Two of the largest grocers of the United States have decided to come together with the help of a deal to compete against Walmart, Amazon and other major companies that have stepped into the grocery business
Kroger plans to buy Albertsons in a deal valued at $24.6 billion, a merger that would combine the two largest grocery-store chains in the U.S., the companies said on Friday.
The deal is likely to draw intense scrutiny from federal regulators and critics as it would form a new supermarket colossus at a time of soaring food costs. Grocery prices jumped 13% in September compared to a year ago.
Kroger and Albertsons also each have numerous store banners, including names that the operators have acquired over the years.
KEY POINTS :
◾️Kroger is the second largest grocer by market share in the United States, behind Walmart, and Albertsons is fourth, after Costco.
◾️The companies said Kroger agreed to buy Albertsons for $34.10 a share in a deal valued at $24.6 billion.
◾️Combined, Kroger and Albertsons employ more than 700,000 people across about 5,000 stores.
To team up, Kroger and Albertsons would need regulators to sign off. Regulators would look at where the companies have dominance and weigh if they would have too much power if combined, said Eleanor Fox, a New York University professor who specializes in antitrust and competition policy. A merger would be less likely to get approved if they are the top two grocers in many markets.
If approved by regulators, the deal is expected to close in early 2024.
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.
Shares in both companies fell in morning trading Friday.
Kroger, based in Cincinnati, Ohio, operates 2,800 stores in 35 states, including brands like Ralphs, Smith’s and Harris Teeter. Alberstons, based in Boise, Idaho, operates 2,273 stores in 34 states, including brands like Safeway, Jewel Osco and Shaw’s. Together the companies employ around 710,000 people.
Kroger captured about 8.5% of the $1.4 trillion market for food at home in the U.S. last year, according to Morgan Stanley. Albertsons’ share was about 5%. The next three big players after Albertsons are Ahold-Delhaize, Publix, Walmart-owned Sam’s Club and Target. Ahold Delhaize
’s banners include Food Lion and Stop & Shop, along with Fresh Direct, an online grocer that it acquired.
The grocery industry is highly fragmented. Privately held regional grocers, such as H-E-B in Texas and Publix in Florida, remain power players and command strong loyalty. Relative newcomers like discounters Aldi and Lidl, and Amazon’s Amazon Fresh, have attracted customers, too. Plus, some Americans stock up on food at warehouse clubs like Costco, Walmart-owned Sam’s Club and B.J.’s Wholesale