Old-school grocer Albertsons bids for pharmacy chain Rite Aid in a desperate plea to gain more foot traffic across it’s branches: yet will the merger be enough to rival online retailing giant Amazon?
Mainstream US Grocer Albertsons announced on Wednesday that it would be beginning its foray into the healthcare market by buying pharmacy chain Rite Aid. If the merger is successful, it will create a retail giant with 83 million in annual sales that would, at first glance, seem likely to become a strong future contender in the struggle for supermarket supremacy in America.
As it currently stands, Albertsons is the country’s second-largest traditional grocer behind Walmart. The company owns the Safeway brand, along with a whopping 19 additional supermarket chains, many of which feature in-store pharmacies. Moreover, after the announcement of the merger, shares in major rival Walmart fell as much as 10%. Nevertheless, as an old-line grocer, it seems as though Albertsons is simply striving for reinvigoration in a retail landscape that is constantly being upended by e-commerce competitors. As such, it is becoming increasingly difficult for any company of this kind, no matter how strategic its deal-making process may be, to initiate a revival in the current retail environment.
Last year, titan retailer Amazon moved aggressively to extend its e-commerce edge to groceries. The company acquired Whole Foods for a whopping 13.4 billion, in a deal that greatly enhanced its ability to deliver fresh food to millions of households across the US. Essentially, Amazon’s entry into the grocery business could seriously squander the chances of success for Albertsons and other similar chains, whose greatest asset may be the convenient locations of their stores. That is if the e-commerce behemoth increases its home delivery of fresh food, the convenience of a location that traditional food vendors hold may become obsolete.
What’s more, Amazon’s specter also looms over the healthcare sector, constituting further unsettling news for Albertsons new acquisition. That is, the company recently teamed up with Warren Buffet’s Berkshire Hathaway, as well as JPMorgan Chase, to form an independent health-care company that would serve the three firms’ employees, and spectators anticipate that this new initiative has the potential to revamp the broader industry.
As such, the deal for Rite Aid puts Albertsons directly in the middle of two major pushes by Amazon. Yet the company may not stand a very good chance against Amazon’s mounting presence in healthcare, given that Rite Aid was not doing particularly well before the deal. That is, the company’s same-store pharmacy sales have been slumping for more than a year, while those of major competitors CVS and Walgreens have been stronger, as Bloomberg data shows:
Rite Aid lagging store sales. Source: Bloomberg
As such, it seems that for Albertsons, the Rite Aid deal may be a futile plea to draw in more customers at a time of increasing market uncertainty. Yet Amazon is the omnipresent foe, in whatever realm the company operates within. It appears as though the e-commerce giant wants to dominate the grocery store business, while also eyeing the health-care industry. Thus, given that Amazon seems to only go from strength to strength, it’s hard to envisage an old-school grocer keeping up, despite lacklustre attempts at rebranding.
Spread betting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.