Business & Tech
Kroger-Albertsons' $25B Merger To Affect 734 CA Stores
If the massive deal goes through, it's expected to affect prices in the Golden State along with thousands of employees.
![With 734 Albertsons, Safeway, Vons and Ralphs stores in the state, some analysts say it could mean lower prices for Golden State shoppers due to increased efficiency while others say decreased competition could mean higher prices.](https://patch.com/img/cdn20/shutterstock/73734/20221014/050708/styles/patch_image/public/shutterstock-1675735003___14170355757.jpg)
CALIFORNIA — Two of the nation's largest grocery chains — Kroger and Albertsons — announced a $25 billion merger Friday.
It remains to be seen if the mammoth deal will pass muster with federal antitrust regulators. However, if the deal goes through, it is expected to make Albertsons, which owns Safeway and Vons, and Ralphs, whose parent company is Kroger, more competitive with Amazon and Walmart in California.
With 734 Albertsons, Safeway, Vons and Ralphs stores in the state, some analysts say it could also mean lower prices for Golden State shoppers due to increased efficiency. Other analysts contend the reduced competition would drive prices higher in the long run. Nationwide, the merger would create a mega-chain of about 5,000 stores.
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If approved by regulators, the deal is expected to close in early 2024. The merger could force store closures in California neighborhoods where Vons, Albertsons, Ralphs or Safeway overlap.
Under the deal, Kroger will obtain Albertsons Cos. for roughly $25 billion. According to Kroger, the combined new company will include nearly 5,000 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies and 2,015 fuel centers.
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It was unclear what impact the deal will have on the more than 710,000 employees who work for the two companies. Union representatives in Southern California said it could harm employees and consumers.
"The proposed merger of these two grocery giants is devastating for workers and customers alike and must be stopped," Kathy Finn, acting president of United Food and Commercial Workers 770, said in a statement. "Just as our UFCW workers stood together to negotiate landmark new contracts with both Kroger and Albertsons/Safeway last year across the western U.S., we will stand united to fight for access to nutritious food, safe shopping experiences, and investments in good jobs in our communities.
"Essential UFCW grocery store workers emerged stronger from the COVID- 19 pandemic, winning improved protections against the virus, store violence and other threats. Standing together, we know our voices are stronger than the corporations' anti-worker rhetoric."
Kroger officials, however, said the move would help employees and customers.
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.
The deal will likely get heavy scrutiny from U.S. antitrust regulators, especially at a time of high food price inflation. The Justice Department and the Federal Trade Commission were already in the process of updating merger guidelines to better detect and prevent anticompetitive deals. In July, President Joe Biden signed an executive order promoting competition in business and calling for tougher scrutiny of mergers.
To ease the regulatory process, Kroger and Albertsons said would divest stores in markets where they overlap. The companies said they would spin off up to 375 Albertsons stores in a standalone public company.
“We are confident, from the extensive work that we’ve done, that we have a clear path to achieve regulatory approval with divestitures," Kroger Chief Financial Officer Gary Millerchip said.
McMullen said the company would decide market-by-market whether stores would change their names.
“We'll want to evaluate each market individually, who has the stronger market share," he said.
Together, the stores would control around 13% of the U.S. grocery market, assuming the sale or closure of around 400 stores for antitrust reasons, according to J.P. Morgan analyst Ken Goldman.
Still, that is a distant second to Walmart's 22% share. Amazon, which bought Whole Foods in 2017, is also a growing player in the space, with 3% share. Warehouse store Costco controls 6%.
Value chains like Aldi and Dollar General — which have a combined 4% market share —have also been squeezing traditional grocers like Kroger and Albertsons, particularly as red-hot inflation pushes people to cut costs.
Goldman said a stronger combined company could possibly help tame food price inflation, since it would have more power to reject food producers’ price increases. The two chains combined have 34,000 private label products at various price points that compete directly with food manufacturers.
Kroger said would reinvest approximately $500 million into price reductions. It would also spend $1.3 billion updating Albertsons stores and $1 billion on higher employee wages and improved benefits.
The majority of Kroger's hourly workers are unionized with the United Food and Commercial Workers union, which also represents workers at Albertsons-owned Safeway. The union didn't immediately respond to a request for comment Friday from The Associated Press.
Kroger also said the combined stores would provide greater and faster access to fresh food, with the increase hub distribution centers and manufacturing plants. Together, the stores operate in 48 states and the District of Columbia.
But critics questioned a merger at a time of high food price inflation. Food prices rose 13% in September compared with last year, according to U.S. data released Thursday.
“A Kroger-Albertsons deal would squeeze consumers already struggling to afford food, crush workers fighting for fair wages and destroy independent, community stores,” said Sarah Miller, executive director of the American Economic Liberties Project, a nonprofit that supports stronger corporate accountability and antitrust measures.
It was no secret that Albertsons was thinking about selling the company. The chain announced in February that its board was reviewing options to enhance shareholder value, including developing new businesses or a sale.
And both Albertsons and Kroger themselves have grown into huge operations partially through acquisitions.
Albertsons was bought by a consortium of investors including Cerberus Capital Management, a private equity firm, in 2006. Cerberus helped finance Albertsons’ 2015 purchase of the Safeway grocery chain and attempted a failed merger with Rite Aid in 2018. Albertsons became a publicly traded company in 2020.
Cerberus currently holds nearly 30% of Albertsons shares. The merger deal includes a $4 billion dividend to Albertsons shareholders.
In 2015 alone, Kroger purchased four chains: Roundy’s, Pick ’N Save, Metro Markets and Mariano’s. It bought the meal kit company Home Chef in 2018.
Kroger has long outperformed Albertsons in key areas, including the development of store brands and advanced technology, said Neil Saunders, managing director of Global Retail Data, a market research company. Last year, for example, Kroger opened the first of 20 planned warehouses where robots help fulfill delivery orders.
But Saunders said Albertsons allows Kroger to expand into markets where it has less presence, like Nevada, Oregon and Washington.
City News Service, The Associated Press and Patch Staffer Paige Austin contributed to this report.
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