The proposed merger between Kroger and Albertsons is turning into a battleground. Unions are asking the Federal Trade Commission to stop the merger as are special interest groups concerned about the impact on the price of groceries. Regardless of the lawsuits, I don’t see anything that will prevent the $25B merger from being approved.
What I find interesting is that the biggest battles related to the merger are being fought inside Kroger. I’m a former consultant to Kroger and I’ve maintained connections with executives inside the company. I also have connections with senior executives inside Albertsons. The following information comes from over a dozen off-the-record conversations.
As with all mergers, especially mergers the size of Kroger and Albertsons, the biggest challenge involves technology and software. This is especially true for Kroger and Albertsons due to the fact that over the years, both companies acquired more than 30 different grocery retailers. This means there are a large number of disparate systems operating inside each retailer. To make the merger a success, Kroger Albertsons must have an integrated platform to run their operations and capture data.
Based on several discussions, there is a battle brewing inside Kroger related to the topic of who will design and build a Point of Sale (POS) system for the combined companies. These are the proposed options:
Option 1. Kroger’s IT organization takes the lead to design and build the POS for the business.
Option 2. Kroger contracts Deloitte to take the lead to design and build the POS.
The cost of the POS will be around $300M. I’ve been involved with several large IT projects and I used to work for Deloitte as a consultant. The actual cost of the POS could be higher.
I think highly of Kroger’s IT capabilities but if I was the CEO, I would contract Deloitte to build the POS but I would ensure that the leaders of Kroger’s IT organization play a collaborative role in the project. It will take two to three years to build the POS. Collaboration accelerates innovation. Kroger’s IT organization and Deloitte must create a competitive advantage with the POS.
Friction is also being generated in the organization due to the continued large investments required to build Customer Fulfillment Centers (CFC) for the Ocado Group. I support what Kroger is doing with Ocado. The value of Ocado will increase when orders from Albertsons are being fulfilled.
However, Kroger should open micro-fulfillment centers powered by Ocado Zoom or AutoStore™ where possible. MFCs will complement what Ocado is doing and meet Kroger’s need for Same Day delivery.
Ocado is strategic to Kroger and they made a great choice in partnering with Ocado.
I must compliment Kroger for Thinking BIG when it comes evaluating Just Walk Out-related solutions. Kroger is evaluating a solution from Boyd Gaming.
Kroger and Albertsons have a lot of work to do. Good luck!
