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Kroger and Albertsons reportedly in merger talks; investors expect an announcement soon

Anti-trust scrutiny is to be expected in large mergers, and analysts say this deal could see consumer inflation relief
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Posted at 5:16 PM, Oct 13, 2022
and last updated 2022-10-13 18:16:29-04

CINCINNATI — The Kroger Co. could gain some new inflation-fighting power if it acquires the rival grocery chain Albertsons Companies Inc.

Still, it’s likely to face some antitrust scrutiny before the deal, according to analysts reacting to media reports that merger talks are happening between the two companies.

The New York Times reported that, according to its sources who wished to remain anonymous, a deal following the reported merger talks could be announced in the coming days.

Bloomberg broke the story on Thursday that Kroger and Albertson’s were said to be in merger talks. The combined companies would operate more than 5,000 stores in the U.S. that generate more than $200 billion in annual revenue.

That would mean more buying power for the Cincinnati, Ohio-based Kroger.

“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 consumers already 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 would make it hard for Kroger to close the deal quickly. But, eventually, he expects the company’s more considerable purchasing power to translate to lower prices at the cash register.

“We wouldn’t expect tomorrow's 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.”