CNN

Two of the largest supermarkets in America are merging

Oct 14, 2022, 12:30 PM

The merger will change how million of costumers do their shopping. Courtesy: Kroger...

The merger will change how million of costumers do their shopping. Courtesy: Kroger

 (CNN) — Kroger announced Friday that it plans to buy Albertsons in a nearly $25 billion deal that could change the US retail industry and impact how millions of customers buy their groceries.

The deal, which is expected to close in 2024, would combine two of the largest supermarket chains in the country and create one of its largest private employers. The two companies have a combined 710,000 workers — most of them unionized in an industry with low union rates — nearly 5,000 stores and more than $200 billion in sales. The companies say they reach 85 million households.

The retail industry has consolidated in recent years, and merging would give the companies greater scale to fend off competition from Amazon, Walmart and other retail giants. Traditional supermarkets have been pressured by these companies and others — discount chains such as Dollar General and Aldi, warehouse clubs like Costco, and online grocers.

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.

The move also comes as companies battle higher costs and food inflation reaches its highest level in decades. Prices at grocery stores continued to soar last month. The food at home index, a proxy for grocery store prices, increased 0.7% in September from the month prior and 13% over the last year.

Kroger said the deal would benefit consumers and it will use half a billion dollars in cost savings from the merger to invest in lower prices. Albertsons is known for having higher prices than Kroger and analysts say Kroger may try to lower the chain’s prices.

Kroger will buy Albertsons for $34.10 a share — a roughly 30% premium above the grocery chain’s average share price over the course of the past month. Shares of Kroger slid 5% in early trading Friday, while Albertsons dropped 7%.

The two companies operate dozens of grocery chains. Kroger operates Ralphs, Harris Teeter, Dillons, Fred Meyer and others, while Albertsons owns Safeway and Vons.The companies said they will spin off nearly 400 stores to form a new rival in an effort to gain antitrust clearance.

Analysts expect some store closures if the deal goes through and also say it will be a significant hurdle to pass antitrust scrutiny.

“A deal of this size that has a direct impact on consumers would face significant scrutiny from regulators and take a long time period to be approved,” Joseph Feldman, an analyst at Telsey Advisory Group, said.

Consumer watchdogs, unions, and Democrats have already come out strongly against the deal. They say it would harm consumers by raising prices and driving out competition. It could also spur a new wave of consolidation in the industry among smaller companies attempting to compete.

Sen. Bernie Sanders called it a “absolute disaster” and called on the Biden administration to reject the deal. The American Economic Liberties Project, an anti-monopoly organization, said the “merger would be disastrous for market competition, small businesses, and especially — consumers’ pockets.”

FTC chair Lina Khan is critic of corporate consolidation, and the regulator has blocked large retail mergers in the past, including Staples’ attempts to combine with Office Depot.

The FTC is currently looking into anti-competitive practices in the grocery industry and requested information last year from Kroger and others on the causes of empty shelves and surging prices in the United States.

Thoughts from Sen. Mike Lee, R-Utah

“Utahns, like all Americans, are suffering from skyrocketing food prices. As the senior Republican member of the Senate Antitrust Subcommittee, I will do everything in my power to ensure our antitrust laws are robustly enforced to protect consumers from anticompetitive mergers that could further exacerbate the financial strain we already feel in the grocery store checkout aisle.” 

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Two of the largest supermarkets in America are merging