With their combined strength in first-party data and increased retail presence, grocery chains Kroger and Albertsons have the opportunity to disrupt the status quo in the retail media network landscape with their proposed merger.
Last week, Kroger announced intentions to buy Albertsons in a deal that values the company at $24.6 billion, one of the largest deals in the history of the US supermarket sector. “The combined company will be able to reach an expanded national audience of approximately 85 million homes across the country and drive growth in alternative earnings businesses such as Retail Media, Kroger Personal Finance and Customer Insights,” the two companies said in a press release .
The idea of retailers turning their websites into media platforms is not new. But over the past five years, it’s garnered more interest and attention from brands because e-commerce giant Amazon has been able to build a huge advertising business. Currently, Amazon is a leader in the retail media advertising landscape, generating $31 billion in advertising revenue last year.
According to experts, the Kroger-Albertsons deal will give retail media a big focus, and the new merged entity could even challenge Walmart, the second-biggest player in retail media, by offering brands a more compelling ad offering and a wider range of data , which can be used to help with ad targeting. Walmart first announced its earnings from its media and advertising businesses last year, announcing that they totaled $2.1 billion.
“Retail media is a win-or-lose game based on the amount of data retailers can bring in,” said Sean Turner, Swiftly’s chief technology officer, in an interview with Modern Retail. Swiftly is a technology platform that works with retailers like Family Dollar, Lucky Supermarkets, and Save Mart Supermarkets to power their websites and apps. “This new entity [Kroger-Albertsons] allows them to combine the full reach, revenue and data assets of both Albertsons and Kroger to form an even more powerful advertising entity,” he said.
According to Numerator, Kroger accounts for 9.9% of US grocery spending, while Albertsons accounts for 5.7%. That means the proposed company would account for 15.6% of grocery spending in the U.S., second only to Walmart, which has a 20.9% market share.
Kroger’s first foray into retail media came in 2015 when the company acquired the data analytics business of Tesco, Dunnhumby USA. The grocer expanded on this with the launch of its precision marketing division in 2017 to run targeted ads on its websites and app. Over the years, Kroger has brought weight to this division, making its data much more accessible to brands and partnering with platforms like Roku and Pinterest to expand its reach. Most recently, Kroger announced last year that it works with around 2,000 brands through its precision marketing practice.
Rival Albertsons, meanwhile, is a much newer entrant into retail media. The grocer launched its retail media network in November last year, offering a variety of ad placements through its website and app in partnership with CitrusAd and Merkle.
Grocery stores have become a more attractive area for advertisers due to purchase frequency, giving grocers more data on how their customers shop compared to other types of retailers. Their ability to collect data on what their customers are buying has only gotten more sophisticated as more people buy all or some of their groceries online. According to the Food Media Institute’s annual Grocery Shopping Trends report, 29% of shoppers surveyed last year said they order groceries online weekly.
“Grocery e-commerce is the foundation of retail media,” said Andrew Lipsman, senior retail and e-commerce analyst at Insider Intelligence.
With roughly 97% of Kroger’s transactions processed through its loyalty card membership program, Lipsman says Kroger already has a significant competitive advantage thanks to its extremely high accuracy of loyalty card data.
Turner says Kroger’s strength also lies in its Precision Marketing program, which specializes in providing brands with accurate and personalized customer data offerings to create measurable impact.
The new Kroger-Albertsons unit will also house 4,996 stores, 66 distribution centers, 52 manufacturing facilities, 3,972 pharmacies and 2,015 gas stations — which would make the number of physical stores larger than Walmart’s. Turner said Kroger and Albertsons could use that presence to “gain more leverage,” specifically in the retail media.
Lipsman agreed that the future of retail media will increasingly depend on the physical store, which would give the new Kroger-Albertsons entity an advantage. “To be able to retrieve that data [from offline sales] Using it for targeting and attribution is huge.”
Turner pointed out that this merger could also be a “wake-up call” for smaller regional grocery chains across the U.S., all concerned about the impact it could have on digital interactions with their customers.
“Now I have a very formidable competitor from a digital perspective,” Turner said. Previously, in areas of the country where Krogers and Albertson’s footprints overlap, an e-commerce grocery shopper was likely to choose between Instacart, Krogers and Albertsons when deciding where to buy their groceries online. “Now all of a sudden I have a unit and Instacart,” Turner said.
Ultimately, according to Lipsman, retail media is a fast-growing source of business revenue that could benefit Kroger and Albertsons in a challenging macroeconomic environment. “I think the economics of digital advertising changed everything,” he said. “It can really transform your profitability.”