More than a year and a half ago, the attempted $24.6 billion merger of the nation’s two largest pure-play grocers, Kroger and Albertsons, collapsed, and the dust has still not settled between the two, which are still suing each other for hundreds of millions of dollars.
It was the biggest proposed grocery merger in the history of the industry and faced opposition at every turn from unions and consumers to state attorneys general and the FTC.
Considering that Kroger has already spent roughly $1 billion in costs associated with the merger and could be on the hook for hundreds millions more to Albertsons for allegedly botching the deal, it came as a bit of a surprise when the grocery giant announced on July 1 that it intends to buy Giant Eagle for $1.65 billion.
The purchase of Giant Eagle, which is likely not to go through until sometime in 2027, is nowhere near the scale of Albertsons. Around a fifteenth of the deal size, Giant Eagle operates 197 supermarkets and 11 standalone pharmacies in Ohio, Pennsylvania, West Virginia, Maryland and Indiana.
Greg Foran, the former head of Walmart US who was named Kroger CEO in February, said Giant Eagle has a strong foundation for growth through its established store base, loyalty program, pharmacy business and private-label portfolio.
“We evaluated the opportunity carefully, and the strategic fit is clear. Giant Eagle expands our reach into attractive adjacent markets, allowing us to do what we do best: Run outstanding stores, deliver fresh foods and convenient meal solutions at affordable prices and take care of our customers and associates every single day,” Foran said.
Integrating a $9-billion-a-year company with more than 200 locations will be Foran’s first big test in his new role. The acquisition is less likely to face the same kind of pushback from unions and regulators as during the Albertsons acquisition attempt, but merging the banner into its portfolio of more than 2,800 locations across the US is no small task.
Foran said in June that he spent the first 100 days on the job touring stores and comparing them with competitors, according to an article in TheStreet. “First, our operating costs have been growing faster than our sales. That’s not sustainable. And frankly, it’s not acceptable,” Foran said in the company’s Q1 earnings call, according to TheStreet.
Foran is no stranger to company turnarounds. He most recently served as CEO of Air New Zealand “where he led an end-to-end digital transformation to improve the customer experience and make the business more agile,” Kroger said in February.
His time at Kroger’s biggest grocery competitor Walmart will serve him best as he restructures the company in the wake of the Albertsons merger collapse.
“Foran led Walmart US for six years, where he oversaw a turnaround of the company’s largest division until 2019. He accelerated Walmart’s digital capabilities, introducing online ordering and pick up and driving meaningful retail media results. During his tenure, Foran delivered positive comparable sales growth for 20 consecutive quarters and managed more than 4,600 stores and one million associates,” Kroger said.
He has the wind at his back from Wall Street and investors who pushed Kroger’s stock value up by $4 to end July 2 at $58.22, ahead of the Fourth of July long weekend.
Neil Saunders, managing director at GlobalData, said in a blog post that Kroger has “struggled to generate meaningful growth for a long while.” Saunders called the proposed acquisition as a “lighter version” of the Albertsons deal, expanding Kroger’s reach and market share, but with less risk.
Among Giant Eagle’s problems is its loss of market share to Walmart in recent years. As a former Walmart executive, Foran might just be the best person to turn that around. But as Kroger could provide a shield for Giant Eagle against behemoths like Walmart, it still must get its own house in order, Saunders said.
Burt Flickinger, managing director of Strategic Resource Group, called the acquisition effort a “master stroke” that opens the gateway to the Eastern Great Lakes and Mid-Atlantic markets.
It also opens up the key market of Pittsburgh, Penn., according to Flickinger. That “makes finding space for large footprint shopping centers like Walmart more challenging, giving Kroger a defensible position,” Flickinger said.
