Does Aldi-Southeastern Grocers deal augur more supermarket consolidation?

“Fresh Perspectives” is a new Winsight Grocery Business column from Executive Editor Russell Redman, who will share insights on news, trends, people, issues and events in and around the grocery industry.

It certainly wasn’t surprising that assets of Southeastern Grocers (SEG) ended up being acquired by another retail grocery player. But I doubt many industry observers (myself included) expected that player to be Aldi.

On Wednesday, Aldi U.S. unveiled a deal to buy SEG’s Winn-Dixie and Harveys Supermarkets chains, spanning roughly 400 stores in Alabama, Florida, Georgia, Louisiana and Mississippi. Meanwhile, SEG’s 28-store Fresco y Más Latino grocery chain in Florida is being sold to an independent investor group dubbed Fresco Retail Group LLC.

Buzz about a potential sale by SEG—in part or whole—had been humming for quite some time. After being nudged into Chapter 11 in early 2018 amid stiff competition from mass retailers and rival supermarket chains, SEG wasn’t able to better the situation much after emerging from bankruptcy protection in May 2018—to perhaps even more intense competition.

Though SEG boosted flagship banner Winn-Dixie with upgraded stores and rolled out stronger private-label and loyalty programs, plus some new locations for WD and Fresco y Más, it also greatly downsized its store base—including the dissolution of the Bi-Lo chain in the Carolinas—and again failed in attempting to go public (after grocery sales exploded industrywide during the pandemic). In the meantime, a plethora of powerful competitors—including supermarket operators like Publix, Ahold Delhaize USA and Kroger; discount grocer Aldi; and mass retailers Walmart, Target and Costco—got stronger on the brick-and-mortar and/or e-commerce fronts.

Aldi’s willingness to move on acquiring hundreds of conventional supermarkets—much larger stores with a different operating model than its limited-assortment, discount format—shows that other factors are at play in the arena of supermarket competition. Yes, the Southeast is an already growing region for Aldi (75% of the SEG stores being bought are in Florida). But what would motivate Aldi to add traditional supermarkets to its mix? And how will those stores be converted to Aldi’s format, which the company plans for some locations? That remains to be seen.

While the Kroger-Albertsons deal is no slam dunk with regulators, the planned merger certainly has gotten many grocery retailers thinking. / Image: Shutterstock

Over the past five years, Aldi has been expanding aggressively nationwide, and apparently SEG’s markets offer additional desirable locations for Aldi. My colleague Diane Adam, who regularly covers Aldi for WGB, posits that the acquisition could be a blocking move—maybe against Kroger.

Indeed, the $24.6 billion Kroger-Albertsons merger deal—joining the nation’s largest conventional supermarket operators—has been cited as a possible catalyst for grocery retail consolidation, especially for the supermarket format. Although the transaction remains under regulatory review, Kroger-Albertsons and the Aldi-SEG deal likely will ignite more M&A activity in the sector, as some companies might feel compelled to act. Kroger lacks stores in the big state of Florida (save for one Harris Teeter location), and it’s a bit brow-raising that it hasn’t scooped up at least SEG’s Florida stores (of course, acquiring Albertsons Cos. is a hefty bite in itself).

Still, a bigger question stands: What deals could come next after Kroger-Albertsons and Aldi-SEG?

Will super-regionals Publix and Ahold Delhaize USA look to make significant acquisitions? ADUSA has moved south, and Publix has moved north, including northwest toward Kentucky. Would another supermarket mega-merger make sense? Other regional grocers also are actively seeking expansion, with Hy-Vee looking southeast and Wegmans still advancing south. Or might we see more combinations à la Raley’s and Bashas’ (forming The Raley’s Companies) and Tops Friendly Markets and Price Chopper/Market 32 (forming Northeast Grocery Inc.), or perhaps some fill-in acquisitions involving smaller chains and independent stores?

And let's not forget that possibly hundreds of stores are up for divestiture as part of the Kroger-Albertsons transaction. Stay tuned.