“These two firms can mix their skills and scale and improve their buying or procurement power relative to Amazon, Costco or Walmart,” Mr. Flickinger said. “You actually need the mixture to lower the operating costs and, at the identical time, give them more leverage to decisively lower prices to shoppers.”
While grocery stores rode high through the pandemic as homebound consumers stocked up on food, they’ve more recently faced pressure amid supply chain challenges and the rapidly increasing costs of food. Grocery chains must balance their relationships with consumer brands that sell products via their stores and shoppers who’re squeezed by inflation and looking out to lower your expenses, a formula for razor-thin profit margins.
The most recent Consumer Price Index, released on Thursday, showed that inflation remained stubbornly high over the 12 months through September, with food prices continuing to rise.
Still, mergers within the industry have a rocky track record. The 2 biggest food distribution firms, Sysco and US Food, called off their $3.5 billion deal in 2015 after the F.T.C. sued to dam the deal. That very same 12 months, the F.T.C. required Albertsons and Safeway to sell greater than 100 stores before their deal got clearance. The grocery store that bought those stores, Haggen, later filed for bankruptcy.
Regulators are more likely to scrutinize and require divestment of stores in cities and other areas where there is important overlap between Kroger and Albertsons, said an investment banker who shouldn’t be involved within the deal and who asked his name not be used. Key cities that the F.T.C. is probably going to take a look at include Chicago, Denver and Seattle, he said.
The possible deal had already raised flags to consumer protection groups by Thursday afternoon. The American Economic Liberties Project, a nonprofit that promotes antitrust laws, criticized the possible merger as a “bad deal for consumers, employees and communities.”
“A Kroger-Albertsons deal would squeeze consumers already struggling to afford food, crush employees fighting for fair wages and destroy independent, community stores,” Sarah Miller, the group’s executive director, said in a press release. “This merger is a cut-and-dry case of monopoly power, and enforcers should block it.”