US grocer Kroger in talks to merge with rival Albertsons – sources

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U.S. grocery company Kroger Co is in talks to merge with smaller rival Albertsons Companies Inc in a tie-up that would create a supermarket titan, people familiar with the matter have said.

The merger of the nation’s No. 1 and 2 standalone grocers, if achieved, could give retailers a head start in negotiations with consumer goods makers such as Procter & Gamble and Unilever at a time of strong increases of price.

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A deal could be announced as early as this week if the talks do not collapse, said the sources, who spoke on condition of anonymity because the talks are confidential.

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Major consumer products companies around the world have announced plans to raise prices at a faster pace as they seek to limit the impact of soaring raw material costs on their margins.

Some critics have noted that a supermarket merger would reduce competition among US grocery chains and potentially drive up prices for US shoppers. A deal would create a combined company with a market valuation of around $47 billion, which would represent one of the largest retail mergers in recent years.

Neither Kroger nor Albertsons immediately responded to requests for comment. The news was first reported by Bloomberg.

Consultant Burt Flickinger, who owns shares of Kroger and Albertsons, said a merger would give the two supermarket operators more buying power, making it easier for them to compete with Walmart Inc.

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Grocery products represent approximately 55% of Walmart’s annual sales. Walmart has traditionally used its clout to demand the lowest possible prices from packaged food and beverage companies, leaving rivals at a disadvantage in their own negotiations with suppliers.

About 25% of all dollars spent on groceries in the United States are spent at Walmart, according to data provided by Euromonitor. Kroger and Albertsons hold about 8% and 5% of the U.S. grocery market, respectively, according to Euromonitor.

COMPETITIVE POWER

The specter of Amazon may also have contributed to the merger talks. Michael Pachter, an analyst at Wedbush Securities, estimated the online retailer had taken about $4 billion in market share from Kroger and Albertsons over the past two years – small compared to an $800 billion grocery market. dollars, but a threat nonetheless. “Amazon scares off the bejeezus of conventional retailers,” he said.

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The Seattle-based tech company is betting the cashier and contactless payment systems it’s adding to stores, including at its subsidiary Whole Foods Market, will win it long-term customers.

Shares of Albertsons rose 11% on Thursday afternoon, while shares of Kroger slid 1.4%. Shares of British online supermarket and technology group Ocado Group Plc rose more than 10% at the end of trading in London. Kroger is Ocado’s biggest customer.

Kroger is home to supermarket chains such as Fred Meyer, Ralphs and King Soopers. Albertsons, based in Boise, Idaho, includes the Safeway banner.

The razor-thin margins of stand-alone U.S. supermarket chains have been squeezed by soaring costs and supply chain disruptions after a boom at the height of the pandemic.

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Sarah Miller, executive director of the American Economic Liberties Project, an anti-monopoly nonprofit, said the deal would « squeeze consumers who are already struggling to afford food. »

« This merger is a clear case of monopoly power, and enforcement officials should block it, » Miller said.

A deal could be reached as early as this week, Bloomberg reported, adding that no final decision has been made and talks could still be delayed or fail.

(Reporting by Anirban Sen and Abigail Summerville in New York; Additional reporting by Siddarth Cavale, Jessica DiNapoli and Arriana McLymore in New York, Jeffrey Dastin in San Francisco and Aishwarya Venugopal in Bengaluru; Editing by Sriraj Kalluvila, Matthew Lewis and Nick Zieminski)