Can Albertsons and Kroger execute their big bets?

CPG & The Economic Landscape

What you need to know

An unexpected 23k jobs lost in July.

The U.S. labor market unexpectedly shrank in July, with the unemployment rate dropping slightly to 4.1%. While key sectors like health care and construction added jobs, overall rates declined. Headlines like this only fuel consumer sentiment and my guess is this will dampen the Fed's urge to hike rates. They might wait to see new inflation data before making any decisions.

Grocery prices rose for the 5th consecutive month.

The trend continues. Energy costs remain the primary pressure point, spiking transportation and fuel-related refrigeration costs. With no real end in sight to the conflict in Iran, the pressure is likely going to get worse. The troubling side is that some CPGs likely held off on passing through fuel-related costs, hoping to weather the storm. But with a troubling outlook on energy costs, expect more brands to take action and pass on some of these rising costs.

Inflation is changing consumer behavior. Permanently.

New data shows grocery affordability technically improved, but consumer behavior has shifted in ways that aren't going back (behavior shifts are mostly lagging indicators, by the way.) Shoppers who traded down, switched retailers, or leaned into private label have largely kept those habits, even as prices somewhat stabilize. And with the recent private label glow-up and value-driven retailers investing big to keep their new shoppers, this only reinforces the new consumer landscape.

The bottom line is inflation-era shopping habits are here to stay. Deal-seeking, value-brand preference, retailer loyalty fragmentation are no longer temporary responses to economic pressures. They are the new baseline.

Retailers are feeling the pressure and dropping prices

C&S Wholesale, Giant Eagle, Walmart, and Meijer all made noise this month with price-cut strategies, ranging from targeted short-term reductions to Meijer's six-week 1,000-item discount program. Honestly, this is great to see from retailers as prices at the shelf and consumer sentiment are in a tough spot. Even as the definition of 'value' starts to expand, price will always win.

So, Now What?

Markets are supposed to respond to sustained pressure. And when consumer sentiment and spend stay this depressed for this long, that pressure should show up at the shelf. Recent price cut strategies prove retailers can do it when the environment forces their hand. That's the frustrating part. This type of responsiveness was always available. For months, plenty of players chose to protect margin over meeting shoppers where they are.

The real test is whether retailers will keep this up once the headlines move on, or if they will quietly let price creep back in when the sentiment stabilizes.

The Albertsons Co.

Albertsons dropped a bomb this month with one of its most structurally consequential changes in the last decade. 'ACI Edge' moves the 11 divisions into 4 regions and centralizes merchandising under one enterprise team, creating a framework that might actually move the needle on their "Nationally Great, Locally Strong" strategy. This week is Boise Open, where typically we get little from the national team outside of a general report card. Should be interesting what information they share, and how they can help set up vendor partners for success moving forward.

Goodbye Divisions, Hello Regions

Albertsons announced ACI Edge, a new consolidated operating model, moving from 11 divisions to 4 regions and centralizing center-store buying. This is a major shift and the most concrete execution of the "Nationally Great, Locally Strong" / Merch United strategy we've seen so far under new CEO Susan Morris.

Here's what you need to know:

• 4 Regions: California, West, South, and East. Fewer layers, faster decisions, and accountability pushed to the store level where it matters most. Each Region will have 4 'Markets' underneath.
• 'Merch United' gets stronger via centralized merchandising. Pricing, promotion, placement, and supplier relationships are now all centralized under one enterprise team.
• Fresh stays local. Regional and market teams keep control over fresh decisions. That's intentional and honestly, the right call given how much store-level execution matters in fresh categories. Not to mention how fresh is driving foot traffic.

The goal is better leveraged scale, faster decision-making, better operations, and a more consistent experience for shoppers across stores and the digital landscape. Sounds like the Catalyst Team will be getting more involved as well, bringing insights closer to the supplier relationships, strategy, and execution.

National Merch Team's New Look

As a part of ACI Edge, Albertsons announced changes to their National Merchandising Team structure. The change focuses on six streamlined NCD groups, each led by a Senior Director (looks to be somewhat equivalent to the previous NVP role). Senior Directors will be focused on guiding the transition and ownership of the 4Ps. I think we need a flow chart...

Edible Grocery will be led by Stan Swinton (welcome back, Stan!) and Non-Edible Grocery will be led by Chris Cowgill, both reporting to Chris Lanoue as the President of Merchandising. Still a few unanswered questions on the org chart changes.

ACI Edge Expected to Save $200m by 2027

Albertsons is confident this new model will save the company $200m by fiscal 2027. The shift from divisions to regions in theory should improve overall efficiency at the corporate level, and integration of new advanced AI tech aims to improve customer experience, merchandising, labor management, and supply chain efficiency. Albertsons says they will reinvest the savings into price and targeted price cuts to attract lower-income shoppers, which sounds great when you say it out loud.

Digital Sales Turn Profit, For Now

Higher order density, improved fulfillment operations and stronger customer engagement made a profitable online business in Q1. Despite the milestone, online sales have started to slow for Albertsons. Ecomm sales grew 13% in Q1, following a 16% growth in Q4 last year, and with previous quarters hitting sequentially higher growth rates.

Proving they can turn a profit on ecomm is big, no doubt a milestone. But the slowing growth is a major concern for Albertsons and one they have to fix ASAP.

Looking Forward

ACI Edge marks a real inflection point for Albertsons and on paper, it's a pretty clean story: fewer layers, centralized buying, faster decisions; a change that actually makes sense.

Albertsons is rebuilding this model at the exact moment it's lost a wave of experienced merchants and leaders over the past six-plus months. The real test is whether the new leaders and merchants can partner with an already exhausted and tapped out vendor community to deliver the results Albertsons really needs.

Boise Open is this week. And with many questions still left unanswered, my guess is we will get more info on the golf course than we will in the vendor presentation.

Kroger

Kroger's July was less about one headline and more about a pattern pointing toward a leaner, more centralized operation. Consolidating roles into the KCC, restructuring merchandising into pods, and pushing the Giant Eagle deal through regulatory review. Layer in the No. 2 market share narrative and it's clear Kroger is positioning for scale on multiple fronts at once.

Kroger Capability Center Expands

Kroger is expected to continue outsourcing roles across the organization to the KCC (Kroger Capability Center). These roles are speculated to be across supply chain, finance, and merchandising teams. We anticipate hearing more at the Kroger Investor day this Fall as it directly relates to the cost savings initiatives previously announced by the organization under new CEO Greg Foran.

Kroger Moves to Merchandising Pods

Kroger is making the move to merchandising pods, bringing category management, supply chain, digital category management, and price and promotion into one collaborative team. This led to an announcement, stating some merchandising roles will be moving to the 84.51 building in downtown Cincinnati later this year. This is intended to bring better collaboration across total merchandising functions and is in line with trends we're seeing across CPG to drive better outcomes via improved team collaboration.

Giant Eagle Acquisition Goes Regulatory

The Kroger-Giant Eagle acquisition moved further into the regulatory review process in July. Experts believe Kroger must demonstrate the merger's compatibility to market competition, while the current political environment indicates an FTC more favorable towards mergers. Only about 7% of Giant Eagle stores are near Kroger locations, suggesting it likely won't be too difficult of an obstacle for Kroger to overcome.

Kroger Poised for #2 Grocery Spot

Kroger seems to be positioned to take on the No. 2 spot in grocery market share, a pretty big deal given the pressure from Walmart, Costco, and Amazon. The Giant Eagle acquisition is a major part of that calculus. If/when the deal closes, Giant Eagle's ~200 stores will increase Kroger's market share to ~8.7%, passing Costco's 8.3%. Still a long way to catch Walmart's 20.3% share, but this would widen the gap significantly on Albertsons (4.5%) and Publix (4.1%).

Additional headlines:

Kroger's AI Shopping Assistant Goes Storewide

The tool gives shoppers personalized meal suggestions, recipe-linked shopping lists, and basket-building capabilities directly through the Kroger app.

Florida Expansion Still a Question

Kroger has signaled Florida as a target market for expansion, but actual commitments have been slow to follow. Several chains, including Sprouts Farmers Market, The Fresh Market, and Aldi, have successfully entered the Florida market, so there seems to be a path for Kroger. After a failed attempt via Ocado, there could be a new strategy around the corner.

Kroger Hires Emilee De Martino as Chief People Officer

Looking forward:

Kroger is busy getting back to the basics. Expanding work with KCC, unifying merchandising via new pods, and clearing the regulatory path on Giant Eagle. All point towards a leaner retailer hell bent on improving execution on the fundamentals.

If Kroger pulls off the acquisition cleanly and the pod structure actually improves speed and collaboration, this is real leverage, both against Walmart, Costco, and Amazon, and at the negotiating table with vendors. For CPG partners, that means a Kroger that's more organized, more centralized, and likely more demanding about what "good execution" looks like.