While as pushback comes from some Rite Aid investors who object to the company being acquired by Albertsons in a $24 billion deal because of the latter company’s “burdensome debt load and recent performance struggles,” CNBC writes that “to sway investors, the two retailers have embarked on a public relations campaign. Those efforts have centered, in part, on the benefits that scale gives them … Increased size gives increased ability to bargain with food and consumer companies as retailers focus on competing on price. It could also give Albertsons and Rite Aid a greater ability to find $375 million in cost savings that would help the two invest in necessary technology for the future, the companies argue.”
However, the story also notes that this argument is being made “even as shopping in the U.S. shifts online and away from stores. The nation's largest retailer, Walmart, has been doubling down on its grocery and e-commerce investments. Competitor CVS Health has announced a $69 billion deal to merge with insurer Aetna.”
And, at the same time, “Amazon’s purchase of Whole Foods and planned acquisition of Pill Pack bring the Seattle giant's might to both the grocery and pharmacy business. Kroger has struck numerous deals and partnerships to augment its e-commerce business and has its own pharmacy business.”
"Scale is big here," says Albertsons COO Jim Donald. ”Scale is what we can use as we continue to [serve] customers online and [in] brick and mortar.”
However, the story also notes that this argument is being made “even as shopping in the U.S. shifts online and away from stores. The nation's largest retailer, Walmart, has been doubling down on its grocery and e-commerce investments. Competitor CVS Health has announced a $69 billion deal to merge with insurer Aetna.”
And, at the same time, “Amazon’s purchase of Whole Foods and planned acquisition of Pill Pack bring the Seattle giant's might to both the grocery and pharmacy business. Kroger has struck numerous deals and partnerships to augment its e-commerce business and has its own pharmacy business.”
"Scale is big here," says Albertsons COO Jim Donald. ”Scale is what we can use as we continue to [serve] customers online and [in] brick and mortar.”
- KC's View:
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I happen to believe that scale, at least how it traditionally has been defined, ain’t what it used to be. It doesn’t just mean having more stores and more square footage … it also means having a broad connection to customers in a way that transcends bricks and mortar. Some of this, Albertsons has done, especially in its new platform for organics. Safeway’s broader commitment to e-commerce certainly helps. But count me among the people who have been skeptical about the Rite Aid deal.
Someone from Albertsons (not, I hasten to emphasize, Jim Donald) told me the other day that the deal makes total sense because there is very little overlap between Albertsons and Rite Aid customers, and cross-pollination will result in larger customer counts and more sales for both. I’m not sure this is true, especially because Albertsons shoppers not going to Rite Aid already have drug stores they use, and this is a category in which it traditionally has been tough to get customers to change. Plus, Rite Aid stores are pretty mediocre. Not a winning combination.
The problem is that the Amazon-PillPack deal seems like a tomorrow deal, and the Albertsons-Rite Aid deal feels like a yesterday deal. I may well be wrong on this, but I think “size” means something different today than it used to.
