- Albertsons Cos., and Sprouts Farmers Market Inc., are in preliminary discussions about a possible merger, according to Bloomberg. The discussions are in the early stages and may not lead to a deal.
- For Albertsons, the deal would make them a larger player in fresh produce and organic offerings.
- Albertsons, which operates about 2,300 U.S. stores, including the Shaw’s, Safeway and Acme chains, is looking to take its company public in the year ahead.
In a crowded retail landscape, with an increasing number of alternative formats including discount retailers, meal delivery services and online players like Amazon, growth for traditional companies like Albertsons is more likely to come through an acquisition rather than erecting a lot of new stores.
This deal is not only a great way for Albertsons to increase its presence, but to establish a stronger foothold in organics, which has not been a major focus for the retail chain up until now. The Organic Trade Association reported sales of organic fruit have increased by 123% and organic vegetables have grown by 92% in the past five years, so Albertsons would like to strengthen its presence in that area. In addition, grocery analysts say fresh produce is a draw to brick-and-mortar stores, even as online ordering has picked up over the last year.
The acquisition also could enable Albertsons to trim redundancies between the two companies, with the savings invested into other parts of the business or passed on to the consumer through lower prices. With grocers facing razor-thin margins and growing competition, finding a way to juice sales is a focus for many companies, especially Albertsons which is considering going public again. It also would enable the grocer to keep up with its rival Kroger, which invested in Sprouts rival Lucy’s Market last year.
For Sprouts, the organic retailer would get more money and influence behind it to help grow its 250-plus stores located in 14 states as of February. While organic is a big draw for many retailers, the arena has become increasingly crowded as more players like Kroger, Wegmans, among others, expand their offerings; the challenges facing natural and organic pioneer Whole Foods is a good example of the difficulties many are facings. The deal could be a good fit for both Sprouts and Albertsons, with each company able to benefit from the strengths of the other to gain an edge in an increasingly difficult marketplace.