The thin margin grocery business is a scale game. Grocery chain operators will continue to offset rising input costs (primarily food and labor) with higher retail prices and an increased focus on self-service and automation. Walmart (WMT) is the leading grocery chain in the U.S. and only Amazon (AMZN), has the balance sheet to compete. Kroger (KR) and Albertsons (ACI), are tiny by comparison and a combined company will have greater scale to compete.
We have glimpses today of what the grocery chain of the future will look like. The future store will be a larger format building dominated by self-checkout (including cashierless checkout such as Amazon’s grab-and-go technology), customer pick-up and delivery.
We expect to see more similar deals in the food retail space. Read about the rumored Kroger / Albertsons transaction HERE.