Biggest US grocery chain Kroger in talks to buy rival Albertsons

US grocery chain Kroger is in talks to buy rival Albertsons in a deal that would bring together two of the country’s largest supermarkets and test the Biden administration’s antitrust policies.

According to people close to the talks, a deal could be announced as soon as this week after on-and-off discussions between the companies over the past several years.

A merger of Kroger, the largest grocer in the US with nearly 2,800 stores, and Albertsons, which has more than 2,200 stores, would create a dominant chain at a time when consumers face rising costs for essential goods.

Any deal would involve Kroger, which has a market value of $33bn, acquiring Albertsons, which hit a market capitalisation of $13.7bn following an 11 per cent surge in its share price after the talks were first reported by Bloomberg on Thursday.

Grocers have benefited from the cash crunch facing customers, as US inflation has hit a 40-year high and shoppers are forced to focus on essentials.

The combination would face significant pushback from US antitrust authorities, which have taken a tougher view under the current Democratic administration. However, grocers like Kroger and Albertsons are under increasing pressure from the likes of Amazon, Walmart and Costco.

Jonathan Kanter, antitrust chief at the US Department of Justice, and Lina Khan, chief of the Federal Trade Commission, have repeatedly said that they intend to challenge more mergers, especially ones that reduce consumer choice.

“There is no reason to allow two of the biggest supermarket chains in the country to merge — especially with food prices already soaring,” said Sarah Miller, Executive Director of the American Economic Liberties Project, a consumer group. “With 60 per cent of grocery sales concentrated among just five national chains, a Kroger-Albertons deal would squeeze consumers already struggling to afford food, crush workers fighting for fair wages, and destroy independent, community stores. This merger is a cut and dry case of monopoly power, and enforcers should block it.”

Albertsons, which is backed by private equity group Cerberus Capital, explored a tie up with Whole Foods in 2017 but walked away from a deal because of regulatory concerns and price. Whole Foods was bought by Amazon shortly after for $13.7bn.

Albertsons then attempted to merge with Rite Aid a year later but was also forced to call off the transaction after it failed to win support from the pharmacy chain’s shareholders.

The Boise, Idaho-based group, which includes supermarket chain Safeway, received a lukewarm reception to its initial public offering in June 2020. It was forced to price its shares at $16 each, below the $18 to $20 it had targeted. But changes to shopping habits during the pandemic have pushed its shares up more than 80 per cent since then.

Healthy sales volumes have also helped send Kroger shares up 14.3 per cent this year, compared to an almost 17 per cent decline in the S&P 500.

Kroger said in its second-quarter earnings that customers were increasingly buying more of its own brands.