Albertsons Still Lacks an Economic Moat, as It Faces Mounting Industry Pressure

We continue to believe that the long-term environment for the grocery sector will feature intense price competition, high customer expectations, and more costly fulfillment (particularly delivery). With wide-moat companies like Walmart and Amazon battling for national supremacy, traditional grocery leader Kroger building a highly automated delivery fulfillment network with Ocado, and the hard discounters boosting their presence, we believe Albertsons will be hard-pressed to defend its returns on invested capital (14% on average in fiscal 2020-22, but only 7% on average in fiscal 2018-19; includes goodwill). Additionally, we are skeptical that Kroger’s proposed acquisition of Albertsons will achieve regulatory approval.