CINCINNATI — Two major grocery chains, Kroger and Albertsons, announced on Friday a merger of the two companies. Kroger owns the King Soopers brand; while Albertson's owns the Safeway brand.
In a statement, Kroger said the mega-chain would hold nearly 5,000 locations in 48 states.
“We are bringing together two purpose-driven organizations to deliver superior value to customers, associates, communities and shareholders," said Rodney McMullen, Kroger Chairman and Chief Executive Officer, who will continue serving as Chairman and CEO of the combined company. "Albertsons Cos. brings a complementary footprint and operates in several parts of the country with very few or no Kroger stores.
“This merger advances our commitment to build a more equitable and sustainable food system by expanding our footprint into new geographies to serve more of America with fresh and affordable food and accelerates our position as a more compelling alternative to larger and non-union competitors.”
The merger will still need regulatory approval. If approved, the merger would be expected to be finalized in early 2024.
The two companies say that combining operations would increase efficiency, especially for their private-label brands.
Bloomberg broke the story on Thursday. “Taking a look at the industry, Walmart makes up about 25% of the grocery market share in America. Kroger’s number two at about 9%, Albertsons at about 7%,” said Kevin Gade, chief operating officer for the downtown-based money management firm Bahl & Gaynor.
“If you think about the leverage that Walmart has with a lot of the manufacturers, whether it’s household goods, food manufacturers, the combination of Kroger and Albertsons should be able to have stronger leverage at the table, particularly at a time when inflation is as high as it is.”
Morningstar analyst Zain Akbari agreed the deal could be an inflation fighter for Kroger – if it is ultimately approved.
“While we believe a combination between the two largest pure-play grocers in the United States would create scale benefits (and associated cost and purchasing leverage) that would help fend off burgeoning omnichannel titans Walmart and Amazon, we suspect overlap between the two chains’ footprints in many markets may lead regulators to scrutinize a transaction closely,” Akbari wrote in a note to investors Thursday.
Not everyone thinks lower prices will result from the merger.
Sarah Miller, executive director of the American Economic Liberties Project, told Reuters the deal would "squeeze consumersalready struggling to afford food."
"This merger is a cut-and-dried case of monopoly power, and enforcers should block it,” Miller said.
Gade said that regulatory review would make it hard for Kroger to close the deal quickly. But, eventually, he expects the company’s more considerable purchasing power to translate to lower prices at the cash register.
“We wouldn’t expect tomorrow's store prices to fall, unfortunately,” Gade said. “It will take some time, the data that we’re seeing, the buying power that we should be able to see from the two combined entities, that should hopefully ultimately help the consumer.”
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