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Kroger – Supermarket chain Kroger announced Friday that the company was planning to buy Albertson for nearly $25 billion.
The newly-announced deal could transform US retail and affect how millions of people shop for groceries.
The deal
The deal between Kroger and Albertson is expected to close in 2024.
It will bring together two of the largest supermarket chains in the United States and create one of Koger’s most prominent private employees.
The combined companies will have 710,000 employees, most in a lightly unionized industry.
The deal also means the companies will have nearly 5,000 stores and over $200 billion in sales, potentially reaching 85 million homes.
In recent years, the retail industry has seen many unifications that have put many companies in a better position to compete with Amazon, Walmart, and other retail giants.
Discount chains such as Aldi and Dollar General, department stores and online grocery stores are putting pressure on traditional supermarkets.
In a statement Friday, Kroger CEO Rodney McMullen said the merger gives the company an edge as a “more compelling alternative to larger and non-union competitors.”
If the deal goes through, it will overshadow Amazon’s $13.7 billion acquisition of Whole Foods in 2017.
It also means that Koger will become America’s third-largest retail chain.
Morgan Stanley estimated the combined market would be 13.5%, just behind Walmart’s share of 15.5%.
The effects of inflation
The deal comes as companies face higher costs and food inflation, which hasn’t been seen in decades.
Last month, prices continued to rise despite the Federal Reserve’s efforts to contain inflation.
In September, the food-at-home index increased by 0.7% compared to August and 13% compared to last year.
The company said consumers would benefit from the deal as it will use half a billion dollars in cost savings to invest in lower prices.
Albertson is known for Kroger’s higher prices.
However, analysts believe Kroger will attempt to lower the chain’s prices.
Shares and stores
The chain will purchase Albertsons for $34.10 per share.
The stock was up about 30% from Kroger’s average share price in September.
Kroger shares fell 5% in early Friday trading, while Albertsons shares fell 7%.
Kroger and Albertson currently operate dozens of supermarket chains.
Under his banner, Kroger owns Ralphs, Harris Teeter, Dillons and Fred Meyer, among others.
On the other hand, Albertson owns Safeway and Vons.
The companies said they would set up around 400 stores to create a new competitor for antitrust clearance.
Analysts expect stores to close if the deal goes through.
However, they also said passing antitrust investigations would be challenging.
Reaction to the deal
Telsey Advisory Group analyst Joseph Feldman said:
“A deal of this size that has a direct impact on consumers would face significant scrutiny from regulators and take a long time period to be approved.”
Democrats, consumer advocates and unions have criticized the deal.
According to them, this would only harm consumers, raise prices and crowd out competition.
The Kroger deal could also trigger a wave of consolidation among the smaller companies in the industry to remain competitive.
Senator Bernie Sanders called on the Biden administration to reject the deal, calling it an absolute disaster.
Meanwhile, an anti-monopoly organization, The American Economic Liberties Project, said the deal would be disastrous for market competition and small businesses. Consumers will likely be the most prominent victim if the deal goes through.
Lina Khan, president of the FTC, criticizes the consolidation of the group.
The regulator has previously blocked retail mergers, including Staples’ attempted merger with Office Depot.
The FTC is currently investigating anticompetitive practices in the food industry.
In 2021, the FTC asked Kroger and other companies why shelves were emptying as prices soared in the United States.
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