What 2022 Mergers and Acquisitions Tell Us About 2023 Retail

While grocery has little in common with resale—who wants used food, anyway?—two recent retail deals are emblematic of 2022, reflecting both the influence of inflation and how retailers can remain competitive with Amazon and Walmart. Two weeks ago, South Korean internet company Naver announced it would acquire resale platform Poshmark for $1.2 billion. Then last week, grocery chains Kroger and Albertsons signaled their intent to merge in a $25 billion deal. It’s kind of a big deal The Kroger-Albertsons merger got tongues wagging in part because it’s been awhile since we’ve seen a truly massive merger in retail, let alone grocery. Arguably the most recent deal of this scale was when luxury holding company LVMH acquired jeweler Tiffany & Co. in 2019. Other notable transactions in this sector include Amazon’s $13.7 billion Whole Foods deal in 2017 and Walmart’s $3 billion play for ecommerce platform Jet.com in 2016. Brad Jashinsky, director analyst at research firm Gartner, has a simple explanation: “Everyone goes to the grocery store.” Kroger Precision Marketing Meets Albertsons Media Collective: What a Merger Means for Retail Media The hunger games Despite all the buzz, Kroger and Albertsons is by no means a done deal. Should it receive regulatory approval, the merger would create what Bruce Winder, retail analyst and author of the book Retail Before, During & After Covid-19, described as “an oligopoly” in U.S. grocery. The Big Three also includes—no surprises here—Amazon and Walmart. “They would create a more concentrated industry, which generally doesn't bode well for consumers,” he added. “So it's very controversial, especially at a time of inflation.” (There’s that word again.) That’s because it yields a less competitive market overall, which tends to result in higher prices and an inferior experience. Retailers, on the other hand, have an opportunity to “save a ton of money,” as Winder put it. The common denominator is that times are tough for retailers.Bruce Winder, retail analyst and author “Say Albertsons has a marketing manager and Kroger has a marketing manager. They might not need both, right?” he said. “They usually play a bit of a Hunger Games and say, ‘OK, we don't need two VPs of marketing. One of [you is going to] have to walk.” Retailers would also have more negotiating power with suppliers. “Normally when these deals go through, the most important thing they're trying to do is drive shareholder value through cost synergies,” Winder said. “And they do that by eliminating redundant people and operations and having more clout with suppliers across the board to lower acquisition costs.” This, of course, is also bad news for independent grocers, which could fuel even further consolidation, Jashinsky said—and it’s potentially a bigger challenge for even Amazon and Walmart. “Now, instead of fighting two large players, they are going to fight a gigantic player,” Winder said. Common denominators There are similar threads in resale. “For one, consumers are increasingly shopping for secondhand goods,” said Matt Moorut, another director analyst at Gartner. “Secondly, the technology necessary to efficiently manage returns and resold products is improving. And, thirdly, there’s an increased appetite for sustainability amongst retailers themselves.” What’s more, the online resale market in particular has been outgrowing most retail categories in recent history, which could eventually eat into stores’ firsthand sales. “There’s an element [among retailers] of wanting to participate now before the chance has gone, which will drive these sorts of moves,” Moorut added. Zach Weinberg, vp of ecommerce at performance marketing network Reprise Digital, noted the popularity of this sector should also grow as long as inflation remains high. Suddenly, Retailers Are the New Venture Capitalists “The common denominator is that times are tough for retailers,” Winder said. “And what they're doing now is looking for opportunities to increase shareholder wealth.” In a recession, that isn’t going to come via sales growth. “So what they're going to do is try to develop profit synergies through acquisition,” he added. That means more deals are likely on the horizon. “Businesses across different markets find themselves in very different positions today, with some sitting on cash reserves that are losing value to inflation and others struggling to find funding due to the uncertainty in capital markets,” Moorut said. But these deals also demonstrate the lasting impact of online commerce. Even though ecommerce growth has slowed since the height of the pandemic, it will continue to influence more sectors—and force them to evolve. “Grocery and luxury fashion are both industries where ecommerce is not as big of a percentage… but eventually the digital revolution will come for every industry,” Jashinsky said. “So I think both the acquisition of Poshmark and then Kroger merging with Albertsons are predicated on that continued long-term growth of ecommerce.”

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What 2022's M&A Deals Tell Us About 2023 Retail

Inflation, ecommerce and 800-pound gorillas will dominate

It’s kind of a big deal

Lisa Lacy

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