The grocery chain Kroger announced plans Friday to buy competitor Albertsons for $24.6 billion, potentially creating a grocery empire spanning the United States.
The combined company could pose a competitive threat to Walmart and other grocery chains and would represent a major industry consolidation.
Kroger and Albertsons are two of the largest grocery store chains in the United States. The two companies operate several Spokane-area Safeway, Fred Meyer and Albertsons stores.
But the deal could face scrutiny from Washington, D.C. The Federal Trade Commission has been wary of such consolidation in the past.
And liberal and conservative lawmakers alike expressed concerns Friday that the proposed merger could lead to higher prices as Americans already are dealing with rising inflation.
The FTC said last year it was studying supply chain disruptions and ordered nine large companies, including Kroger and Walmart, to hand over information on its businesses.
At the time, FTC Chair Lina Khan said she hoped the inquiry “will shed light on market conditions and business practices that may have worsened these disruptions or led to asymmetric effects.”
In particular, the Kroger deal might attract attention because of the chains’ dominance in certain local markets, potentially forcing the combined company to divest stores in specific areas, said retail analyst Neil Saunders.
In 2015, the FTC ordered Albertsons and Safeway to sell 168 stores before being allowed to merge.
In a signal that they expect a similar requirement here, Kroger and Albertsons said they would form a separate public company as a subsidiary to organize divested stores.
Between 100 and 375 stores would make up that company, which is now called SpinCo, and would “create a new, agile competitor with quality stores,” the companies said.
More broadly, the national food and grocery market is still fragmented, with Walmart as the largest player, with about 17% of the market, Saunders noted.
“It doesn’t create a sort of behemoth that is crowding everyone out of the market,” he said.
But the deal seems poised to face pushback. Sen. Bernie Sanders (I-Vt.), who has often spoken out against corporate monopolies, called on the Biden administration to reject the merger.
“At a time when food prices are soaring as a result of corporate greed, it would be an absolute disaster to allow Kroger, the 2nd largest grocery store in America, to merge with Albertsons, the 4th largest grocery store in America,” he tweeted.
Sen. Mike Lee of Utah, the top Republican on the Senate Judiciary Committee’s antitrust panel, said in a statement that he would “do everything in my power to ensure our antitrust laws are robustly enforced to protect consumers from anticompetitive mergers that could further exacerbate the financial strain we already feel in the grocery store checkout aisle.”
Grocery chains have been hit hard by inflation and supply chain crunches, and they have experienced periods of panic buying and empty shelves during the coronavirus pandemic.
Food and grocery prices have also spiked for consumers, and the government’s food price index has risen 11.4% over the past year, the largest 12-month increase in decades.
After a finalized deal, Kroger would control about 11.8% of the food and grocery market, according to the data analysis company GlobalData.
That would make it the second-largest player in the food and grocery market behind Walmart.
The two companies together have more than 710,000 employees and nearly 5,000 stores. Both have stores under numerous brand names.
Albertsons operates Safeway and Vons, and Kroger operates Ralphs, King Soopers, Harris Teeter, Fred Meyer and others.
Albertsons has a strong presence in the western United States, especially in California. Kroger, which operates across the country, said the combined company would have a presence in 48 states and Washington, D.C.
The company did not clarify whether the new entity would have brick-and-mortar stores in all those locations or whether this would include online sales.
A map of the combined locations shows an expansive network of stores across the country and in most states.
The deal is unlikely to significantly affect food prices for shoppers, Saunders said.
Kroger still has to compete with Walmart, Costco, Amazon and local chains, in addition to facing the pressure of inflation.
Combining some operations could create some savings for the company, he said.
“I don’t think it will make things worse,” he said. “They don’t have the scope to increase prices with impunity.”
Kroger and Albertsons face growing competition from not only market leader Walmart and local chains but also from relatively new entrant Amazon.
Amazon commands a small piece of the grocery market, with Whole Foods and Amazon Fresh, but the tech giant has signaled it has greater grocery ambitions – and it has the financial resources and the warehouse footprint to potentially be a powerful rival.
Not everyone is sure the deal will benefit shoppers. Brian Ronholm, director of food policy at Consumer Reports, said the deal is troubling in times of high inflation.
“Any type of market consolidation of this magnitude seems to always end up harming consumers in some way, especially in the food industry,” he said.
He pointed to the recent baby formula shortage, which came after experts had been warning that industry consolidation had left the production of the vital product concentrated among a small number of producers that are vulnerable to disruption.
On a call with investors Friday, Kroger and Albertsons executives pushed back on those warnings, saying the combined company would invest in lowering prices.
“This merger advances our commitment to build a more equitable and sustainable food system by expanding our footprint into new geographies to serve more of America with fresh and affordable food and accelerates our position as a more compelling alternative to larger and nonunion competitors,” Kroger chief executive Rodney McMullen said in a statement.
McMullen will be the chairman and CEO of the joined company.
The companies expect to close the deal in early 2024.
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