Article

Grocery Industry Reacts to Kroger and Albertsons Merger

By
Tim Denman
October 18, 2022

At A Glance

  • Kroger and Albertsons sent shockwaves through the grocery industry late last week when they announced that Kroger would be merging with one of its greatest rivals
  • he deal, reported to be worth $24.6 billion, will allow Kroger and Albertsons to leverage their massive assets to compete with perennial powerhouse Walmart for grocery supremacy
  • Under the terms of the merger agreement, Kroger will acquire all of the outstanding shares of Albertsons Companies for an estimated total consideration of $34.10 per share
  • Together, Albertsons and Kroger currently operate a total of 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies, and 2,015 fuel centers
  • This article brings a selection of thought leader responses to the merger reported in the news and on social media

Kroger and Albertsons sent shockwaves through the grocery industry late last week when they announced that Kroger would be merging with one of its greatest rivals. The deal, reported to be worth $24.6 billion, will allow Kroger and Albertsons to leverage their massive assets to compete with perennial powerhouse Walmart for grocery supremacy.

 In a release announcing the news Kroger reports that “through a family of well-known and trusted supermarket banners, this combination will expand customer reach and improve proximity to deliver fresh and affordable food to approximately 85 million households with a premier omnichannel experience.”

Under the terms of the merger agreement, Kroger will acquire all of the outstanding shares of Albertsons Companies for an estimated total consideration of $34.10 per share, implying a total enterprise value of approximately $24.6 billion, including the assumption of approximately $4.7 billion of net debt. The purchase price represents a premium of approximately 32.8% to the closing price of Albertsons stock on October 12, and 29.7% to the 30-day volume-weighted average price. 

Together, Albertsons and Kroger currently employ more than 710,000 associates and operate a total of 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies, and 2,015 fuel centers.

"We have been on a transformational journey to evolve Albertsons Cos. into a modern and efficient omnichannel food and drug retailer focused on building deep and lasting relationships with our customers and communities,” said Vivek Sankaran, CEO of Albertsons Cos. “I am proud of what our 290,000 associates have accomplished, delivering top-tier performance while furthering our purpose to bring people together around the joys of food and to inspire well-being."

Kroger plans to invest in reducing prices for customers and expects to reinvest approximately half a billion dollars of cost savings from synergies to reduce prices for customers. The price relief should be well received by consumers as grocery is one of the hardest hit by the ongoing inflation. In fact, according to Grocery Doppio’s “State of Digital Grocery Performance Scorecard Q3 2022,” The average price per item in a digital basket has increased 21% year-over-year, and 73% of shoppers have moved to lower-priced brands in response to increasing prices.

An incremental $1.3 billion will also be invested into Albertsons Cos. stores to enhance the customer experience. Kroger plans to build on its recent investments in associate wages, training, and benefits.

"We are bringing together two purpose-driven organizations to deliver superior value to customers, associates, communities, and shareholders," said Rodney McMullen, Kroger chairman and chief executive officer, who will continue serving as Chairman and CEO of the combined company. "Albertsons Cos. brings a complementary footprint and operates in several parts of the country with very few or no Kroger stores. This merger advances our commitment to building a more equitable and sustainable food system by expanding our footprint into new geographies to serve more of America with fresh and affordable food and accelerates our position as a more compelling alternative to larger and non-union competitors.”

Rumors have been circulating for months on a potential Albertsons sale. The announcement that Kroger and Albertsons have agreed to join forces, while landscape shifting, did not come as a total surprise to the industry. Questions abound on what this deal means for the state of the grocery industry: will it receive governmental approval, how many stores will be shuttered, how will the new mega-grocer best leverage its assets, what will happen to employees, etc.?

Answers to those questions will become clearer as details and plans are released to the public over the coming months.

Below is a selection of thought leader responses to the merger reported in the news and on social media. Feel free to reach out with your thoughts on the impact the deal will have on the industry going forward. 

  • "At a time when food prices are soaring as a result of corporate greed, it would be an absolute disaster to allow Kroger, the 2nd largest grocery store in America, to merge with Albertsons, the 4th largest grocery store in America. The Biden Administration must reject this deal.” — Bernie Sanders, US senator, Vermont
  • “Ignore 90% of what you hear about antitrust - the FTC has a specific and fairly well-understood method of looking at grocery acquisitions that will be familiar to the team making this deal…our friends at Instacart might have cause to be a little nervous - Kroger has a very different approach to eCommerce than Albertsons did.” — Bryan Gildenberg, SVP, Commerce, Omnicom Commerce Group
  • “You might say that the deal won’t pass anti-trust muster. You might be right but this deal has a lot of arguments in its favor. Walmart is aggressively building its direct-to-consumer grocery business, using its massive scale in grocery and other businesses to gain advantage. Amazon acquired Whole Foods and is investing enormously in grocery. Success in grocery is mission-critical for all these companies. It would be folly to say that Kroger and Albertsons will dominate the market if they merge, Walmart and Amazon will use everything they can to dominate the grocery business.” — Richard Kestenbaum, Contributor, Forbes
  • “Some investors are already skeptical, if the stocks’ performance Friday is any indication. (Both Kroger and Albertsons were down midday.) That’s because Wall Street has already seen a spree of grocer acquisitions — including some by Kroger and Albertsons — but no meaningful changes in profit margins. Costs have grown for everything from transportation to packaging, too.” — Melissa Repko, Retail & Consumer Reporter, CNBC
  • “The most important benefit from the deal might be data. The merger will create a huge data set of national consumer behavior against which Kroger can apply its market-leading expertise in data analytics, personalization, and retail media. Kroger could see a significant increase in data monetization which it can re-invest in other parts of the business, such as e-commerce.” — Ken Fenyo, President, Research & Advisory, Coresight Research
  • “Surreal to be a part of this historic day for Kroger. This merger will be transformative for our associates, customers, and shareholders. We look forward to welcoming the Albertsons family and bringing a premier omnichannel retail experience to all of America.” — Rob Quast, Director of Investor Relations, Kroger
  • “As an Albertsons alumnus and someone who has lived through supermarket acquisitions in their career (I think four so far), my first thought was "Is the right leadership in place?" I agree with all the possible advantages…but wonder how many "look good on paper" and won't be realized. It seems to me merged retailers are often assumed to perform better than the sum of the parts. I think long-term they often perform worse.” — John Giaquinto, Senior Director, Customer Loyalty & Digital Marketing, Hannaford Supermarkets
  • “K + A sitting in a tree. K-I-S-S-I-N-G. First comes scale. Then comes leverage…” — Tim Carr, Head of Oracle Advertising Product Marketing
  • “Digital growth in grocery is rapid, unprofitable, and here to stay. It's forcing grocers to re-think their business, and digital transformation isn't easy or cheap. This merger will allow them to make investments that few can afford and navigate this unpredictable macroeconomic environment. Things will get even more challenging for regional grocers, and I expect further consolidation in the industry.” – Gaurav Pant, Chief Insights Officer, Incisiv