Oct 13 (Reuters) – US grocery company Kroger Co. (KR.N) is in talks to merge with smaller rival Albertsons Companies Inc. (ACI.N) in a bond that would create a supermarket titan, people familiar with the matter said.
The merger of the nation no. 1 and 2 independent grocery stores, if reached, could give retailers an edge in negotiations with consumer product makers like Procter & Gamble (PG.N) and Unilever (ULVR.L) at a time of sharp price increases.
A deal could be announced as early as this week if the talks don’t fall apart, said the sources, who requested anonymity as the discussions 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 try to stem the impact of rising raw material costs on their margins.
Some critics noted that a supermarket merger would lessen competition among US supermarket chains and potentially lead to higher prices for US shoppers. A deal would create a combined company with a market valuation of around $47 billion, representing one of the biggest mergers in recent years in the retail space.
Neither Kroger nor Albertsons immediately responded to requests for comment. The news was first reported by Bloomberg.
Consultant Burt Flickinger, who owns stock in both 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. (WMT.N).
Groceries make up about 55% of Walmart’s annual sales. Walmart has traditionally used its influence to demand the lowest possible prices from packaged food and beverage companies, leaving rivals at a disadvantage in their own negotiations with suppliers.
Approximately 25% of all dollars spent on groceries in the United States are spent at Walmart, according to data provided by Euromonitor. Kroger and Albertsons have about 8% and 5% of the US grocery market, respectively, according to Euromonitor.
COMPETENT POWER
Amazon’s specter may also have contributed to merger talks. Michael Pachter, an analyst at Wedbush Securities, estimated that the online retailer has taken about $4 billion of market share from Kroger and Albertsons over the past two years, dwarf compared to an $800 billion grocery market. but a threat nonetheless. “Amazon scares the bejeezus out of mainstream retailers,” he said.
The Seattle-based tech company is betting that the contactless and cashierless payment systems it is adding to stores, including at its Whole Foods Market subsidiary, will win over long-term customers.
Albertsons shares rose 11% on Thursday afternoon, while Kroger shares fell 1.4%. Shares of UK online supermarket and tech group Ocado Group Plc (OCDO.L) they rose more than 10% in the latest London trade. Kroger is Ocado’s biggest customer.
Kroger houses supermarket chains such as Fred Meyer, Ralphs, and King Soopers. Boise, Idaho-based Albertsons includes the Safeway sign.
Narrow margins at independent U.S. supermarket chains have been squeezed by high costs and supply chain disruptions after a boom at the height of the pandemic.
Sarah Miller, executive director of the American Economic Liberties Project, an antitrust nonprofit, said the deal would “squeeze consumers already struggling to buy food.”
“This merger is a clear and dry case of monopoly power, and the enforcers 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.
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Reporting from Anirban Sen and Abigail Summerville in New York; Additional reporting by Siddarth Cavale, Jessica DiNapoli, and Arriana McLymore in New York, Jeffrey Dustin in San Francisco, and Aishwarya Venugopal in Bengaluru; Edited by Sriraj Kalluvila, Matthew Lewis, and Nick Zieminski
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