Mega merger creates US grocery store large; Kroger buys Albertsons

Kroger, the largest supermarket chain in the United States by number of stores, has just announced the purchase of rival Albertsons, the second largest, for US$ 24.6 billion.

The merger, one of the biggest ever in American retail, is a reaction to the challenge posed by the reduction of margins in the face of fierce competition with giants such as Walmart, the country’s largest in terms of revenue, and Amazon, which has grown in food retail in last years.

The deal, however, could face resistance from regulators.

Consumer rights organizations have already expressed concern about the possible impact on commodity prices at a time of high inflation.

Kroger and Albertsons together operate about 5,000 stores, including pharmacies and gas stations. But the total revenue of both, of US$ 209 billion last year, is below the US$ 218 billion of Walmart.

Kroger CEO Rodney McCullen said the companies are complementary in their territorial coverage, and together they will gain scale to accelerate expansion.

Kroger is shelling out $34.10 a share, a premium of nearly 30% to yesterday’s closing price.

To gain regulatory approval, companies are willing to forgo businesses where operations overlap. This is particularly true on the West Coast.

After the announcement of the proposal, the shares of the two companies fell more than 7%. According to analysts, the reaction of investors indicates a certain skepticism in relation to the completion of the merger.

In an effort to overcome resistance, Kroger said the merger would bring an estimated $500 million in gains and that the cost savings will be passed on to consumers, who will have lower prices.

“There is no reason to allow the merger of two of the largest supermarket chains in the country – especially with soaring food prices,” Sarah Miller, director of the American Economic Liberties Project, said in a statement.

For analysts, Kroger and Albertsons need to convince the authorities that the union will bring benefits to consumers because in this way the chains will be more able to face the advance of large discount stores, including not only Walmart, but also the American one. Costco and European companies Aldi and Lidl, which have been gaining ground in the American market.

Walmart is the absolute leader in food sales, with a share of over 20% of total sales. Kroger comes in second and Albertsons in fourth. Costco is third.

Common market cap $15 billion, Albertsons owns the Safeway and Vons banners, among others. Kroger, on the other hand, has a market value of $30 billion and owns brands such as Fred Meyer and Ralphs.

Source: Brazil Journal