In the supermarket shuffle, shoppers win

NEW YORK (CNNMoney.com) -- Attention shoppers - prices may come under pressure soon at a grocery chain near you.

That's because private equity firms have grocery stores in their cross hairs and the shakeout from an increase in dealmaking in the sector could very well benefit consumers, some retail experts said.

Cash-rich private equity funds are circling Roundy's Supermarkets, the Midwest grocer that operates Pick 'n Save stores. Across the Atlantic, a group of suitors is eyeing J. Sainsbury (Charts), Britain's No. 3 grocery chain.

And with their massive war chests, private equity firms could even shop for larger targets like Supervalu (Charts) or Kroger (Charts), the experts said.

Retail has been a hot area for private equity firms, which use mostly borrowed money to snap up companies. Buyout firms accounted for 61 percent of U.S. retail deal activity in the first quarter, according to deal tracker Dealogic.

Supermarkets in particular are attractive because the cash they throw off - which private equity firms use to pay back the hefty loans taken out to finance the deals - tends to be more stable compared to more volatile retail sectors like fashion. Valuable real estate assets can also make them ripe for the picking.

"The supermarket industry has always been attractive for buyout firms because they have good cash generation," said Neil Stern, a partner at retail consulting firm McMillanDoolittle.

Furthermore, valuations of grocery chains have been depressed. Now that Wal-Mart is struggling, "you're starting to see decent numbers put up by big [grocery] chains, which is making them more attractive," Stern said.

While private equity firms are notorious for having a poor reputation among the public, shoppers are likely to benefit from the supermarket shuffle, said Burt Flickinger, managing director of retail consulting firm Strategic Resources Group.

"Private equity tends to rebuild businesses and sell them to another strategic retail buyer, which results in more efficient corporations and better pricing for consumers," he said.

Not everyone is convinced, however, that consumers will see lower grocery bills as a result of more consolidation in the industry.

Consumers already enjoy fairly low food prices. Households currently spend about a tenth of their income on food - and food prices are projected to rise just 2.5 to 3.5 percent this year, according to the Economic Research Service of the Department of Agriculture.

"We've seen food prices remain at a very low level and food inflation has been minimal for the last 10 to 15 years," said Bill Greer of the Food Marketing Institute, an industry group.

Supermarkets have slashed prices in a bid to fight off discount retailers like Wal-Mart (Charts) and Costco (Charts) that began carrying more food and other grocery items years ago. They also have had to cope with more retail channels, like convenience stores, offering food.

That means on the price battleground, there's only so much more for them to cut prices.

"Even if you consolidate supermarkets or put them in the hands of private equity, the reality is supermarket chains have to compete with Wal-Mart and dollar stores and are going after every dollar," said McMillanDoolittle's Stern.

But that doesn't mean consumers won't win out from the wave of consolidation.

Even if prices can't fall that much lower, grocery stores will have to wake up and listen to consumers to win their business, according to Marcia Mogelonsky, senior analyst with market research firm Mintel International.

"Retailers will have to pay more attention to the consumer. They are going to have to realize that they need better features and better stores to entice shoppers," she said.

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