Fast Company this morning is out with a story saying that Kroger and Target are discussing a possible merger.
According to the story, “The two companies first started conversations last summer about a partnership that could improve Target’s grocery business and give Kroger customers more access to merchandise and e-commerce. Target and Kroger spoke again in the fall and talks are ongoing this year. The companies appear to be struggling to decide whether a merger is the best path forward. Last year, Target and Kroger’s combined annual revenue added up to $195 billion.”
Neither company has commented on the report.
UPDATE/11 am EDT: CNBC reports that its sources say that no such talks are taking place, but neither Kroger nor Target are talking to it, either.
According to the story, “The two companies first started conversations last summer about a partnership that could improve Target’s grocery business and give Kroger customers more access to merchandise and e-commerce. Target and Kroger spoke again in the fall and talks are ongoing this year. The companies appear to be struggling to decide whether a merger is the best path forward. Last year, Target and Kroger’s combined annual revenue added up to $195 billion.”
Neither company has commented on the report.
UPDATE/11 am EDT: CNBC reports that its sources say that no such talks are taking place, but neither Kroger nor Target are talking to it, either.
- KC's View:
-
In some ways, this isn’t an enormous surprise, and the fact that talks are taking place should not be interpreted as meaning that a deal is inevitable or imminent. Remember, Kroger has been said to have been in recent discussions with both Alibaba and Overstock, and it made a bid for Boxed, which was rejected as inadequate. So stay tuned.
It is an interesting possibility to consider, on a number of fronts. I’ve been arguing here for some time that Target ought to partner with a major grocery chain and have it run its grocery departments, in the same way that it outsourced Rx/HBC to CVS. This would certainly improve Target’s grocery offering, expand Kroger’s national footprint, and would certainly go farther than just a strategic alliance. (Though, it also is possible that the talks could result in exactly that, and not a merger … which would still be an intriguing deal.)
Both companies also have worked on e-commerce and delivery to various degrees, and Target’s ownership of Shipt might make a deal seem more attractive to Kroger, which has achieved some measure of success with its ClickList initiative. While bricks-and-mortar is still where most of the action is, it is anticipated that more than $100 billion worth of grocery spending could move to online over the next few years, and that 15-20 percent of center store sales could move to e-commerce. A Kroger-Target deal could position both companies better to deal with these eventualities.
So, there are lots of synergies. I have no idea what the antitrust implications might be, so that remains to be seen. But there are a lot of companies making moves around the board at this point, and so I think it is fair to expect that anything could happen. As I’ve said in a different context, I’m out of the “never” business … it doesn’t pay well, and almost inevitably I end up being wrong.
But … as I’ve said here before about other deals … this cannot be just about size and efficiencies. It has to be about effectiveness, and about a vision for a new and compelling retail strategy that will differentiate both banners.
