On Friday, Kroger announced that the company has plans to buy Albertson for nearly $25 billion.
The deal could transform the retail industry in the United States and impact how millions of people shop.
The deal
The Kroger-Albertson deal is expected to close in 2024.
It will combine two of the largest supermarket chains in the United States and create one of Koger’s most prominent private employees.
The combined companies will have 710,000 employees, most of them in an industry with low union density.
The deal also means the companies will have nearly 5,000 stores and over $200 billion in sales, potentially reaching 85 million homes.
In recent years, the retail industry has seen many standardizations that have put many companies in a better position to compete with Amazon, Walmart, and other retail giants.
Discount chains like Aldi and Dollar General, warehouse clubs and online grocers are putting traditional supermarkets under pressure.
In a statement on Friday, Kroger CEO Rodney McMullen said the merger gives the company an edge as a “more compelling alternative to larger and non-union competitors.”
If the deal goes through, it will eclipse Amazon’s $13.7 billion acquisition of Whole Foods five years ago.
It also means that Koger will become the third-largest retail chain in America.
Morgan Stanley estimated the combined market would be 13.5%, just behind Walmart’s 15.5% share.
The effects of inflation
The deal comes as companies face higher costs and food inflation, which is at the highest level in years.
Last month, prices continued to rise despite the Federal Reserve’s efforts to contain inflation.
In September, the food delivery index increased by 0.7% compared to August and 13% compared to last year.
The company said consumers would benefit from the deal as it will use half a billion dollars in cost savings to invest in lower prices.
Albertson is known for Kroger’s higher prices.
However, analysts believe Kroger will try to lower the chain’s prices.
Shares and stores
The chain will buy Albertsons for $34.10 per share.
The stock is up about 30% from Kroger’s September average share price.
Meanwhile, Kroger shares slid 5% in early trade on Friday, while Albertsons shares fell 7%.
Kroger and Albertson currently operate dozens of grocery store chains.
Under its banner, Kroger owns Ralphs, Harris Teeter, Dillons and Fred Meyer, among others.
On the other hand, Albertson owns Safeway and Vons.
The companies said they would set up around 400 stores to create a new competitor for antitrust clearance.
Analysts expect stores to close if the deal goes through.
However, they also said passing antitrust investigations would be like climbing a mountain.
Reaction to the deal
Telsey Advisory Group analyst Joseph Feldman said:
“A deal of this size that has a direct impact on consumers would face significant scrutiny from regulators and take a long time period to be approved.”
Democrats, consumer advocates and unions have criticized the deal.
In their view, this would only hurt consumers, raise prices and crowd out competition.
The deal could also trigger a wave of consolidation among smaller companies in the sector to stay competitive.
Senator Bernie Sanders called on the Biden administration to reject the deal, calling it an absolute disaster.
Meanwhile, an anti-monopoly organization, The American Economic Liberties Project, said the deal would be disastrous for market competition and small businesses.
Consumers will likely be the biggest casualty if the deal goes through.
Lina Khan, chairwoman of the FTC, criticizes corporate consolidation.
The regulator has previously blocked retail mergers, including Staples’ attempted merger with Office Depot.
The FTC is currently investigating anticompetitive practices in the food industry.
In 2021, the FTC asked Kroger and other companies why shelves were emptying as prices rose in the United States.
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