What does the Kroger-Albertson merger mean for grocery prices? | CNN Business


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In a huge deal that could have a huge impact on grocery shopping in America, Kroger and Albertsons on Friday announced plans to merge.

If approved by regulators, the nearly $25 billion deal would be one of the largest in US retail history.

The proposed merger, which the two companies expect to complete in 2024, would bring together the nation’s fifth and tenth largest retailers. The companies own dozens of chains, including Safeway, Vons, Harris Teeter and Fred Meyer and collectively reach 85 million households.

Kroger (KR) and Albertsons, which mostly employ unionized workforces, want to merge to be more competitive against non-union giants like Walmart (WMT), Amazon (AMZN) and Costco (COST). Grocery sellers are also facing increasing pressure from Aldi, the fast-growing German supermarket chain.

However, there is no guarantee that the transaction will be completed.

The merger will face intense scrutiny from the Federal Trade Commission and other regulators. The two opponents, Senators Bernie Sanders and Elizabeth Warren, have already called on regulators to block the deal. The companies say they will liquidate hundreds of stores in the areas where they overlap to win regulatory approval.

Here’s how the massive merger could affect grocery shopping in America.

Prices at the grocery store are a major concern for shoppers right now.

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

Companies say they will be able to use the $500 million in cost savings from the deal to lower prices for shoppers, customize promotions and save. They will also invest $1.3 billion in Albertsons, including price cuts.

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

Albertsons stores are more concentrated in the West Coast, while Kroger stores dominate in the Midwest.

Analysts say Albertsons prices are higher than those of Kroger and other grocers, and they predict that Kroger will try to lower Albertsons prices to be more competitive against discount chains like Aldi.

“This deal could provide some relief in food prices for consumers,” said Ken Venue, retail analyst at Coresight Research. “With the advent of Aldi, Lidl, and other discount groceries, 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 “mergers in the supermarket industry can lead to significant increases in consumer prices and thus harm consumers” in highly concentrated markets.

The study found that consolidations in less concentrated markets are often associated with lower prices.

Antitrust advocates say a merger will drive out competition and concentrate power among the largest chains, driving up prices.

“The Kroger-Albertons deal will put pressure on consumers who are already struggling to buy food,” said Sarah Miller, executive director of the American Economic Freedoms Project, a policy group against concentrated economic power.

Both Kroger and Albertsons have built their own exclusive food brands in recent years as alternatives to big name brands.

Kroger, for example, offers its own brands like Private Selection and Simple Truth, while Albertsons owns 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 because it is more profitable to sell their own brands than national brands, and it helps keep the prices of the big brands under control.

Through the merger, companies plan to expand the choice of their own brand and reduce production costs.

Grocery stores in the United States are declining.

The number of groceries in the United States fell nearly 30% from 1993 to 2019, according to a report last year by Food & Water Watch, a consumer advocacy group.

Analysts say Kroger and Albertson are likely to close some of their nested stores, particularly in some cities where they are heavily concentrated, such as Los Angeles and Chicago.

“There will undoubtedly be some shutdowns if the merger continues,” said Neil Saunders, analyst at GlobalData Retail. “Over time, the rate of shutdown may be more pronounced as the combined chains seek to reduce duplication,” he said.

Advocates fear the merger will hurt small grocers.

Analysts and advocates also say the merger will make it difficult for small grocers and convenience stores to continue to operate.

The National Grocery Stores Association, which represents small retailers and wholesalers, said the merger would put smaller competitors at an “unfair situation” and increase “buyer’s anti-competitive power over grocery suppliers.”

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

“This deal will almost certainly put more rural towns and urban black and Latino neighborhoods at risk of becoming ‘food deserts’ as more local grocers are thrown out of business,” said Stacey Mitchell, associate director of the Local Self Institute. – Reliance, a research and advocacy organization that challenges economic concentration.

The food industry in America has boosted in recent decades.

According to UBS, the five biggest grocers — Walmart, Kroger, Costco, Ahold Delhaize and Amazon — control nearly half of the market.

Analysts expect the Kroger-Albertsons merger to trigger a new wave of mergers and acquisitions as companies seek to keep pace.

Michael Laser, a retail analyst at UBS, said the proposed deal “accelerates the ongoing consolidation process for the sector.”

He said Amazon “has aspirations to be bigger in space.” Warehouse clubs, tough, strong discounts [regional grocers] Specialized players will look to strengthen their positions.”

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