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M&A activity: Kroger and Albertsons

kroger albertsons merger

Many in the greater food industry are waiting to see what happens with the proposed merger of Kroger Company BB #:100073 and Albertsons Companies, Inc. BB #:193326

“Of course, the elephant in the room right now is the proposed Kroger-Albertsons merger,” says Michael Erdman, president of the Howard Sheri Corporation in Deerfield, IL, an M&A intermediary. The proposed merger, valued at $24.6 billion, was announced in October 2022.

“If the massive deal, or some form of it, is approved by the Federal Trade Commission (FTC) and ultimately closes, I would expect only one group to significantly benefit—the companies’ respective shareholders.”

Erdman believes the merger, of the two largest U.S. supermarket chains, would cause pain for many segments of the domestic fresh produce supply chain and beyond, albeit with some regions hit harder than others.

“A deal would mean one less major food buyer, leaving the ‘new’ Kroger with increased power over grower prices and terms.

“Consumers cannot reasonably expect lower prices for fruit and vegetables to result. With one less major retail competitor, the merged business could in some cases raise retail food prices,” he warns.

All of this likely means belt-tightening by growers, shippers, processors, and others in the industry, Erdman continues. “If there ever were a case for a (proposed) market participant being too big, in my opinion, this would be it.”

The whys and wherefores

The two companies argue that the deal is necessary for them to compete with Costco, Amazon, and Walmart. But, Erdman says, “That’s likely of little consolation to the rest of the supply chain.”

Several industry associations, including Western Growers Association, California Fresh Fruit Association, and Colorado Fruit and Vegetable Growers Association have conveyed their opposition to the merger.

Workers at the two companies’ respective stores have also been asking the FTC to block the deal, with the United Food and Commercial Workers International Union leading protests in April.

In addition, a campaign called “Stop the Merger” consists of more than 100 organizations that have come out against the combination.

Most industry observers believe the merger, if it happens, will lead to the divestiture of a significant number—400 to 500 according to many estimates—of the two grocers’ combined total of nearly 5,000 stores in 48 states, due to anti-trust concerns.

This would especially be true in areas where both companies have a large presence, including Seattle, Portland, Denver, Los Angeles, and Phoenix.

John Ross, CEO of Chicago-based IGA (Independent Grocers Alliance) believes the merger is more about retail media networks than the ability to negotiate better pricing.

According to May guest column in the Shelby Report, Ross says retail media networks are predicted to generate $45 billion in U.S. advertising dollars in 2023, and the merger of Kroger and Albertsons would give the combined group considerable clout with both advertisers and consumers.

Only time will tell.

This is an excerpt from the cover story in the July/August 2023 issue of Produce Blueprints Magazine. Click here to read the whole issue.