Kroger to acquire Albertsons Cos. for nearly $25B
When it comes to “Fresh for Everyone,” Kroger is poised to significantly extend its reach. The Cincinnati-based supermarket chain entered a definitive agreement with Albertsons Cos., Oct. 14, to purchase the Boise, Idaho-based competitor for approximately $24.6 billion.
The merger will expand customer reach and improve proximity to deliver fresh and affordable food to approximately 85 million households with a premier omnichannel experience, according to a release.
Together, Albertsons and Kroger currently employ more than 710,000 associates and operate a total of 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies and 2,015 fuel centers. The combination creates a "premier seamless ecosystem" across 48 states and the District of Columbia, providing customers with a "best-in-class shopping experience" across both stores and digital channels, said the release.
Amid a climate of rising food inflation, Kroger said its “long track record of lowering prices” in combination with efficiencies gained from the merger, will help the company to lower prices for customers. Kroger said it expects to reinvest approximately half a billion dollars of cost savings from synergies to reduce prices for customers, as well as invest an incremental $1.3 billion into Albertsons stores to enhance the customer experience.
"We are bringing together two purpose-driven organizations to deliver superior value to customers, associates, communities and shareholders," said Rodney McMullen, Kroger chairman and CEO, who will continue serving as chairman and CEO of the combined company, in the release. "Albertsons Cos. brings a complementary footprint and operates in several parts of the country with very few or no Kroger stores. This merger advances our commitment to build a more equitable and sustainable food system by expanding our footprint into new geographies to serve more of America with fresh and affordable food and accelerates our position as a more compelling alternative to larger and non-union competitors.
“As a combined entity, we will be better positioned to advance Kroger's successful go-to-market strategy by providing an incredible seamless shopping experience, expanding Our Brands portfolio, and delivering personalized value and savings,” McMullen continued. “We'll also be able to further enhance technology and innovation, promote healthier lifestyles, extend our health care and pharmacy network and grow our alternative profit businesses. We believe this transaction will lead to faster and more profitable growth and generate greater returns for our shareholders."
Albertsons agrees the merger will result in greater access to fresh food across the country.
"At Albertsons Cos., we are guided by an ambition to create customers for life,” said Vivek Sankaran, CEO of Albertsons. “Together with Kroger, our combined iconic banners will be able to provide customers with even more value and greater access to fresh food and essential pharmacy services. Given the similarities in the culture and values at Kroger and Albertsons Cos., I am confident that the combination will also have a positive impact on our associates and the communities we are proud to serve. We look forward to working together with Kroger to capture the compelling opportunities ahead."
The transaction is expected to close in early 2024, subject to the receipt of required regulatory clearance and other customary closing conditions, including receipt of clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, according to the release.
What does the merger mean for the fresh produce industry?
While he says it may be premature to speculate on the full impact a “merger of this magnitude” will have on the produce industry, Bruce Peterson — a former Walmart produce executive and current president of Arkansas-based Peterson Insights Inc. — doesn’t expect change overnight.
“Initially, a merger of this size will come under significant scrutiny from the SEC and other regulatory agencies. So, it will be interesting to see what the new company will look like,” Peterson told The Packer just prior to the merger announcement.
The potential impact to produce, says Peterson, could be in these areas:
“First, how ‘centralized’ will decisions be orchestrated? They may have each entity operate as individual divisions. But the questions will surround receiving standards, product specifications, payment terms, slotting allowances, systems requirements, etc.,” said Peterson. “And then, how will pre-existing relationships be viewed? For some suppliers, it may be a bonus. For others, it may impact their revenue in a negative way.
“Short term — 12 to 18 months — I think it will be ‘business as usual.’ But depending upon how the new company is structured, it could have a very significant impact on a given supplier — both positively or negatively,” Peterson continued. “Much has to be determined before we have a clear sense of the impact to the industry.”
Accelerating Kroger's ‘leading with fresh’
Kroger says the transaction is expected to advance its strategy of leading with fresh and accelerate its digital and omnichannel presence. Together, Kroger and Albertsons will have an expanded network of stores and distribution centers, as well as a broader supplier base, which Kroger anticipates will help it to deliver fresh products from field to table to more customers more quickly.
Sustainability initiatives
Both companies say they have ambitious sustainability programs and a range of initiatives focused on responsible corporate stewardship, including those focused on increasing workforce diversity and fighting food insecurity.
By joining forces, say the companies, Kroger can accelerate progress on its Zero Hunger program and both will be “better positioned to advance a comprehensive ESG strategy focused on Kroger and Albertsons Cos.' shared mission to support the communities they serve and pursue a more sustainable future.”
