The failed $25 billion merger between Kroger and Albertsons has analysts speculating that both grocery giants will likely pivot towards expanding their retail media networks to combat competition and fuel future growth. This strategy mirrors the successful models employed by retail giants like Amazon, Target, and Walmart, as well as grocery chains like Tesco. These companies have established lucrative advertising platforms, both in-store and online, generating substantial revenue from major food and consumer product companies.
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Intensified Competition Fuels the Need for New Revenue Streams
Jefferies analyst Rob Dickerson highlights the persistent competitive pressure within the grocery sector, citing industry leaders like Walmart, Costco, Amazon, BJ’s Wholesale, and Target as key rivals. The now-terminated merger, initially intended to bolster market share, faced legal challenges due to antitrust concerns and ultimately ended in litigation.
Capitalizing on Customer Data and Targeted Advertising
Increased grocery spending driven by rising food prices has benefited retailers like Kroger, Albertsons, and Walmart. This surge in foot traffic provides valuable first-party customer data, a highly sought-after commodity in the advertising world. Analysts suggest that leveraging this data will enable Kroger and Albertsons to attract major advertisers such as Procter & Gamble, Unilever, and Kraft Heinz, who prioritize targeted advertising solutions. Telsey Advisory analyst Joseph Feldman emphasizes that Kroger’s expansion into areas like personal finance and advertising offers significantly higher profit margins compared to traditional food retail.
The Lucrative Landscape of Retail Media Networks
Retail media networks boast impressive profitability, with profit margins ranging from 40% to 70%, significantly surpassing the 3-4% margins typically seen in traditional retail. Furthermore, TD Cowen analysts project that retail media spending will reach $82 billion by 2027, exhibiting a robust annual growth rate of 17%. Alasdair James, Chief Commercial & Marketing Officer for Swiftly, a company specializing in building retail media networks for regional chains, asserts that investing in these networks allows regional players to diversify revenue streams and maintain competitiveness.
Kroger’s Ambitious Growth Plans for Retail Media
Kroger projects a 20% growth in 2024 for its retail media network, Kroger Precision Marketing, a forecast recently reaffirmed by executives during their December 5th earnings call. While Kroger does not disclose specific sales figures for the network, the company’s annual revenue is estimated at $150 billion, compared to Albertsons’ nearly $80 billion. Albertsons, having suspended guidance since the merger announcement in 2022, previously indicated ongoing investment in its emerging retail media arm, the Albertsons Media Collective.
Competing with Industry Giants
Amazon currently dominates the U.S. retail media ad spending landscape, capturing 74.2% of the market share, according to an October 2023 eMarketer survey. Walmart’s retail media arm, Walmart Connect, generated approximately $3 billion in 2023, securing a 7.5% market share. Despite this success, retail media still represents a relatively small portion of Walmart’s overall revenue of roughly $650 billion.
Confidence in Continued Growth
Kroger’s interim Chief Financial Officer, Todd Foley, expressed confidence in the continued growth of retail media, citing the substantial return on ad spend observed by consumer packaged goods companies advertising on their platform. This positive feedback reinforces Kroger’s belief in the long-term viability and profitability of its retail media strategy. The focus on retail media appears to be a strategic imperative for both Kroger and Albertsons as they navigate a competitive landscape and seek to unlock new avenues for growth.
