Kroger announced Friday that it intends to acquire Albertsons in a roughly $25 billion transaction that may transform the US retail business and affect how millions of people shop for food.
The transaction, which is anticipated to finalize in 2024, would unite two of the country’s major grocery chains and create one of the country’s largest private employment. The two firms have a combined workforce of 710,000 people, the majority of whom are unionized in an industry with low unionization rates, roughly 5,000 outlets, and more than $200 billion in sales. According to the organizations, they reach 85 million households.
In recent years, the retail business has concentrated, and merging would provide the companies with greater size to compete with Amazon (AMZN), Walmart (WMT), and other retail behemoths. Traditional supermarkets have been under pressure from these and other enterprises, including discount chains such as Dollar General (DG) and Aldi, warehouse clubs such as Costco (COST), and internet grocers.
Kroger CEO Rodney McMullen said in a statement Friday that the merger “accelerates our position as a more compelling alternative to larger and non-union competitors.”
If the transaction goes through, it will be one of the biggest mergers in US retail history, dwarfing Amazon’s $13.7 billion acquisition of Whole Foods in 2017. By sales, the company would become the third largest retail chain in the United States. According to Morgan Stanley, its total market share in the $1.4 trillion food business would be 13.5%, making it the second largest retailer after Walmart’s 15.5% share.
Kroger stated that the merger will benefit customers and that the merger’s cost savings will be used to invest in reduced prices. Albertsons is notorious for charging higher costs than Kroger, and experts believe Kroger will strive to cut its pricing.
Kroger (KR) will pay $34.10 per share for Albertsons, a roughly 30% premium above the supermarket chain’s average share price over the last month. Kroger (KR) shares fell 5% in early trade Friday, while Albertsons fell 7%.
Hundreds of supermarkets are owned and operated by the two organizations. Albertsons owns Safeway and Vons, whereas Kroger owns Ralphs, Harris Teeter, Dillons, Fred Meyer, and other grocery shops. To get antitrust permission, the companies declared that they will spin off around 400 stores to form a new competitor.
Analysts believe that if the transaction is authorized, some outlets would close and that clearing antitrust scrutiny will be difficult.
“The planned merger has major ramifications for hundreds of thousands of our UFCW members and American families who are more concerned than ever about the impact of inflation on the cost of food and consumables, prescription prescriptions, and petrol.” “As America’s biggest union of critical workers, our first objective is to preserve the lives of our country’s supermarket employees, union and non-union,” UFCW International president Marc Perrone said in a statement Friday.
Senator Bernie Sanders dubbed it a “absolute disaster” and urged the Biden administration to reject it. According to the American Economic Liberties Project, an anti-monopoly organization, the merger would be “disastrous for market competition, small enterprises, and, most importantly, consumers’ pockets.”
The FTC is now investigating anti-competitive behavior in the grocery business and asked Kroger and others last year for information on the causes of bare shelves and rising prices in the United States.