Kroger announced Friday that it plans to buy Albertsons in a nearly $25 billion deal that could change the US retail industry and impact the way millions of customers buy their groceries.
The deal, scheduled to close in 2024, will combine two of the largest supermarket chains in the country and create one of the largest private employers. The two companies have a combined 710,000 workers – most of whom are 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 the consolidation will give the companies greater scale to fend off competition from Amazon.
(WMT) and other retailers. Traditional supermarkets have been pressured by these and others – discount chains like Dollar General
(DG) and Aldi, warehouse clubs like Costco
(PRICE)and online grocery store.
The merger “accelerates our position as a more attractive alternative to larger and non-union competitors,” Kroger CEO Rodney McMullen said in a statement Friday. .
If the deal closes, it will be one of the largest mergers in US retail history – Shorty Amazon acquired Whole Foods in 2017 for $13.7 billion. The company will become the third largest retail chain in the US by sales. According to Morgan Stanley, its combined market share in the $1.4 trillion grocery industry would be 13.5%, making it the second-largest grocer after Walmart’s 15.5% market share.
The move also comes as companies face higher costs and food inflation hits a multi-decade high. Prices at grocery stores continued to climb last month. The Home Food Index, a proxy for grocery store prices, rose 0.7 percent in September from the previous month and 13% compared to last year.
Kroger said the deal will benefit consumers, and it will use half a billion dollars in cost savings from the merger to invest in lower prices. Albertsons are known to have higher prices than Kroger, and analysts think Kroger may be trying to lower the price of the chain.
(KR) will buy Albertsons for $34.10 a share — about 30% more than the grocery chain’s average share price over the past month. Stocks of Kroger
(KR) fell 5% in early Friday trading, while the Albertsons fell 7%.
The two companies operate dozens of grocery store chains. Kroger runs the Ralphs, Harris Teeter, Dillons, Fred Meyer and others, while the Albertsons own Safeway and Vons. The companies said they would split up nearly 400 stores to form a new rival in an attempt to reach antitrust provisions.
Analysts say some stores will close if the deal goes through and also said it would be a significant obstacle to bypassing antitrust scrutiny.
Joseph Feldman, an analyst at Telsey Advisory Group, said: “A deal of this size that has a direct impact on consumers would face intense scrutiny from regulators and take a lot of money. time for approval”.
Consumer watchdogs, unions and Democrats have strongly opposed the deal. They say it will harm consumers by raising prices and causing competition. It could also spur a new wave of industry consolidation among smaller companies trying to compete.
The International Union of Food and Commercial Workers (UFCW), representing 1.3 million workers in grocery stores, meatpacking plants and other essential industries along the food supply chain also expressed some concerns about the proposed merger.
“The proposed merger has serious implications for our hundreds of thousands of UFCW members and American families, who are more concerned than ever about the impact of inflation on food prices and their groceries, prescription drugs and gas. As America’s largest crypto union, protecting the livelihoods of this nation’s grocery workers, unions and non-union workers, is our top priority,” said UFCW International President Marc. Perrone, said in a statement Friday.
“To be clear, UFCW will oppose any consolidation that threatens the jobs of essential American workers, unions and non-union, and undermines our communities,” he said.
Senator Bernie Sanders calls it “Absolute disaster” and urged the Biden administration to turn down the deal. The American Economic Freedom Project, an antitrust organization, said “the merger would be disastrous for market competition, small businesses, and especially – the pockets of consumers.” “.
FTC President Lina Khan is a critic company consolidationand regulators have blocked major retail mergers in the past, including Staples’ attempt to merge with Office Depot.
FTC is currently reviewing Anti-competitive practices in the grocery industry and asked for information last year from Kroger and others about the causes of empty store shelves and soaring prices in the United States.