Albertsons faces a challenging path in 2025 and beyond as the grocer looks to regain control of the narrative about its future following its unsuccessful attempt to merge with Kroger, according to industry analysts.
While the retailer declared that it is in sound financial condition after the deal with Kroger fell apart last month, Albertsons is confronting a host of questions about its ability to remain viable in a grocery market that has changed significantly since the merger was announced in 2022, experts said. In particular, the company urgently needs to find ways to stand out in the traditional supermarket sector and juice growth as it contends with rising competition from powerful rivals like Walmart and Costco, they said.
To assuage those concerns, the company will likely lower prices, remodel stores and take other steps to stand out to shoppers during the coming months even as it presses ahead with an aggressive push to cut costs and returns money to shareholders through stock buybacks and higher dividends, said Arun Sundaram, senior vice president of equity research for CFRA Research.
“It’s going to be a pretty heavy reinvestment year for the company … and I think it’ll take time for that to accelerate,” Sundaram said. “If we don’t see any significant sales momentum by 2026, then people will be raising some red flags.”
The failed merger with Kroger accentuated the challenges Albertsons has faced in recent years in keeping pace with other grocers, especially in terms of its digital capabilities, loyalty program and private label offerings, said Jordan Berke, founder and CEO of Tomorrow Retail Consulting.
“At the time the merger was announced, Albertsons was about two to three years behind Kroger in modernizing its core retail muscles,” Berke said. The company “hasn’t made as much progress in modernizing its business as it would have without this merger period. And so today, the pressure on Albertsons to catch up and differentiate itself is even greater because of the lost time.”
As the traditional grocery sector loses momentum with shoppers, Albertsons needs to find ways to attract shoppers, Berke added.
“Going forward, the undifferentiated mid-market player has even less relevance, less competitiveness than they’ve had the last five years,” Berke said. Albertsons has “got to find how do they make themselves different, more compelling, more competitive, because in most markets where they operate, they are not the most compelling choice.”
Focusing on cutting costs
Albertsons intends to cut $1.5 billion in costs during the coming three years as part of plans to improve the company’s productivity, CEO Vivek Sankaran said Jan. 8 during the company’s first quarterly earnings call since it announced plans to merge with Kroger.
“The nature of that productivity is to find pennies everywhere,” Sankaran said. “We’re really good at that, and we now have the governance around it, and it’s become part of the fabric of the company.”
Days after the earnings call, Albertsons began laying off hundreds of corporate employees. But while Albertsons described the job cuts as a cost-cutting measure, shedding workers doesn’t necessarily mean that the company is in imminent financial distress, said Jose Tamez, managing partner of Austin-Michael, an executive search firm that works with grocery retailers.
The company was working to improve its operations while the merger processes unfolded, Tamez said, and the layoffs are “in sequence with what I understood was happening anyway.”
Sundaram said Albertsons was set back because it did not hold quarterly earnings calls for more than two years as it awaited approval to merge with Kroger. That gap left analysts and investors without critical information about the company’s operations, plans and risks — and forced them to rely on what they could glean from its financial statements to judge its performance and prospects, — he said.
“The past two years’ results haven’t been great, so we’re extrapolating poor results,” Sundaram said.
Sundaram said he expects Albertsons’ earnings per share to be down 22% during its current fiscal year, which ends next month, and is projecting that earnings will decline another 10% by that measure during the coming year.
CFRA’s bearish outlook for Albertsons follows its earlier assessment that the company’s margins were starting to catch up with Kroger’s, Sundaram said. He also said testimony from the companies during their federal and state merger trials last year indicated that Albertsons has actually lost ground to Kroger, adding that investors will focus on how Albertsons’ financial performance compares to its erstwhile merger partner going forward, Sundaram said.
“There’s going to be more red flags or concerns if you start to see a divergence between Kroger and Albertsons’ growth because I think what we learned from the past two years is that Kroger and Albertsons are the closest competitors to each other,” said Sundaram.
Sundaram noted that Albertsons’ announcement last month that it plans to spend about $2 billion to buy back shares from investors and boost its quarterly dividend by 25% is a way for the company to signal that it feels good about its prospects.
“When you raise your dividend like that, and also announce a share buyback, that means you have confidence that you’ll still be bringing in a lot of cash flow, that you’ll still be making money,” Sundaram said.
Could Albertsons look to sell stores in 2025?
Albertsons might look this year to sell some of its stores as the company works to shore up its competitive position, said John Clear, senior director in the consumer and retail group at consulting firm Alvarez & Marsal, noting that potential buyers could include regional grocers or C&S Wholesale Grocers, which had been in a position to acquire almost 600 stores from Kroger and Albertsons as part of their divestiture plan.
“I think they’re probably going to try to shrink to grow to make it a smaller, leaner, more nimble company, and to then try and make it more efficient on the bottom line to return value to their shareholders,” Clear said about Albertsons.
Berke said he also thinks Albertsons might consider selling stores over the coming months, pointing to Amazon and Ahold Delhaize as possible suitors.
While Albertsons will need to tackle a host of challenges as it plots its course this year, investors can take solace in the fact that the company has a solid balance sheet — and made progress in paring its debt in the time since it decided to merge with Kroger — said Albert Furst, executive vice president of RetailStat. Albertsons had about $7.8 billion in total debt at the end of its latest quarter, down from more than $9 billion at the same point in 2022.
“They have a lot of work to do, but they’re really in great shape,” Furst said, noting that Albertsons’ comparable-store sales have remained positive over the last two years even as its margins have fallen. Albertsons posted year-over-year comparable sales growth of 2% during its latest quarter.
Furst said, however, that Albertsons could find itself at a substantial competitive disadvantage because potential suitors had access to details about its operations and stores following its decision in early 2022 to consider “strategic alternatives,” including a potential sale.
“[Competitors] did their due diligence” about Albertsons, he said. “They know their sales margins. They know their weak points. They know where they can attack them. So that is going to be a major issue” for Albertsons.
