US grocer Kroger in talks to merge with rival Albertsons sources

Oct 13 (Reuters) – US grocery company Kroger Co (KR.N) is in talks of a merger with smaller rival Albertsons Companies Inc (ACI.N) that would create a supermarket titan, with the matter said familiar people.

The merger of the nation’s #1 and #2 retailers, if achieved, could give retailers a head start in negotiations with consumer goods makers like Procter & Gamble (PG.N) and Unilever (ULVR.L) during a period of sharp price increases.

A deal could be announced as early as this week if the talks don’t fall apart, said the sources, who asked not to be identified as the talks are confidential.

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Major consumer goods companies around the world have announced plans to raise prices more quickly to limit the impact of rising commodity costs on their margins.

Some critics noted that a supermarket merger would reduce competition between US grocery chains and potentially result in higher prices for American shoppers. A deal would create a combined company with a market valuation of about $47 billion, making it one of the largest retail mergers in recent years.

Neither Kroger nor the Albertsons immediately responded to requests for comment. The news was first reported by Bloomberg.

Advisor Burt Flickinger, who owns shares in both Kroger and Albertsons, said a merger would give the two supermarket operators more purchasing power and make it easier for them to compete with Walmart Inc (WMT.N).

Grocery accounts for about 55% of Walmart’s annual sales. Walmart has traditionally used its influence to demand the lowest possible prices from packaged food and beverage manufacturers, putting competitors at a disadvantage in their own negotiations with suppliers.

According to Euromonitor data, about 25% of all dollars spent on groceries in the United States is spent at Walmart. According to Euromonitor, Kroger and Albertsons have around 8% and 5% of the US grocery market, respectively.

COMPETITIVE POWER

Amazon’s viewer is also likely to have contributed to the merger talks. Michael Pachter, an analyst at Wedbush Securities, estimates that online retailer Kroger and Albertsons have taken about $4 billion in market share over the past two years — small compared to an $800 billion grocery market, but still a threat. “Amazon scares conventional retailers,” he said.

The Seattle-based tech company is betting that the pointless and contactless payment systems it is adding in stores, including at its subsidiary Whole Foods Market, will win it long-term customers.

Shares in Albertsons rose 11% Thursday afternoon, while shares in Kroger fell 1.4%. Shares in British online supermarket and technology conglomerate Ocado Group Plc (OCDO.L) are up over 10% in late London trading. Kroger is Ocado’s largest customer.

Kroger is home to supermarket chains like Fred Meyer, Ralphs and King Soopers. Albertsons of Boise, Idaho includes the Safeway banner.

The razor-thin margins of standalone US supermarket chains have been squeezed by rising costs and supply chain disruptions after a boom at the height of the pandemic.

Sarah Miller, executive director of the American Economic Liberties Project, an anti-monopoly nonprofit, said the deal would “squeeze consumers who are already struggling to afford groceries.”

“This merger is a clear case of monopoly power and the enforcers should block it,” Miller said.

An agreement could be reached as early as this week, Bloomberg reported, adding that no final decision has been made and talks could be delayed or stalled.

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Reporting by Anirban Sen and Abigail Summerville in New York; Additional reporting from Siddarth Cavale, Jessica DiNapoli and Arriana McLymore in New York, Jeffrey Dastin in San Francisco and Aishwarya Venugopal in Bengaluru; Edited by Sriraj Kalluvila, Matthew Lewis and Nick Zieminski

Our standards: The Thomson Reuters Trust Principles.

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