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The Kroger-Albertsons merger: What could it mean for grocery prices?

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CNN Business

In a mega-deal that could have a huge impact on grocery shopping in America, Kroger and Albertsons announced plans to merge on Friday.

If approved by regulators, the nearly $25 billion deal would be one of the largest in U.S. retail history.

The proposed merger, which the companies expect to complete in 2024, will combine the fifth and tenth largest retailers in the country. The companies own dozens of chains, including Safeway, Vons, Harris Teeter and Fred Meyer, reaching a total of 85 million households.

Kroger (KR) and Albertsons, both of which employ mostly unionized workforces, want to merge to be more competitive against non-union giants such as Walmart (WMT), Amazon (AMZN) and Costco (COST). Grocery stores are also facing increasing pressure from the fast-growing German discount supermarket chain Aldi.

However, there is no guarantee that the deal will happen.

The merger will face intense scrutiny from the Federal Trade Commission and other regulators. Opponents, Sens. Bernie Sanders and Elizabeth Warren have already urged regulators to block the deal. The companies say they will divest hundreds of stores in areas where they conflict to gain regulatory approval.

Here’s how the mega merger could affect grocery shopping in America.

Prices at the grocery store are a major concern for shoppers right now.

Grocery prices rose 13% in September compared to last year, recording the fastest increase in decades.

The companies say they can use the $500 million in cost savings from the deal to lower prices for shoppers and tailor promotions and savings. They will also invest $1.3 billion in Albertsons, including lowering prices.

“Our expanded portfolio, along with more personalized promotions and benefits, will help customers save money and alleviate the inflationary pressures faced by shoppers across the country,” Rodney McMullen, Kroger CEO, said Friday.

Albertsons stores are more concentrated on the West Coast, while Kroger is dominant in the Midwest.

Analysts predict Albertsons has higher prices than Kroger and other grocery stores, and Kroger will try to lower Albertsons prices to be more competitive against discount chains like Aldi.

“This deal could provide some relief in food prices for consumers,” said Ken Fenyo, retail analyst at Coresight Research. With the arrival of Healdi, Lidl and other discount grocers, this puts Kroger in a position to push the market forward.”

But supermarket mergers can also lead to higher prices for shoppers.

A 2012 study published in the Journal of Economics and Management Strategy found that “mergers in the supermarket industry can lead to significant increases in consumer prices and therefore harm consumers.”

The study found that mergers in less concentrated markets were mostly associated with price drops.

Antitrust advocates say the merger will make competition harder and concentrate power among the largest chains, increasing prices.

“A Kroger-Alberton deal will squeeze out consumers who are already struggling to buy food,” said Sarah Miller, executive director of the American Project for Economic Freedoms, a policy group against concentrated economic power.

Kroger and Albertsons have been building their own specialty food brands in recent years as an alternative to the big brands.

For example, Kroger offers its own brands such as Private Selection and Simple Truth, while Albertsons has O Organics, Open Nature, and others.

The brands of the two companies achieved sales of 43 billion dollars in total last year.

This is an important strategy for these stores because selling their own brands is more profitable than national brands and helps keep the prices of big brands under control.

By merging, the companies plan to expand their brand selection and reduce production costs.

Grocery stores in the United States are in decline.

According to a report by Food & Water Watch, a consumer advocacy group last year, the number of U.S. grocers fell roughly 30% from 1993 to 2019.

Analysts say Kroger and Albertsons will close some of their overlapping stores, particularly in some heavily populated cities like Los Angeles and Chicago.

“There will undoubtedly be some closings if a merger continues,” said Neil Saunders, an analyst at GlobalData Retail. “Over time, the rate of closure may become more pronounced as the combined chains try to minimize repetition,” he said.

Lawyers fear the merger will hurt small markets.

Analysts and advocates also say a merger would make it harder for smaller grocers and parents to keep their businesses.

The National Grocery Association, which represents small retailers and wholesalers, said the merger would put smaller competitors at an “unfair disadvantage” and increase “anti-competitive buyer power over grocery suppliers”.

This would disproportionately damage cities and rural areas where independent shops are typically found.

“This deal will almost certainly put more rural towns and urban Black and Latino neighborhoods at risk of becoming ‘food deserts,'” said Stacy Mitchell, co-director of the Local Self Institute. Reliance, a research and advocacy organization that defies economic concentration.

The food industry in America has consolidated in recent years.

The top five grocery stores — Walmart, Kroger, Costco, Ahold Delhaize and Amazon — control about half of the market, according to UBS.

According to analysts’ forecasts, a Kroger-Albertsons merger will spark a new wave of mergers and acquisitions as companies try to keep up.

UBS retail analyst Michael Lasser said the proposed deal “accelerated the ongoing consolidation of the industry”.

Amazon has “aspirations to be bigger in space,” he said. “Storage clubs, hard discounters, strong [regional grocers] and special players will try to strengthen their position.”

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