Rival grocery stores Kroger and Albertsons revealed their plans to collaborate on Friday.
According to the firms, a $24.6 billion agreement saw Kroger agree to buy Albertsons for $34.10 per share. After soaring News that a transaction was closed, Albertsons’ shares closed Thursday at $28.63.
After Walmart, Kroger is the second-largest supermarket chain in the U.S., followed by Albertsons and Costco. Albertsons and Kroger put Walmart in a closer second place when combined.
The transaction was agreed upon by the boards of both firms in unanimity; regulatory approval is still required. The collaboration occurs at a trying time for the supermarket sector. As consumers adopt innovative replenishing refrigerators, supermarkets have been scrambling to keep up.
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Inflation has also had a significant impact on supermarkets. According to the most current Bureau of Labor Statistics data, food costs have increased 11.2% from a year ago. To remain competitive, businesses have had to decide when to pass on rising expenses to customers and when to absorb them.
The grocery market is very splintered. Privately owned regional supermarket chains like H-E-B in Texas and Publix in Florida continue to be dominant forces with fervent customer devotion. Customers have also been drawn to relatively new businesses like discounters Aldi and Lidl and Amazon’s Amazon Fresh.
Additionally, some Americans store food in warehouse clubs like Costco, Sam’s Club, which Walmart owns, and B.J.
Each Kroger and Albertsons shop has a different banner featuring names that the owners have accumulated over time. Fred Meyer, Ralphs, and King Soopers are among Kroger’s and Albertsons’ brand names, while Safeway, Acme, and Tom Thumb are theirs. Over 700,000 people are employed by Kroger, Albertsons, and their combined network of about 5,000 stores.
According to market analyst Numerator, Kroger held 9.9% of the U.S. grocery market in the year that ended June 30. 5.7% was Albertsons’ stake. Albertsons, Ahold-Delhaize, Publix, Sam’s Club, and Target are the following three significant competitors.
In addition to the offline retailers Fresh Direct and Stop & Shop, Ahold Delhaize also operates under the banners of Food Lion and Stop & Shop.
Kroger and Albertsons would require regulatory approval for their alliance. Eleanor Fox, a New York University professor specializing in antitrust and competition policy, explained that regulators would consider the
firms’ areas of dominance and determine if they would have too much power if united. She added that if the two grocers are the top two in many markets, a merger would be less likely to be authorized.
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There is substantial market overlap between several companies, including Southern California, Colorado, Seattle, and portions of the Midwest and Texas. Morgan Stanley’s Simeon Gutman, a retail analyst, stated in a research note on Thursday. There is little overlap in other regions, such as the Northeast and Southeast.
In a news release announcing the agreement, Kroger CEO Rodney McMullen stated that Albertsons Cos. “brings a complementing footprint and operates in some portions of the country with very few or no Kroger stores.”
According to Gutman of Morgan Stanley, regulators will probably take their time reviewing the merger, and it might even necessitate shop divestitures.
Regarding the deal’s potential financial gains, Gutman also issued a warning. He claimed that traditionally, the supermarket industry has not benefited from consolidation through better profitability. The initiative, he claimed, might be at a turning point where a sizable merger might also increase margins.
Final Lines
On Friday, grocery stores Kroger and Albertsons said they would work together. The companies said that Kroger had agreed to buy Albertsons for $34.10 per share in a deal worth $24.6 billion. Shares of Albertsons ended Thursday at $28.63. They had gone up after News that an agreement was closed.
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