CINCINNATI — The Kroger Co. could gain some new inflation-fighting power if it acquires the rival grocery chain Albertsons Companies Inc., but it’s likely to face some antitrust scrutiny before the deal is done, analysts said.
The companies confirmed Friday that Kroger will buy Albertsons in a deal valued at $24.6 billion, or $34.10 per share. The price could be adjusted downward, depending on how many stores the combined entity will have to sell to satisfy antitrust regulators.
Kroger plans to invest an additional $500 million in lower prices, $1 billion in increased wages and $1.3 billion to “enhance the customer experience” in Albertsons stores," according to a press release. It also expects to save $1 billion over four years from merger-related synergies, or cost-cutting initiatives that will include “improved sourcing, optimization of manufacturing and distribution networks, and technology investment amplification opportunities.”
The combined companies will have more than 710,000 employees, 4,966 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies and 2,015 fuel centers.
And that means more buying power for the Cincinnati-based grocery chain.
“Taking a look at the industry, Walmart makes up about 25% of the grocery market share in America. Kroger’s number two at about 9%, Albertsons at about 7%,” said Kevin Gade, chief operating officer for the downtown-based money management firm, Bahl & Gaynor. “If you think about the leverage that Walmart has with a lot of the manufacturers, whether it’s household goods, food manufacturers, the combination of Kroger and Albertsons should be able to have stronger leverage at the table, particularly at a time when inflation is as high as it is.”
Morningstar analyst Zain Akbari agreed the deal could be an inflation fighter for Kroger – if it is ultimately approved.
“While we believe a combination between the two largest pure-play grocers in the United States would create scale benefits (and associated cost and purchasing leverage) that would help fend off burgeoning omnichannel titans Walmart and Amazon, we suspect overlap between the two chains’ footprints in many markets may lead regulators to scrutinize a transaction closely,” Akbari wrote in a note to investors Thursday.
Not everyone thinks lower prices will result from the merger.
Sarah Miller, executive director of the American Economic Liberties Project, told Reuters the deal would "squeeze consumersalready struggling to afford food."
"This merger is a cut and dried case of monopoly power, and enforcers should block it,” Miller said.
Gade said that regulatory review will make it hard for Kroger to close the deal quickly. But eventually, he expects the company’s bigger purchasing power to translate to lower prices at the cash register.
“We wouldn’t expect tomorrow store prices to fall, unfortunately,” Gade said. “It will take some time, the data that we’re seeing the buying power that we should be able to see from the two combined entities, that should hopefully ultimately help the consumer.”
