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Grocery M&A had a moment last year

Feb 16, 2024
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Illustration: Tiffany Herring/Axios

A surge in grocery M&A activity last year highlights the need for players to scale to compete amid changing consumer demand and margin pressures.

Why it matters: Dealmaking not only offers a pathway to expand into new markets, it also helps de-risk supply chains, cut costs and diversify revenue streams, according to a Bain & Co. report.

The big picture: The grocery industry saw bigger gains in M&A value and volume than in the rest of the retail industry last year.

  • Grocery M&A values increased by 45% while volume rose by 5%.

What they're saying: "Scale is still paramount in order to unlock efficiency and cost savings that fuels their ability to invest in new growth engines that consumers demand and the marketplace expects," says Yael Mohan, a partner at Bain & Co.

Zoom in: Deals can be a quick path to expand outside existing strongholds.

  • This is evident by German grocery giant Aldi's acquisition of about 400 Winn-Dixie and Harveys Supermarket stores, expanding it into the Southeast.
  • Similarly, Carrefour will acquire Cora and Match banners in France and Romania from the Louis Delhaize Group.

Plus, players will seek to consolidate buying power and get greater leverage by making investments in tech, data and growing media, Mohan says.

  • Grocers are also looking at using advanced analytics and generative AI to find more efficient data-driven approaches that can give them an edge with supplier negotiations and commercial functions, per the report.
  • Companies have increasingly struck exclusive partnerships with suppliers or brands that can bring value to their product offerings and offer something unique to consumers.
  • They're also pairing up with digital startups in a bid to help them accelerate progress on their front-end and back-end online capabilities.

Yes, but: The grocery sector has already seen a lot of consolidation, "to the point at which there are just a few suitable targets available," the report points out.

  • "There's a question of how many scale targets really remain and can people find a match?" Mohan says.

Meanwhile, regulatory scrutiny also plays a large part in slowing dealmaking in the sector, extending deal timelines and expectations.

  • The Kroger-Albertsons merger was announced in late 2022, and despite divestitures and overtures to reduce prices for consumers and keep jobs, the company is still facing pushback from regulators and lawmakers alike.
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