What the Kroger-Albertsons merger means for their private label portfolio

Both companies have individually built brands worth billions of dollars. Kroger announced last year that its private label sales surpassed $26.2 billion in the fiscal year 2020, while Albertsons said in 2020 that its private label brand business generated $12.5 billion in sales. With a private label portfolio that offers products in a range of prices and categories, experts said the grocers’ combined portfolio signals a threat to consumer packaged goods companies sitting on the same shelves. 

“Private label products have definitely become, without question, a differentiating factor for retailers, helping them draw in new and existing shoppers,” said Barry Thomas, senior thought leader at Kantar. “They’re going to innovate with respect to brand management in ways we’ve not seen.”

Launching a private label brand is a common method retailers use to improve their margins. Their combined private label portfolio would give these companies an added competitive advantage over other retailers, Thomas said. Albertsons offers private labels like health and wellness brand Signature Care and value-based brand Value Corner. Meanwhile, Kroger offers private labels like pet essentials brand Pet Pride and baby essentials brand Comforts.

The combination of Kroger and Albertsons’ portfolios makes them a formidable player in the private label game. In comparison, Texas-based grocer H-E-B reportedly has 20,000 private label products, and Target’s private label portfolio delivered over $30 billion in annual sales in 2021.

In addition to their operational capabilities, Kroger and Albertsons’ combined collection of first-party data would also allow them to develop new private label brands. According to the press release announcing the merger, the companies said they would have a customer base of about 85 million households, which would result in them having “one of the most comprehensive first-party data repositories in the food and retail space.” Thomas said the data assets Kroger and Albertsons have could lead to stronger loyalty and marketing capabilities as well. 

Thomas added that the combined private label portfolio could hit CPG brands and smaller grocers especially hard. “CPG brands are now competing with a far more capable customer, partner, competitor,” Thomas said. “They’re going to produce their private label at probably a cheaper cost of goods than [other grocers], and by the way, they’re going to have a long list of higher-end private label products that are very high quality that you may not have.”

A potential private label shakeup 

If the merger is approved, some adjustments might be done to their private label roster. While individually, each of Kroger and Albertsons’ private labels might have their own unique offering, there could be brands that have identical products. 

“The challenge is they’re gonna have to look at those and see where there are duplications,” said Christopher Durham, president of the Velocity Institute, a trade association for private brands. “Particularly commodity items, if you sell dry pasta or bagged sugar, that doesn’t actually count twice.”    

The process of identifying which private labels to keep and which ones to discontinue can be hard especially considering how these retailers have a few “iconic” brands, Durham said. For example, Kroger’s Simple Truth is a brand positioned to offer natural and organic foods that are non-GMO, but so is Albertson’s O Organics. Similarly, Albertsons’ ReadyMeals and Kroger’s Home Chef both offer ready-to-eat meal options.  

When reached for comment on the two companies’ private label plans, a Kroger spokesperson pointed Modern Retail back to this statement from the press release announcing the merger: “Kroger’s merger with Albertsons Companies will create a broader selection of Our Brands products, with a combined portfolio of approximately 34,000 total private label products across premium, natural and organic, and opening price point brands.”

The statement went on: “The combined company’s innovation capabilities, increased manufacturing footprint and expanded national reach will drive improved quality and efficiency allowing its Our Brands portfolio to accelerate growth while remaining affordable and accessible to customers.”

“It’s a huge task to say, hey, we’re going to consolidate down,” Durham said. “They need to talk to their shoppers, they need to talk to their vendors, they need to see what inventories are in place and make a decision.” He added that shoppers might not lose choices but the brand on the product might change. In this case, the grocers could run the risk of phasing out the wrong items.

Additionally, some Kroger private label products might soon find their way into Albertsons. That, Durham said is what happened when Kroger and Harris Teeter merged in a deal worth $2.5 billion in 2014. Some of Kroger’s brands, such as Simple Truth brand Private Selection are now sold at Harris Teeter.

Apart from the discontinuation of certain products, experts say the companies could also end up running into some issues on the employee side. As with any merger, experts said the companies must navigate how to maintain an agreeable work culture.  

“I just think they’re going to reinvent brand management,” Kantar’s Thomas said.

This story has been updated with comment from Kroger.