Kroger announced Friday that it plans to buy Albertsons for nearly $25 billion in a deal that could transform U.S. retail and affect the way millions of customers shop for groceries.
The deal, expected to close in 2024, will bring together two of the country’s largest supermarket chains and create one of its largest private employers. Together, the two companies employ 710,000 workers — most of them in low-union industries — with nearly 5,000 stores and more than $200 billion in sales. The companies say they are reaching 85 million households.
The retail industry has consolidated in recent years, and a merger would give the two companies more leverage to fend off competition from Amazon (AMZN), Walmart (WMT) and other retail giants. Traditional supermarkets have been squeezed by these and others — discount chains like Dollar General (DG) and Aldi, warehouse clubs like Costco (COST) and online grocers.
Kroger Chief Executive Rodney McMullen said in a statement Friday that the merger “accelerates our position as a more attractive alternative to larger and non-union competitors. “.
If the deal goes through, it would be one of the largest mergers in U.S. retail history — and would surpass Amazon’s 2017 purchase of Whole Foods for $13.7 billion. The company would be the third-largest retail chain in the United States by sales. Its total market share in the $1.4 trillion grocery industry would reach 13.5%, making it the second-largest grocer after Walmart’s 15.5% stake, according to Morgan Stanley.
The move also comes as businesses grapple with higher costs and grocery inflation at the highest level in decades. Grocery prices have continued to rise over the past month. The Household Grocery Index, which measures grocery store prices, rose 0.7% month-over-month in September and was up 13% year-over-year.
Kroger said the deal would benefit consumers and use the $5 billion in cost savings from the merger to invest in lower prices. Albertsons is known for higher prices than Kroger, and analysts say Kroger may try to lower prices at the chain.
Kroger (KR) will buy Albertsons for $34.10 a share, about a 30% premium to the grocery chain’s average share price over the past month. Shares of Kroger (KR) were down 5% in early trade Friday, while shares of Albertsons were down 7%.
The two companies operate dozens of grocery chains. Kroger runs Ralphs, Harris Teeter, Dillons, Fred Meyer and more, while Albertsons owns Safeway and Vons. The companies said they would break up nearly 400 stores and form new competitors to win antitrust clearance.
Analysts expect some stores to close if the deal goes through, saying it would be a significant hurdle to passing antitrust scrutiny.
“A direct-to-consumer deal of this magnitude would be subject to scrutiny by regulators and would take a long time to get approval,” said Joseph Feldman, an analyst at Telsey Advisory Group.
Consumer advocates, unions and Democrats have strongly opposed the deal. They say it hurts consumers by raising prices and crowding out competition. It could also spark a new round of industry consolidation among smaller companies trying to defend themselves.
Sen. Bernie Sanders called it an “absolute disaster” and urged the Biden administration to reject the deal. The American Economic Liberties Project, an antitrust group, said the merger would have “disastrous consequences for competition in the marketplace, for small businesses, and most importantly — for the pockets of consumers.”
FTC Chairman Lina Khan has criticized the company’s integration, and regulators have blocked large retail mergers in the past, including attempts by Staples to merge with Office Depot.
The FTC is currently investigating anticompetitive practices in the food industry, and last year asked Kroger and others for information on the causes of empty U.S. shelves and rising prices.