Two of the nation’s biggest grocery stores announced plans to merge Friday. Kroger, with around 2,700 supermarkets in the United States, plans to buy Albertsons, which has about 2,200, for $24.6 billion.
“You combine that together, and that’s basically on par with Walmart’s brick-and-mortar footprint,” said Blake Droesch with Insider Intelligence.
Walmart would still be No. 1 in sales, but Droesch said Kroger would become a bigger competitor with more bargaining power over its suppliers. There are some not-so-obvious benefits too. Consolidating can improve a grocer’s credit rating, said Bobby Gibbs with management consulting firm Oliver Wyman.
“If you look at a lot of the largest conventional grocers, their credit ratings are not nearly as strong as some of the nontraditional food players.”
If Kroger gets bigger, it can get cheaper loans. More stores also means more people ordering from Kroger’s website and more ad revenue. But what does all this mean for our grocery bills? That’s unclear.
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Some studies suggest more consolidated food markets would bring higher prices, according to Ricky Volpe, assistant professor at California Polytechnic State University, San Luis Obispo. But those studies are many decades old.
“We know very little quantitatively about the impacts of mergers and acquisitions, specifically on food prices and how that affects consumers,” he said.
But with Sam’s Clubs and Costcos lurking in the background, the grocery industry is pretty cutthroat on prices, said Gibbs at Oliver Wyman.
“A lot of the more value-oriented players in the market have really created a lot of pressure for some of the larger grocers to keep their prices down from where they might be otherwise,” Gibbs said.
Competition and prices are among the things the Federal Trade Commission will be looking at as it decides whether to approve the deal.