NEW YORK, Dec 11 (Reuters) - Kroger ( KR ) and

Albertsons ( ACI ) could turn to fast-growing and profitable

advertising ventures to tackle competition and grow after a

failed $25 billion merger between the two supermarket rivals,

analysts said.

Retailers like Amazon ( AMZN ), Target ( TGT ), Walmart ( WMT )

, and grocers like Tesco have created in-store and online

media platforms that generate advertising revenue from big food

companies and consumer product makers.

"While this deal was blocked on the grounds of reduced

competition, competitive intensity still remains a big factor

for the grocery industry given scale of retailers like Walmart ( WMT ),

Costco, Amazon ( AMZN ), BJ's Wholesale and Target ( TGT )," Jefferies analyst

Rob Dickerson said.

Albertsons ( ACI ) terminated its merger with Kroger ( KR ) after

courts blocked the deal and also sued the grocer, alleging a

breach of contract that led to the deal's demise.

With rising food prices, shoppers have turned to grocers

like Kroger ( KR ), Albertsons ( ACI ) and Walmart ( WMT ), finding it more economical

to cook at home. This increased foot traffic has allowed the

retailers to collect valuable first-party customer data.

By leveraging it, Kroger ( KR ) and Albertsons ( ACI ) could attract major

advertisers like Procter & Gamble ( PG ), Unilever ( UL ), and

Kraft Heinz ( KHC ), who value the ability to place targeted

ads, analysts have said.

"Kroger ( KR ) also is growing beyond food... New growth

areas-especially personal finance and advertising/media -are

significantly more profitable than core food retail and should

boost the profit profile," Telsey Advisory analyst Joseph

Feldman said.

Retail media networks are highly profitable, with profit

margins ranging between 40%-70%, compared to the typical 3-4%

from selling everyday items.

Additionally, the market for retail media is expected to

capture $82 billion in spending by 2027, growing at an annual

rate of 17%, according to analysts at TD Cowen.

"By investing in and expanding retail media

networks, all regional players can... create new revenue

opportunities and remain competitive without relying solely on

scale," said Alastair James, chief commercial & marketing

Officer for Swiftly, which helps build retail media networks for

regional chains.

Kroger ( KR ) expects its retail media network, Kroger Precision

Marketing, to grow by 20% in 2024. Executives reaffirmed this

growth forecast in their recent earnings call on Dec. 5.

Kroger ( KR ), which does not break out sales for the network,

raked in about $150 billion in annual revenue, while Albertsons ( ACI )

recorded nearly $80 billion.

Albertsons ( ACI ), which stopped providing guidance since the

merger announcement in 2022, had said in July that year it

continued to invest in its fledgling retail media arm, the

Albertsons Media Collective.

Market leader Amazon ( AMZN ) accounted for 74.2% of U.S. retail

media ad spending, according to an eMarketer survey in October

2023. Walmart ( WMT ), which generated about $3 billion in 2023 from

Connect, its retail media arm, accounted for 7.5%.

To be sure, the business accounted for a small portion of

Walmart's ( WMT ) total revenue of roughly $650 billion.

"(Retail media) is still a fast-growing part of our

business, and the outcomes that we're seeing continue to

demonstrate that we're well positioned for that growth," Todd

Foley, Kroger's ( KR ) interim chief financial officer, said last week.

"As we look at those CPGs (consumer packaged goods

companies) that are advertising with us, we see the outsized

return on ad spend that they're generating. And that's

why...we're seeing those results."