Two of the nation’s largest grocers have agreed to merge in a deal they say will help them better compete with Walmart, Amazon and other big companies getting into the grocery business.
Kroger on Friday offered $20 billion for Albertsons Companies Inc., or $34.10 per share. Kroger will also assume $4.7 billion of Albertsons’ debt.
Cincinnati, Ohio-based Kroger operates 2,800 stores in 35 states, including brands like Ralphs, Smith’s and Harris Teeter. Alberstons, based in Boise, Idaho, operates 2,220 stores in 34 states, including brands like Safeway, Jewel Osco and Shaw’s. Together, the companies employ around 710,000 people.
Both companies operate in Las Vegas.
The deal is likely to come under scrutiny from U.S. antitrust regulators, especially at a time of high food price inflation. If approved, the deal is expected to close in early 2024.
Together, the stores would control about 13% of the U.S. grocery market, assuming the sale or closure of about 400 stores for antitrust reasons, according to JP Morgan analyst Ken Goldman.
Still, that’s far behind Walmart’s 22% share. Amazon, which bought Whole Foods in 2017, is also a growing player in the space, with a 3% share. The Costco warehouse store controls 6%.
Value chains like Aldi and Dollar General __ which have a combined market share of 4% __ have also put a strain on traditional grocers like Kroger and Albertsons, especially as runaway inflation pushes people to cut their costs.
Goldman said a stronger combined company could eventually help bring food price inflation under control because it would have more power to reject price increases from food producers.
Kroger said it would reinvest about $500 million in price cuts and spend $1.3 billion to upgrade Albertsons stores and $1 billion to raise employee wages and improve benefits.
Kroger also said the combination stores would provide better access to fresh food. Together, the stores operate in 48 states and the District of Columbia.
But critics have questioned a merger at a time of high food price inflation. Food prices rose 13% in September from a year ago, according to US data released on Thursday.
“A Kroger-Albertsons deal would squeeze consumers already struggling to get food, crush workers fighting for fair wages, and destroy independent community stores,” said Sarah Miller, executive director of the American Economic Liberties Project, a nonprofit organization that supports greater corporate accountability and antitrust action.
It was no secret that Albertsons was considering selling the business. The chain announced in February that its board was considering options to improve shareholder value, including the development of new businesses or a sale.
And Albertsons and Kroger themselves have grown into huge operations in part through acquisitions.
Albertsons was bought by a consortium of investors including Cerberus Capital Management, a private equity firm, in 2006. Cerberus helped fund Albertsons’ 2015 purchase of grocery chain Safeway and attempted a failed merger with Rite Aid in 2018. Albertsons became a publicly traded company. in 2020.
Cerberus currently owns nearly 30% of the shares of Albertsons. The merger agreement includes a $4 billion dividend for Albertsons shareholders.
In 2015 alone, Kroger bought four chains: Roundy’s, Pick ‘N Save, Metro Markets and Mariano’s. She bought the Home Chef meal kit company in 2018.
Kroger has long outperformed the Albertsons in key areas including store brand development and advanced technology, said Neil Saunders, managing director of Global Retail Data, a market research firm. Last year, for example, Kroger opened the first of 20 planned warehouses where robots help fulfill delivery orders.