 2020, when Covid hit, we didn’t leave our apartment building in New York City for 10 weeks — that’s 70 days. This industry literally sustained my family — and millions like us — during that crisis.
Our local grocers take care of us; they bring communities together; they make America better.
It is our mission to protect them.
I know you will continue to protect many more family-owned and independent supermarket grocers against the large global grocers. We’re all counting on you.
Thanks Marc.