The Kroger-Albertsons Merger Could Be a Disaster for Shoppers, Experts Warn
The move might drive up already high prices and hurt local chains.
Kroger and Albertsons, two of the biggest names in the grocery space, are pursuing a major merger. The deal has progressed since it was first announced in Oct. 2022, according to The New York Times, but it's still far from a sure thing. In fact, Washington Analysis, a research firm focused on regulatory policies, currently predicts a 35 percent chance of a successful close. Kroger and Albertsons have touted the deal as a beneficial one for everyone involved—including customers—but experts aren't so sure. Read on to find out why some are saying the Kroger-Albertsons merger could be a disaster for shoppers.
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There is concern that the grocery giant would have to close stores.
In an Oct. 14, 2022 press release, the two companies announced the merger agreement, where Kroger would purchase Albertsons—the parent company of 24 chains including Acme, Vons, Safeway, Jewel-Osco, and Shaw's—for $24.6 billion. Kroger and Albertsons are already the two largest grocery chains in the U.S., according to The New York Times, but together, they'd be more in line with Walmart.
The deal requires Federal Trade Commission (FTC) approval, and the companies will likely have to close stores to secure it, J.P. Morgan analyst Ken Goldman told PYMNTS in October. This would seriously affect the West Coast, where both Albertsons and Kroger have a commanding presence, but shoppers nationwide could feel the effects.
In a statement to Best Life, a representative for Kroger denied that there would be any closures.
"Kroger will not close any stores, distribution centers or manufacturing facilities as a result of this merger, including stores that may need to be divested to obtain regulatory approval," the spokesperson said. "We will work with the Federal Trade Commission to develop a thoughtful divesture plan—either through divesting stores to strong buyers or by creating a standalone independent company. Kroger intends to position any store that is not part of the combined company for success going forward."
Prices could go up if the merger is approved.
With inflation raging on, it's painful to fathom paying even more at the grocery store right now, but experts warn this may happen when Albertsons and Kroger join forces. The merger itself might not go through until 2024, per The New York Times, but if it does, there could be a trickle-down effect at the consumer level.
Michael Needler Jr., president and CEO of Fresh Encounter, a chain of 98 grocery stores based in Findlay, Ohio, spoke with The New York Times about his concerns. He worries the merger could drive up prices and make it even harder for smaller chains to stock their shelves. According to Needler, if the bigger retailers are demanding goods, they're more likely to get them.
"When the large power buyers demand full orders, on time and at the lowest cost, it effectively causes the water-bed effect," he told the outlet. "They push down, and the consumer packaged goods companies have no option but to supply them at their demands, leaving rural stores with higher costs and less availability to products."
A 2008 study published by Orley C. Ashenfelter, an economist at Princeton, and Daniel S. Hosken, of the FTC, appears to confirm this. The pair studies five mergers, four of which led to price increases between 3 and 7 percent. However, The New York Times points out that there may have been "dynamic" changes since that time, and the authors said their study is not representative of all deals.
In the statement to Best Life, the Kroger representative said, "The grocery industry is constantly evolving and fiercely competitive, and we do not expect this merger to have any impact on the strong independent grocery stores that are critical to the industry and vital to communities across the country."
Unions are fighting back.
According to The New York Times, labor unions take issue with the merger too, as store closures may be required to comply with anti-trust laws (those that prevent monopolies), and that would result in job losses. Kroger would potentially divest 650 stores to get the required clearance, The Wall Street Journal reported. To so so, they could find a third-party buyer to purchase the stores or create a separate company that would "create a new, agile competitor" with up to 375 stores.
This is what a Kroger spokesperson told Best Life the company plans to do, but there are still fears of closures, and employees of both companies feel they face an uncertain future.
"Is my store going to be one that closes? Is my livelihood going to go away?" Kyong Barry, front-end manager at a Safeway in Auburn, Washington, said in conversation with The New York Times. "This is a very scary time for us."
Both Albertsons and Kroger say that the merger is a positive move.
The grocery giants are denying that moves are being made to help investors turn a profit, per The New York Times.
In the statement to Best Life, the Kroger spokesperson said, "Our merger with Albertsons provides meaningful, measurable benefits to America's consumers, associates of both companies, and the communities we serve. As we have in past mergers, we will hold ourselves accountable to our associate and customer commitments, including lowering prices starting on day one post-close. We will also continue to invest in our associates by investing an additional $1 billion to raise wages and our comprehensive, industry-leading benefits."
Both Kroger and Albertsons also publicly stated that by becoming a bigger operation, they can lower prices and help customers save. But some fear that the real winners will be private equity firm Cerberus and select investors, The New York Times points out, as they've already made money and hope to make billions more.
Best Life also reached out to Albertsons for comment, but has yet to hear back.