Supermarket giants Kroger and Albertsons plan $25 billion merger
Grocery giant Kroger announced plans Friday to acquire Albertsons in a deal that could reshape the supermarket landscape in the United States, uniting the country’s largest supermarket chains at a time when rising costs and competition from Walmart and Amazon squeeze the industry.
But the deal, which values Albertsons at about $24.6 billion including debt, is likely to invite intense scrutiny from regulators who are focused on the potential for large companies to affect prices and have a history of blocking deals that may directly impact consumers. Even before the deal was announced Friday, consumer advocates had raised objections to its possibility.
The deal would bring together chains including Ralphs, Safeway and Vons, among a handful of others.
Kroger and Albertsons operate nearly 5,000 stores across the country, as well as pharmacies and gas stations.
Kroger has over 300 California stores, with five Food 4 Less locations in the San Francisco Bay Area but none currently in the North Bay.
Albertsons has 125 California sites, mostly in Southern California. Its Lucky brand has a dozen North Bay locations, and Safeway has 21 locally. The company’s Andronico’s Community Market has one North Bay store, in San Anselmo.
Kroger’s and Albertsons’ combined annual revenue of $209 billion last year falls short of Walmart’s annual grocery sales of about $218 billion. Although Amazon is a smaller presence in the grocery business, it is also pressuring rivals as it reaches further into every corner of the retail market with its delivery services.
Both grocers are coming off pandemic highs. Their sales soared as homebound customers stocked up on food, but inflation is cutting into their profit margins and customers have returned to dining out and spending less on groceries. At the same time, Amazon and Walmart have invested in the digital and delivery parts of their businesses and used their scale to keep prices lower.
The deal will certainly face significant political and regulatory scrutiny, heightened by a global food security crisis that is compounded by significant inflation in food prices. Food prices in the United States rose more than 11% in September from a year earlier, as the cost of everything from fruits and vegetables to cereals and flour continued to rise.
Lina Khan, who heads the Federal Trade Commission, which is expected to review the deal, has expressed deep concern about the impact of corporate consolidation.
Kroger and Albertsons said they planned to sell stores to competitors, and would consider spinning off between 100 and 375 stores into a separate stand-alone company. Analysts have pointed to an overlap between the two grocers, particularly on the West Coast, as a likely source of divestitures. For the Democrat-led agency to approved the deal, Kroger and Albertsons will need to convince its members that they create a viable competitor in parts of the country in which there is significant overlap.
But past efforts to carve out stores to form a new competitor haven’t worked. In 2014, the retailer Haggen in Bellingham, Washington, bought more than 100 stores that Albertsons had sold to win approval for its $9 billion merger with Safeway. A year later, Haggen filed for bankruptcy and blamed Albertsons for the breakdown of its business. Albertsons later bought back 33 of those stores from the bankrupt company.
“Part of the rationale for this deal is that we need to be bigger. Well, if you’re bigger and more significant, what does that mean to the markets where you’re dumping stores for some smaller guy who will not have the purchasing power that you claim you’re going to get from this deal?” said Bill Baer, who led the Justice Department’s antitrust division during the Obama administration.
“Divestiture is always a bright idea for merging parties, and it’s not always a very good idea for consumers,” he added.
Albertsons shares fell Friday, a sign that investors are skeptical that the deal will get past regulators. By late morning, the stock was trading below $27 a share, more than 21% below Kroger’s $34.10 a share offer price.
In announcing the deal, Kroger also sought to ease concerns about the impact on consumers by saying that it expects to save about $500 million in costs, which it plans to use to “reduce prices for customers.” Whether it follows through with those plans will likely be a key focus for regulators.
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