Investing.com - Albertsons (NYSE:ACI) and Kroger (NYSE:KR) are both well-positioned to defend their market share in the current environment of food-at-home price inflation of between 1% to 2%, according to analysts at Goldman Sachs.
In a note to clients reinstating their ratings of North America's two largest traditional supermarket chains at "buy", the analysts added that small or independent grocers are more at risk of share losses due to competition from low-cost competitors.
Meanwhile, the wider U.S. grocery industry is tipped to expand at 3% to 4%, in-line with long-term trends, the analysts noted.
Against this operating backdrop, Albertsons and Kroger both offer a "compelling blend of value and convenience for customers" through their scale, private label options, loyalty programs, omnichannel footprint and retail media, they said.
Taken individually, the analysts argued that Albertsons, despite recently increasing some investment spending, has a "discounted" valuation and an "attractive risk/reward set-up".
Kroger, meanwhile, is expected to roll out top-line and margin initiatives to support growth, the analysts said, adding that the business is "now past peak pressure" from recent e-commerce expenditures.
"Moreover, looking across our coverage of food retail and packaged food, we view food retailers (especially [Albertsons] and [Kroger]) as better positioned to benefit from key industry themes, including a slight reacceleration in food-at-home inflation, consumption shifts toward fresh and private label, and the balance of power shift toward retailers," the analysts wrote.
The comments come after a U.S. judge blocked a pending $25-billion merger between Kroger and Albertsons in December, in a decision that Kroger said would likely end the deal. The Federal Trade Commission argued that the tie-up would push up prices for shoppers and dent bargaining leverage for unionized workers.
Spokespeople for Albertsons and Kroger said they were disappointed by the ruling, Reuters reported.