• Tue. Nov 29th, 2022

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

ByElla E. Kidwell

Oct 17, 2022

New York
CNN Business

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 expect to complete in 2024, would combine the fifth and tenth largest retailers in the country. The companies own dozens of chains, including Safeway, Vons, Harris Teeter and Fred Meyer and reach a total of 85 million homes.

Kroger (KR) and Albertsons, which both employ mostly union workers, want to merge to be more competitive against non-union giants such as Walmart (WMT), Amazon (AMZN) and Costco (COST). Grocers are also facing increased pressure from Aldi, Germany’s fast-growing discount supermarket chain.

However, there is no guarantee that the agreement will be concluded.

The merger will come under scrutiny from the Federal Trade Commission and other regulators. The opponents, the senses. Bernie Sanders and Elizabeth Warren have already called on regulators to block the deal. The companies say they will divest hundreds of stores in areas where they overlap to gain regulatory approval.

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

Grocery prices are a major concern for shoppers right now.

Grocery prices rose 13% in September from a year ago, the fastest pace in decades.

The companies say they will be able to use $500 million in savings from the deal to lower prices for shoppers and personalize promotions and savings. They will also invest $1.3 billion in the Albertsons, including lowering prices.

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

Albertsons stores are more concentrated 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 undercut Albertsons’ prices to be more competitive with discount chains like Aldi.

“This deal could provide some relief to consumers on food prices,” said Ken Fenyo, retail analyst at Coresight Research. “With the arrival of Aldi, Lidl and other discount grocers, this positions Kroger to drive the market forward.”

But supermarket mergers can also drive up prices for shoppers.

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

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

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

“A Kroger-Albertons deal would squeeze consumers who are already struggling to afford food,” said Sarah Miller, executive director of the American Economic Liberties Project, a political group against the concentration of economic power.

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

Kroger, for example, offers its own brands such as Private Selection and Simple Truth, while Albertsons offers O Organics, Open Nature and others.

The two companies’ brands generated combined sales of $43 billion last year.

This is an important strategy for these stores, as it is more profitable to sell their own brands than national brands, and it controls the prices of the big brands.

By merging, the companies plan to expand their own selection of brands and reduce production costs.

Grocery stores in the United States are in decline.

The number of U.S. grocers fell about 30% between 1993 and 2019, according to a report released last year by Food & Water Watch, a consumer advocacy group.

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

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

Proponents fear the merger will hurt small grocery stores.

Analysts and advocates also say a merger would make it harder for small grocers and mom-and-pop stores to stay in business.

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

This would disproportionately harm cities and rural areas, where independent stores are typically located.

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

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

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

A Kroger-Albertsons merger would trigger a new wave of mergers and acquisitions as companies seek to keep pace, analysts predict.

The proposed deal “accelerates ongoing industry consolidation,” said UBS Retail analyst Michael Lasser.

Amazon “aims to be bigger in space,” he said. “The warehouse clubs, hard discounters, strong [regional grocers] and specialist players will seek to strengthen their positions.