Supermarket merger: Kroger aims to create grocery giant with $20 billion offer from Albertson

Cincinnati, Ohio– Two of the country’s biggest grocers have agreed to a merger they say would help them better compete with Walmart, Amazon and other big companies that have entered the grocery business.

Kroger on Friday bid $20 billion for Albertsons Companies Inc., or $34.10 per share. Kroger will also assume the Albertsons’ $4.7 billion in debt.

Based in Cincinnati, Ohio, Kroger operates 2,800 stores in 35 states, including brands such as Ralphs, Smith’s and Harris Teeter. Based in Boise, Idaho, Alberstons operates 2,220 stores in 34 states, including brands such as Acme, Safeway, Jewel Osco and Shaw’s. Together, the companies employ around 710,000 people.

The deal is likely to come under close scrutiny from US antitrust authorities, especially at a time of high food price inflation. If approved, the deal is expected to close in early 2024.

Combined, the stores would control about 13% of the U.S. grocery market, assuming about 400 stores are sold or closed on antitrust grounds, according to JP Morgan analyst Ken Goldman.

Still, that’s only a second behind Walmart’s 22% share. Amazon, which bought Whole Foods in 2017, is also a growing player in this space with a 3% stake. Warehouse Costco controls 6%.

Value chains like Aldi and Dollar General — which together have a 4% market share — have also squeezed traditional grocers like Kroger and Albertsons, especially as blistering inflation is urging people to cut costs.

Goldman said that a stronger combined company could potentially help tame food price inflation because it would have more power to resist price hikes from food manufacturers.

Kroger said it will reinvest about $500 million in price cuts and spend $1.3 billion on modernizing Albertsons stores and $1 billion on higher employee wages and improved benefits.

Kroger also said the combined stores would provide better access to fresh groceries. Together, the stores operate in 48 states and the District of Columbia.

However, critics questioned a merger at a time of high food price inflation. Food prices rose 13% in September year-on-year, according to US data released on Thursday.

“A Kroger-Albertsons deal would squeeze consumers already struggling to afford groceries, crush workers struggling for fair wages and destroy independent community stores,” said Sarah Miller, executive director of the American Economic Liberties Project. a non-profit organization that advocates for greater corporate accountability and antitrust action.

It was no secret that Albertsons was considering selling the company. The chain announced in February that its board is reviewing options to increase shareholder value, including developing new businesses or selling it.

And both the Albertsons and Kroger themselves have grown into giant operations, in part through acquisitions.

Albertsons was purchased in 2006 by a consortium of investors including Cerberus Capital Management, a private equity firm. Cerberus helped fund Albertsons’ 2015 purchase of grocery chain Safeway and attempted a failed merger with Rite Aid in 2018. Albertsons became a public company in 2020.

Cerberus currently owns nearly 30% of Albertson’s shares. The merger agreement includes a $4 billion dividend to Albertson shareholders.

In 2015 alone, Kroger bought four chains: Roundy’s, Pick ‘N Save, Metro Markets, and Mariano’s. In 2018, the company bought the meal kit company Home Chef.

Kroger has long outperformed Albertsons in key areas, including private label development and advanced technology, said Neil Saunders, managing director of Global Retail Data, a market research firm. Last year, for example, Kroger opened the first of 20 planned warehouses where robots will help fulfill delivery orders.