Two of the nation’s largest grocers -- Kroger and Albertsons, the parent companies of Chicago-area stores Mariano's and Jewel Osco -- have agreed to merge in a deal they say would help them better compete with Walmart, Amazon and other major companies that have stepped into the grocery business.
Kroger on Friday bid $20 billion for Albertsons Companies Inc., or $34.10 per share. Kroger will also assume $4.7 billion of Albertsons’ debt.
Kroger Chairman and CEO Rodney McMullen, who would retain those titles at the combined company, said a merger could save $1 billion annually in lower administrative costs, more efficient manufacturing and distribution and shared investments in technology. McMullen said the company would plow those savings back into lower prices, higher wages and improved stores.
“We will take the learnings from each company to bring greater value and a better experience to more customers, more associates, and more communities,” McMullen said Friday in a conference call with investors.
Both companies' boards unanimously approved the agreement, which will need regulatory approval. It's expected to close in early 2024.
However, shares in both companies fell in morning trading Friday. And the merger is expected to face heavy scrutiny from U.S. antitrust regulators and local shoppers -- especially at a time of high food price inflations.
Here's what we know so far about the merger.
Local
Together, the stores would control around 13% of the U.S. grocery market
The massive merger means the stores together would control a 13% slice of the country's grocery market.
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Still, that is a distant second to Walmart’s 22% share. Amazon, which bought Whole Foods in 2017, is also a growing player in the space, with 3% share. Warehouse store Costco controls 6%.
Value chains like Aldi and Dollar General -- which have a combined 4% market share -- have also been squeezing traditional grocers like Kroger and Albertsons, particularly as red-hot inflation pushes people to cut costs.
According to J.P. Morgan analyst Ken Goldman, a stronger combined company could possibly help tame food price inflation, since it would have more power to reject food producers’ price increases. The two chains combined have 34,000 private label products at various price points that compete directly with food manufacturers.
The merger hopes to lower prices for shoppers
According to Kroger's announcement, the grocery giant plans to "invest in lowering prices for customers" and would reinvest "approximately $500 million of cost savings from synergies to reduce prices for customers."
It would also spend $1.3 billion updating Albertsons stores and $1 billion on higher employee wages and improved benefits.
The majority of Kroger’s hourly workers are unionized with the United Food and Commercial Workers union, which also represents workers at Albertsons-owned Safeway. The union didn’t immediately respond to a request for comment Friday from The Associated Press.
Kroger also said the combined stores would provide greater and faster access to fresh food, with a combined 66 distribution centers and 52 manufacturing plants. Together, the stores operate in 48 states and the District of Columbia.
But critics questioned a merger at a time of high food price inflation. Food prices rose 13% in September compared with last year, according to U.S. data released Thursday.
“A Kroger-Albertsons deal would squeeze consumers already struggling to afford 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 that supports stronger corporate accountability and antitrust measures.
Albertsons was already considering selling, while Kroger had already purchased other chains
It was no secret that Albertsons was thinking about selling the company. The chain announced in February that its board was reviewing options to enhance shareholder value, including developing new businesses or a sale.
And both Albertsons and Kroger themselves have grown into huge operations partially through acquisitions.
Albertsons was bought by a consortium of investors including Cerberus Capital Management, a private equity firm, in 2006. Cerberus helped finance Albertsons’ 2015 purchase of the Safeway grocery chain and attempted a failed merger with Rite Aid in 2018. Albertsons became a publicly traded company in 2020.
Cerberus currently holds nearly 30% of Albertsons shares. The merger deal includes a $4 billion dividend to Albertsons shareholders.
In 2015 alone, Kroger purchased four chains: Roundy’s, Pick ’N Save, Metro Markets and Mariano’s. It bought the meal kit company Home Chef in 2018.
Kroger has long outperformed Albertsons in key areas, including the development of store brands and advanced technology, said Neil Saunders, managing director of Global Retail Data, a market research company. Last year, for example, Kroger opened the first of 20 planned warehouses where robots help fulfill delivery orders.
But Saunders said Albertsons allows Kroger to expand into markets where it has less presence, like Nevada, Oregon and Washington.
The merger is drawing strong reaction on social media from Chicago-area grocery shoppers
"I don’t see anything good to come out of this deal for us," a comment on NBC 5 Chicago's Facebook post read. "Only higher prices."
"Kroger going to ruin Jewel now too like Mariano’s?" another read.
Kroger is the second largest grocer by market share in the United States, behind Walmart, and Albertsons is fourth, after Costco. Together, Kroger and Albertsons would be a closer second to Walmart.
Kroger, based in Cincinnati, Ohio, operates 2,800 stores in 35 states, including brands like Ralphs, Smith’s and Harris Teeter.
In the Chicago area, Kroger owns and operates Mariano's grocery stores.
Alberstons, based in Boise, Idaho, operates 2,220 stores in 34 states, including brands like Jewel Osco, Shaw’s and Safeway.
Together the companies employ around 710,000 people.
The deal, likely to get heavy scrutiny from U.S. antitrust regulators -- especially at a time of high food price inflation -- is already causing a stir among Chicago area grocery shoppers, many of whom still feel the sting from when Chicago-area chain Dominick's stores closed. As a result, some long-standing Dominick's stores by the end of 2013 were reopened rebranded into Mariano's after the Milwaukee based brand stepped in.
"Now Jewel is going to be dragged down," one Facebook comment read, in reference to the c. "We all know where Dominick's is now."
Together, the stores would control around 13% of the U.S. grocery market, assuming the sale or closure of around 400 stores for antitrust reasons, according to J.P. Morgan analyst Ken Goldman.
The massive merger and its implications do not appear to be lost on Chicago-area grocery store shoppers.
"Almost a monopoly on the food supply," a Facebook comment reads. "What's the worst the can happen?"
The Associated Press contributed to this report.
