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Cincinnati-based Kroger said the added scale from combining the nation’s two biggest supermarket retailers would greatly expand its store and distribution networks.

Kroger CFO: ‘We do believe we have a path to complete the transaction’

Supermarket News sat down with Gary Millerchip to talk about what’s ahead for the proposed merger

The Kroger Co. expects its proposed acquisition of Albertsons Cos. to be cleared by regulators and, in turn, expedite its “Lead with Fresh, Accelerate with Digital” strategic plan, bringing additional benefits to consumers and workers.

Cincinnati-based Kroger said the added scale from combining the nation’s two biggest supermarket retailers would greatly expand its store and distribution networks, fuel and pharmacy businesses, supplier base, and consumer and market reach, while building on strengths in fresh food departments, private label, personalization and seamless omnichannel shopping.

Gary_Millerchip-Kroger_CFO-headshot.gif“We’re very excited about the merger,” Gary Millerchip, left, senior vice president and chief financial officer at Kroger, told Supermarket News in an interview. “It’s a highly competitive industry, and in recent years we’ve seen a larger presence of non-union retailers play a bigger role. We believe Kroger has a strong go-to-market strategy that’s proving to be successful and resonating really well with customers today. And as we took a step back and talked over the last few months with the business leadership team, we became really excited about the idea that this [merger] can be a transformational opportunity for bringing the best of both companies together.”

Millerchip expressed strong confidence that the merger agreement will earn the regulatory green light.

“We did a significant amount of work in evaluating the regulatory path to approve a merger, before we even entered into conversations with Albertsons, because we fully understood that’s a really important consideration,” he said. “We were well-advised by a number of strategic advisers with experience in this space, including legal experts. And we do believe we have a path to complete the transaction with divestitures.”

He added, “We are very committed to working with the regulators and believe that it will likely take a little bit longer than historically because we need to make sure that we’re working and engaging with the regulatory authorities to share a path that we believe leads to a successful completion of the merger.”

In stores, the blending of Kroger’s “Fresh for Everyone” and Albertsons ‘ “Customers for Life” strategies stands to bring a wide assortment of fresh products with extended shelf lives and deeper market penetration, according to Kroger. To that end, Kroger said its End-to-End Fresh initiative will optimize the combined supply chain to get products from “field to table” and to more customers faster, providing a higher level of freshness.

“When we look at where we are able to differentiate versus large non-union retailers, what customers tell us is the quality of the product and the quality of the experience around freshness,” Millerchip said. “We believe there’s a real benefit we can bring together from some of the initiatives that Kroger has been driving around End-to-End Fresh. And we also look at some of the things that Albertsons has done recently — for example, in the deli and bakery departments — that we believe is a real positive for the merged company.”

Customers, too, will find an augmented assortment of private-label products with the joining of Kroger’s Our Brands and Albertsons’ Own Brands portfolios. The combined offering will span some 34,000 items across premium, natural and organic, and opening-price-point brands. More own-brand innovation also is in store, as the companies bring together their private-label talent and leverage a larger manufacturing footprint.

“In this current environment with higher inflation, Our Brands provides a tremendous opportunity to deliver really great quality to customers and at an affordable price. That combination of quality and affordability we think is really important,” Millerchip noted. “As you’ve heard us say in our last quarterly earnings [report], it’s really resonating with our customers in this environment.”

Amid elevated grocery pricing, Kroger said that the merged company also would invest in lower prices for shoppers. Plans call for a half-billion dollars of cost savings from merger synergies to be reinvested in reduced pricing at the shelf. An incremental $1.3 billion also is earmarked for investment to enhance the customer experience in Albertsons Cos. stores.

Kroger reported that the price investment reflects its historical practices, with $5 billion invested since 2003 to lower pricing. That includes $130 million after the 2014 Harris Teeter acquisition and $110 million following the purchase of Roundy’s in 2017.

“As you heard us talk about in the [Albertsons] merger announcement, we believe, as we’ve done in the past, it creates an opportunity to deliver more value back to customers in price investments,” explained Millerchip. “And obviously, in the current inflationary environment, it’s really important that we take the opportunity to use the value we can create through the merger to deliver value to customers in that way.”

With a customer base of about 85 million households, Kroger-Albertsons will have one of the broadest and deepest first-party data repositories in the food and retail sectors and be able to leverage Kroger’s 84.51° data science arm to bolster the grocer’s retail loyalty program, with more relevant recommendations and personalized promotions, the companies said. The expanded national audience of 85 million households also better positions the combined company to drive growth in alternative profit businesses such as retail media, Kroger Personal Finance and customer insights for CPG partners.

By melding Kroger and Albertsons’ technology, infrastructure, and digital and delivery service providers into one seamless ecosystem, the merged company will be able to offer customers a more personalized and convenient omnichannel experience. That includes in-store shopping, enhanced pickup capabilities, faster delivery times, and more capabilities to serve customers “anything, anytime, anywhere.”

“Another reason why we’re excited about the merger is that we think it creates an opportunity to bring together an even stronger store footprint across the country and then being able to connect that to the digital assets and capabilities we’ve been building,” Millerchip said. “It creates a stronger overall connection to customers and an ecosystem that can truly deliver more value and position Kroger for success longer term.”

Within the first four years of combined operations, the merged company expects to achieve about $1 billion of annual run-rate synergies net of divestitures, with roughly 50% achieved within the first two years following close, Kroger and Albertsons said. These benefits will come mainly from improved sourcing, optimization of manufacturing and distribution networks, and technology investment amplification opportunities.

Kroger noted that it also will augment its recent investments in associate wages, training and benefits. The retailer said it has invested an incremental $1.2 billion in associate compensation and benefits since 2018, and the merged company expects to invest $1 billion to continue raising associate wages and benefits after the transaction closes.

“Our commitment is to continue to create well-paid union and grocery store jobs that we’re able to continue to support in our communities,” Millerchip said. “I think it will be important as we have the conversation with the regulatory authorities to really show transparently how we intend to make sure we deliver on those commitments.”

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