The grocery giant Kroger announced plans on Friday to acquire Albertsons in a $24.6 billion deal that could reshape the supermarket landscape in the United States. If it is approved by officials, the deal would unite two of the country’s largest supermarket chains to create a corporate behemoth that collectively generates $209 billion in revenue a year and operates nearly 5,000 stores.
The acquisition, aimed in part to take on Walmart, comes as record inflation continues to squeeze people’s wallets and as regulators try to rein in the power of giant corporations. That leaves a number of questions about the potentially industry-shifting deal. Here are answers to a few of them.
Why are Kroger and Albertsons merging?
Both retailers want to get bigger to battle against the likes of Walmart, which is, by revenue, the largest grocer in the United States. But both retailers are facing new challenges as they grapple with rising inflation and prolonged supply chain delays. While Kroger’s most recent financial results were strong, Albertsons stock has fallen about 10 percent over the last year.
Kroger, which was founded in 1883, operates 2,750 grocery stores across the United States from its Cincinnati headquarters, and it has a market capitalization of about $32 billion. Its brands include Ralphs, Dillons and Harris Teeter.
Albertsons, based in Boise, Idaho, and founded in 1939, runs 2,200 supermarkets under names like Albertsons, Safeway and Vons. It has a market capitalization of roughly $15 billion.
Together, the grocers said on Friday, they will be able to save millions in operating costs and have stronger bargaining power with suppliers. Analysts said total cost savings, which the retailers said could top $1 billion, was likely a driver for the deal.
What will this deal do for food prices?
Kroger and Albertsons argue that their increased size and bargaining power will help them reduce prices, and that the savings can then be passed on to their customers. But lawmakers, regulators and consumer advocates often worry that companies will simply redirect any increase in profit to shareholders.
A 2008 study conducted by Orley C. Ashenfelter, an economist at Princeton, and Daniel S. Hosken of the Federal Trade Commission, found that in four of the five mergers they evaluated, prices appeared to have increased between 3 and 7 percent. The authors cautioned that the study was not necessarily a reflection of the impact of all deals. It is unclear whether the dynamics have changed in the years since.
But any increase in prices now could have a painful impact, as food prices in general continue to shoot up. The cost of food across the United States last month rose 11 percent from the year before, according to the Bureau of Labor Statistics.
The companies for their part suggested on Friday that cost savings might not be the same everywhere.
“It is market-by-market in terms of what we feel like we need to invest to be able to get pricing where we feel comfortable,” Rodney McMullen, Kroger’s chief executive, said in an analyst call.
What will the political reaction be?
Likely hot, given the focus on inflation, food prices and corporate consolidation — all right before the midterm elections. Senator Bernie Sanders, independent of Vermont, called the deal an “absolute disaster.”
The top Republican on a Senate antitrust subcommittee, Mike Lee of Utah, said in a statement on Friday that he would do everything in his power to “protect consumers from anticompetitive mergers that could further exacerbate the financial strain we already feel in the grocery store checkout aisle.”
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A White House official said the White House did not comment on “specific transactions that could be subject to review by federal agencies.” Peter Kaplan, a spokesman for the Federal Trade Commission, declined to comment.
What do the companies plan to do to appease regulators?
To address likely concerns from regulators that the two grocers will have too much overlap in certain areas of the country, particularly on the West Coast, Kroger and Albertsons said they planned to sell stores to competitors. They said they would also consider spinning off up to 375 stores into a separate, stand-alone company, if needed.
Analysts on Friday, however, pushed Kroger executives over whether that plan was sufficient, and they questioned whether they might be required to part with more stores.
Regardless, legal experts said it might be difficult for Kroger and Albertsons to make a case that they can foster competition while they simultaneously grow to better take on Walmart.
“The argument kind of says we’re going to give up on a lot of competition and there are only going to be a couple of big players who effectively compete for most consumers,” said Daniel Rubinfeld, a law professor at New York University who has reviewed mergers.
Investors do not seem optimistic about the companies’ chances of a successful merger. Shares of Kroger ended trading on Friday down more than 7 percent. Shares of Albertsons dropped more than 8 percent.
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What will regulators be scrutinizing?
Through mergers over the past few decades, the grocery industry has consolidated in big ways, and many have worried that too much power to set prices rests in the hands of too few corporations.
Kroger and Albertsons have been among the most active acquirers in recent years, including through an $8 billion deal for Fred Meyer (Kroger in 1998), a $2.5 billion purchase of Harris Teeter (Kroger in 2013) and a $9 billion deal for Safeway (Albertsons in 2015).
The F.T.C will most likely look at what claims the chains made about those earlier deals — and whether they have followed through on them. It will also look intently at whether Kroger and Albertsons can leave room for a viable competitor in markets in which they overlap by selling off stores.
The track record on such efforts is rocky. Smaller competitors do not always have the means to expand into those markets, and the companies selling those stores may not truly want a new viable competitor. In 2014, Haggen, a retailer in Bellingham, Wash., bought more than 100 stores that Albertsons had sold to win approval for its merger with Safeway.
A year later, Haggen filed for bankruptcy and blamed Albertsons for the breakdown of its business. (Albertsons later bought back 33 of those stores from the bankrupt company.)
What happens now?
The boards of both companies unanimously approved the deal. So what remains is regulatory approval.
It is unclear if the F.T.C. or another agency will try to stop the deal. But in an attempt to do so, a regulator can sue to block the merger, forcing companies to decide whether they want to pursue the long and costly process of a trial to prove it is better for them, their shareholders and their customers to combine. Sometimes, they walk away to avoid that hassle.
The F.T.C. has directly — or indirectly — blocked a number of retail deals. The two biggest food distribution companies, Sysco and US Foods, called off their $3.5 billion deal in 2015 after a federal judge had ruled in favor of the F.T.C’s decision to block it. That same year, the F.T.C. blocked a second attempt by Office Depot and Staples to merge. Rite Aid and Walgreens walked away from their $5 billion deal in 2017 before the F.T.C. had a chance to officially weigh in.
Kroger will pay Albertsons $600 million if the deal falls apart over antitrust issues, according to the deal’s terms.
Reporting was contributed by Michael D. Shear, David McCabe, Julie Creswell and Jordyn Holman.
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