It was announced Friday that Kroger intends to acquire Albertsons in a deal valued at nearly $25 billion that will significantly impact the US retail industry.
This deal, expected to close in 2024, will combine two of the country’s largest supermarket chains into one and create one of the country’s largest private employers. A combined 710,000 workers work for these two companies – most of which are unionized in an industry with a low unionization rate – there are nearly 5,000 stores worldwide, and the companies produce over $200 billion in sales each year. According to the companies, they can reach 85 million households.
As the retail industry has been consolidating in recent years, merging the companies would make them more competitive against Amazon (AMZN), Walmart (WMT), and other retail giants. In addition to these companies, other discount chains, warehouse clubs, and online grocery stores have put pressure on traditional supermarkets.
The merger “accelerates our position as a more compelling alternative to larger and non-union competitors,” Kroger CEO Rodney McMullen said in a statement Friday.
If the deal is completed, it would be one of the largest mergers in US retail history – dwarfing Amazon’s acquisition of Whole Foods in 2017 for $13.7 billion. The company would become the third-largest retail chain in America by sales. Its combined market share in the $1.4 trillion grocery industry would be 13.5%, according to Morgan Stanley, making it the second largest grocer behind Walmart’s 15.5% share.
Companies are also experiencing higher costs, and the level of food inflation is at its highest level in decades. Last month, grocery prices continued to rise. In September, the food at home index, a proxy for grocery store prices, increased 0.7% over the month before and 13% over the previous year.
Consumers will benefit from the merger, and Kroger will invest half a billion dollars in lower prices from the savings generated by the merger. In addition to Albertsons’ high prices, analysts report that Kroger is considering lowering the prices of the chain.
During the course of the past month, Kroger (KR) has purchased Albertsons (ALB) for $34.10 per share – roughly a 30% premium over the grocery chain’s average share price. In early trading Friday, Kroger shares (KR) fell 5%, while Albertsons shares dropped 7%.
There are dozens of grocery chains operated by the two companies. While Albertsons owns Safeway and Vons, Kroger owns Ralphs, Harris Teeter, Dillons, Fred Meyer, and many more. Efforts will be made to obtain antitrust clearance by spinning off nearly 400 stores to form a new competitor.
A few stores are expected to close if the deal goes through, and analysts believe that it will be a significant challenge for the company to pass an antitrust review.
In order to approve a deal of this size that directly affects consumers, regulators would have to examine it extensively, according to Joseph Feldman, an analyst with Telsey Advisory Group.
Dems, consumer watchdogs, and unions have already opposed the deal. Consumers say it would drive out competition and raise prices. As a result, smaller companies may attempt to consolidate in order to compete.
According to Senator Bernie Sanders, it is an “absolute disaster” and the Biden administration should reject it. An anti-monopoly organization, the American Economic Liberties Project, stated that the merger would have detrimental effects on the competition in the market, small businesses, and consumers.
The FTC is opposed to corporate consolidation. In the past, the regulator has blocked large retail mergers, including a proposed merger between Staples and Office Depot.
In the United States, the FTC is currently investigating anti-competitive practices in the grocery industry after requesting information last year from Kroger and others about the causes of empty shelves and surging prices.
