Top 50 Grocers: Amazon Falls Below Aldi While Independent Grocers Show Strength

(Editors' note: This is part one of a three-part series.)

Who’s in the best position to eventually wind up on top of the grocery store food chain?

While everybody’s watching Amazon, hard-discounter Aldi just edged out the Seattle e-tailer’s Whole Foods Market on Progressive Grocer’s Super 50 annual ranking of top grocers.

Remember Amazon? It premiered on the Super 50 a year ago, when the industry was all a tremble with its acquisition of Whole Foods. Rather than sounding the death knell for traditional players, it was a kick in the pants for grocers to jump-start or accelerate investments in technology, shopper insights and omnichannel selling.

Top-of-the-heapers Walmart, Kroger and Albertsons all poured resources into things like online shopping services, home delivery, autonomous vehicles, sophisticated shopping apps and strategic partnerships to enhance their appeal to consumers. Meanwhile, Amazon is reportedly looking into more brick-and-mortar stores.

Merger & Acquisition activity 

M&A activity of the past year suggests that smaller deals will rule the day for the foreseeable future.

Deal volume and value both declined for grocery stores, but the deals completed in 2018 were 13 percent larger than those in 2017, according to “Fortifying Before the Storm,” the fourth edition of global management consulting firm A.T. Kearney’s “Consumer & Retail Merger & Acquisitions” report.

With regard to grocery, the report found that the subsector is experiencing higher premiums, with deal volume falling 18 percent, while deal value dropped by only 7 percent. The growth in 2017 was due to Amazon’s $14 billion acquisition of Whole Foods. In 2018, the average deal size was $530 million, the highest average deal size in the past 14 years, and a 13 percent increase from 2017.

For consumer packaged goods and retail in general, the report predicted that in 2019, strategic mergers and acquisitions will replace the megadeals of recent years. Overall CPG and retail M&A activity declined from $392 billion in 2017 to $308 billion in 2018, mainly because of the lack of such megadeals.

“We see 2019 as a critical year for CPG and retail companies seeking to fill in gaps in their portfolios — notably last-mile delivery, digital capabilities and ecommerce,” noted Bahige El-Rayes, partner at Chicago-based A.T. Kearney and co-author of the report. “Companies will look for M&A activity to rebalance the portfolio to enhance, deepen, and ‘own’ the consumer experience of their brands and stores.”

Further, while investors continue to pay a premium for large targets, small targets — those below $25 million — have overtaken midsize ones in multiples. Investors are increasingly focusing on strategic deals that aim to boost legacy companies’ capabilities via the acquisition of smaller, disruptive companies. The volume of midsize deals dropped 4 percent in 2018, but their value rose 6 percent as investors sought to integrate change agents — in the form of new brands, new customers, new concepts, new capabilities and new talent — at both lower cost and risk.

A.T. Kearney’s report was based on a proprietary analysis of 2018 M&A transactional data and an opinion survey of more than 100 C-level CPG, retail and private-equity executives.

“We expect to see more divestitures happening in the next 12 months, as companies are looking to rebalance their portfolios,” observed Bob Haas, partner at A.T. Kearney and co-author of the report. “In parallel, the nature of the M&A market will shift from building economies of scale to investing in capabilities that will fortify the portfolio of CPG and retail companies.”