Kroger announced a $24.6 billion deal with Albertsons, creating one of the largest grocery store chains in the United States. A Kroger grocery store is seen here on Sept. 9 in Houston, Texas. (Brandon Bell, Getty Images)
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ATLANTA – Kroger announced Friday that it plans to buy Albertsons in a nearly $25 billion deal that could transform the U.S. retail industry and affect how millions of customers buy their groceries.
The deal, expected to close in 2024, would combine the country’s two largest supermarket chains and create one of its largest private employers. The two companies have a combined 710,000 employees — most of whom are unionized in an industry with low unionization rates — about 5,000 stores and more than $200 billion in sales. Companies report reaching 85 million households.
The retail industry has consolidated in recent years, and the merger will give the companies greater scale to fend off competition from Amazon, Walmart and other retail giants. Traditional supermarkets have come under pressure from these companies and others — discount chains like Dollar General and Aldi, warehouse clubs like Costco and online grocers.
The merger “accelerates our position as a more attractive alternative to larger and non-union competitors,” Kroger CEO Rodney McMullen said in a statement Friday.
If the deal goes through, it would be one of the largest mergers in U.S. retail history — surpassing Amazon’s 2017 purchase of Whole Foods for $13.7 billion. The company will be the third largest retail chain in America by sales volume. Its overall market share of the $1.4 trillion grocery industry would be 13.5%, according to Morgan Stanley, making it the second-largest grocer behind Walmart’s 15.5% share.
The move also comes at a time when companies are grappling with higher costs and food inflation is at its highest level in decades. Prices in grocery stores continued to rise last month. The home food index, which reflects the prices of grocery stores, increased by 0.7% in September compared to the previous month, and by 13% last year.
Kroger said the deal would benefit consumers and use half a billion dollars in savings from the merger to invest in lower prices. Albertsons is known for having higher prices than Kroger, and analysts say Kroger may try to undercut the chain’s prices.
Kroger will buy Albertsons for $34.10 a share — about 30% higher than the grocery chain’s average stock price over the past month. Shares of Kroger fell 5% and Albertsons fell 7% in early trading Friday.
These two companies operate dozens of grocery chains. Kroger operates Ralphs, Harris Teeter, Dillons, Fred Meyer and others, while Albertsons owns Safeway and Vons. The companies said they would close about 400 stores to create a new competitor in order to win antitrust clearance.
Analysts expect some stores to close if the deal goes through, and also say it would be a significant obstacle to passing antitrust scrutiny.
“A deal of this magnitude, with a direct impact on consumers, will face significant regulatory scrutiny and take a long time to approve,” said Joseph Feldman, an analyst at Telsey Advisory Group.
Consumer watchdogs, labor unions and Democrats have already strongly opposed the deal. They say it will hurt consumers by raising prices and eliminating competition. It could also spur a new wave of consolidation in the industry among smaller companies trying to compete.
Senator Bernie Sanders called it an “absolute disaster” and called on the Biden administration to reject the deal. The American Economic Freedom Project, an antitrust organization, said the “merger would be disastrous for market competition, small businesses and especially consumers’ pockets.”
FTC Chairwoman Lina Khan is critical of corporate consolidation, and the regulator has blocked major retail mergers in the past, including Staples’ attempts to merge with Office Depot.
The FTC is currently investigating anticompetitive practices in the grocery industry and last year asked Kroger and others for information on the causes of empty shelves and inflated prices in the US.