Kroger, Albertsons Execs Make Case For Merger, As FTC Continues Its Review

Executives at Kroger and Albertsons, the two largest supermarket chains in the U.S., are campaigning to bring the companies’ proposed $25 billion merger over the finish line, as the Federal Trade Commission (FTC) continues to evaluate the deal for competition concerns. Announced last October, the transaction would see Kroger acquire Albertsons to create a combined footprint of almost 5,000 stores.

Both Kroger and Albertsons are major players in beverage alcohol across wide swaths of the country. Kroger carries some 4,000 unique spirits SKUs, with significant variance in selection from market to market, according to local laws. Albertsons sells spirits in 1,200 locations, wine in 1,800 locations, and beer in 2,000 locations—and where all three beverage alcohol types are sold, beverage alcohol comprises about 10% of total store sales.

In recent remarks, Kroger CEO Rodney McMullen and Albertsons chief executive Vivek Sankaran characterized the merger as an opportunity to lower prices for consumers while improving the customer experience and expanding choices in store aisles. Kroger has pledged to invest $500 million to lower prices post-transaction, as well as $1.3 billion to enhance the customer experience.

“For our customers, it’s about offering lower prices and more choices. Together we will provide a wider, better selection of products customers need, want, and love,” said Sankaran. The two CEOs asserted that the combination will also expand opportunities for workers, with Kroger dedicating $1 billion to raise wages and benefits post-merger.

Critics of the deal, including the secretaries of state of seven states, who outlined their concerns in a letter to the FTC this week, contend that the enlarged business would hold too much sway in the grocery sector. “The merger would result in Kroger-Albertsons controlling nearly a quarter of the entire U.S. food retail market—a significant consolidation of the already limited competition within the market,” they stated. They argue that “Kroger-Albertsons will have no competitive incentive to bring down prices,” and that “Such a merger may also have implications for local suppliers, farmers, and small businesses that rely on a competitive grocery market.”

Kroger and Albertsons counter that while they anticipate divesting a certain number of stores as part of the regulatory review process—as many as 650 store divestitures have been floated—they “are committed to finding reliable operators for the divested stores.” The companies also stated, “We have seen claims we will lower prices by squeezing farmers. This is simply not accurate. Farmers are the backbone of our business.”

Meanwhile, Reuters reported last week that the FTC is scrutinizing the potential impact of the merger on smaller grocery chains, querying experts on how and whether those smaller operators could be pressured if the deal results in a squeeze on their suppliers, with Kroger and Albertsons able to negotiate better prices and access to products through their enhanced scale.

As the FTC review continues, Kroger CEO McMullen told The Oregonian this week that the merger partners have been pleased with the level of interest from potential acquirers of the stores to be divested—with Ahold Delhaize and Amazon/Whole Foods among those thought to be in the running—and that the transaction remains on track to close as scheduled by early next year.

Phil Markert, Albertsons Cos.’ director of liquor for Albertsons, Vons, and Pavilions, will be among the featured speakers at the 47th Annual Impact Marketing Seminar in New York on October 4, discussing “The New Consumer for Tomorrow’s Wine & Spirits Market: A Chain Retailer’s Perspective.”—Daniel Marsteller

Tagged : Albertsons, Kroger

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