Kroger-Albertsons merger: What it could mean for grocery prices

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In a mega deal that could have a huge impact on grocery shopping in America, Kroger and Albertsons announced plans to merge on Friday.

If approved by regulators, the nearly $25 billion deal would be one of the largest in U.S. retail history.

The proposed merger, which the companies are expected to complete in 2024, would bring together the country’s fifth and 10th largest retailers. The companies own dozens of chains, including Safeway, Vons, Harris Teeter and Fred Meyer, and collectively reach 85 million homes.

Kroger (KR) and Albertsons, both of which employ mostly unionized workers, want to merge to become more competitive with non-union giants like Walmart (WMT), Amazon (AMZN) and Costco (COST). Grocery retailers are also facing increased pressure from Aldi, the fast-growing German discount chain.

A merger between Kroger and Albertsons could transform the food industry.

However, there is no guarantee that the deal will go through.

The merger is subject to intense scrutiny by the Federal Trade Commission and other regulatory agencies. Opponents, Sens. Bernie Sanders and Elizabeth Warren, have already urged regulators to block the deal. The companies say they will divest hundreds of stores in areas where they overlap to get regulatory approval.

Here’s how the mega-merger could affect grocery shopping in America.

Grocery prices are a major concern for shoppers these days.

Food prices rose 13% in September last year, the fastest pace in decades.

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The companies say they can use $500 million in cost savings from the deal to lower prices for buyers and adjust promotions and savings. They will also invest $1.3 billion in Albertsons, including price cuts.

“Our expanded portfolio, along with more personalized promotions and benefits, will help customers save … and help alleviate the inflationary pressures facing shoppers across the country,” Kroger CEO Rodney McMullen said Friday.

Albertson’s businesses are more focused on the West Coast, while Kroger dominates the Midwest.

Albertsons has higher prices than Kroger and other grocers, analysts say, and they predict Kroger will try to lower Albertsons’ prices to be more competitive with discount chains like Aldi.

“This deal could give consumers some relief in grocery pricing,” said Ken Fenyo, retail analyst at Coresight Research. “As Aldi, Lidl and other discount grocery retailers come in, Kroger is positioned to drive the market forward.”

But mergers of supermarkets can also lead to higher prices for buyers.

A 2012 study published in the Journal of Economics and Management Strategy found that “Mergers in the supermarket industry in highly concentrated markets can lead to significant increases in consumer prices, thereby harming consumers”.

According to the study, mergers in less concentrated markets are most often associated with price cuts.

Antitrust advocates say the merger would crowd out competition and concentrate power among the biggest chains, driving up prices.

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“A Kroger-Albertons deal would put pressure on consumers who are already struggling to afford groceries,” said Sarah Miller, executive director of the American Economic Liberties Project, a political group opposed to concentrated economic power.

Kroger and Albertsons have each built their own exclusive food brands as alternatives to big brands in recent years.

For example, Kroger offers its own brands like Private Selection and Simple Truth, while Albertsons has O Organics, Open Nature, and others.

The brands of the two companies together generated sales of 43 billion US dollars last year.

This is an important strategy for these stores as it is more profitable to sell their own brands than national labels and it helps keep big brand prices in check.

Through the merger, the companies aim to expand their own brand selection and reduce production costs.

Grocery stores in the United States are on the decline.

The number of grocers in the US fell about 30% from 1993 to 2019, according to a report last year by Food & Water Watch, a consumer advocacy group.

Analysts say Kroger and Albertsons are likely to close some of their overlapping stores, particularly in some cities where they are heavily concentrated, like Los Angeles and Chicago.

“There will undoubtedly be some closures if a merger occurs,” said Neil Saunders, analyst at GlobalData Retail. “Over time, the closure rate may be more pronounced as the combined chains try to minimize duplication,” he said.

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Proponents fear the merger would hurt small grocery stores.

Analysts and advocates also say a merger would make it harder for smaller grocers and convenience stores to stay in business.

The National Grocers Association, which represents small retailers and wholesalers, said the merger would “unfairly disadvantage” smaller competitors and increase “anti-competitive buying power over food suppliers.”

This would disproportionately affect cities and rural areas where independent businesses are typically located.

“This deal would almost certainly put more rural towns and black and Hispanic urban neighborhoods at risk of becoming ‘food deserts’ as more local grocers are forced out of business,” said Stacy Mitchell, co-director of the Institute for Local Self-Reliance, a research and advocacy organization challenging economic concentration.

The food industry in America has consolidated over the past few decades.

According to UBS, the top five grocers — Walmart, Kroger, Costco, Ahold Delhaize and Amazon — control about half of the market.

A Kroger-Albertsons merger would spark a new wave of mergers and acquisitions as companies try to keep up, analysts predict.

The proposed deal “accelerates the ongoing consolidation of the sector,” said UBS retail analyst Michael Lasser.

Amazon “has aspirations to get bigger in the space,” he said. “The warehouse clubs, hard discounters, strong [regional grocers] and special players will try to strengthen their positions.”


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