Cincinnati-based Kroger (KR) is the country’s second-largest grocer by market share. Last week it announced it had agreed to buy Albertsons (ACI), which ranks as the fourth-largest, after Costco (COST). Kroger will pay $34.10 per share for Albertsons, valuing the company at $24.6 billion.
The newly-formed company, provided the deal is approved by regulators, will become a closer second to Walmart’s (WMT) established dominance in the grocery game. It’s worth noting that approval is far from guaranteed: the Biden administration has closely scrutinized merger agreements for fear of granting companies price controlling power amid reduced competition.
Tough Going for Grocers
With inflation soaring here in 2022, few sectors have been as hard-hit as at-home food sales. The Bureau of Labor Statistics notes in its most recently released data that food prices are up 11.2% year-over-year. That and other habits picked up during the pandemic has led to altered consumer habits. Grocers have responded by investing in employee training, automation, deliveries, and curbside pickup.
Perhaps most significantly, with costs on the rise, grocers must decide when to pass that on to consumers in the form of higher prices – or to eat the loss. That ongoing process may be the chief motivation for this merger. While industry observers note consolidation among grocery chains has typically not led to higher profits, a big merger of this kind could boost margins amid current conditions.
Consumers who are familiar with Kroger stores may not be aware that the company owns numerous other grocery chains, including Fred Meyer, Ralphs, and King Soopers. Albertsons owns Safeway, Acme, and Tom Thumb. All together the two companies run close to 5,000 stores nationwide, employing over 700,000 workers.
Retail analysts note the companies have significant market overlap in regions like Southern California, Colorado, Seattle, parts of the Midwest, and Texas. That’s likely to give regulators pause as they consider how the deal will impact consumers. Consumer advocacy groups have expressed pricing concerns, and the FTC has been looking at large grocer’s efforts surrounding the supply chain, to check for anticompetitive practices. Plus, megadeals involving food companies have been blocked in the past, so this is one to watch as it develops.
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