Grocery giant Kroger has pledged to slash prices at Albertsons stores by $1 billion following a proposed takeover of rival chain Albertsons, but Wall Street is increasingly skeptical the deal will win government approval as food inflation continues to rattle U.S. politics.
Kroger is upping the ante on the $25 billion megadeal after promising to cut prices by $500 million at all Albertsons stores, a concession aimed at assuaging antitrust concerns that the tie-up could create a monopoly and lead to higher prices for shoppers.
CFRA analyst Arun Sundaram said the acquisition is an attempt to give Kroger an edge over Walmart, which has been gaining market share by offering grocery prices about 25% lower than traditional supermarkets.
Still, food prices remain a top concern for politicians: Though inflation is cooling (U.S. inflation rose 2.9% year-on-year last month, lower than expected), food prices are still 21% higher than when Biden took office three years ago.
“this [merger] “What’s happening now is really going away,” Ken Mahoney, CEO of Mahoney Asset Management, told the Post. “It couldn’t have come at a worse time. It might have worked a few years ago.”
This week, Vice President Kamala Harris vowed to fight for a federal ban on food price gouging if elected president.
Former President Donald Trump called Harris’ food pricing plan “communist-style price controls,” arguing that bans on price gouging would exacerbate inflation.
Mahoney said the merger comes at a time when consumer sentiment is down, even as Kroger tries to lower prices, support employees and even close some stores.
“This will be useful [politicians] “These rallies will feature these companies by name and demonstrate how they are protecting consumers,” Mahoney told The Post. “The mantra will be: ‘Don’t merge.'”
A Kroger spokesman said the company has continued to invest in customer prices, employee wages and store experiences since the merger was announced two years ago.
Washington state Attorney General Bob Ferguson filed the first lawsuit challenging the deal in January, arguing that the acquisition would create a monopoly.
Colorado Attorney General Phil Weiser followed suit in February, and his lawsuit led to a pause on the merger last month pending a ruling from a Colorado district court. The trial is scheduled to begin on September 30.
The Federal Trade Commission is also challenging the merger, and Mahoney said it would be easy for the FTC to kill the merger and use the breakup to prove its strength.
The grocery chains first revealed plans for the merger in October 2022, which is expected to create more than 4,000 stores.
If the lawsuit is successful and blocks the merger, Kroger stands to lose big: The Cincinnati-based company has spent more than $800 million on merger-related costs, including legal and consulting fees, according to Bloomberg.
If the grocery chain is forced to back out of the merger, it could face millions of dollars in additional costs.
Albertsons is not Kroger’s first major acquisition.
The company bought Roundy’s Supermarkets in 2015 and has since spent more than $100 million to slash prices, resulting in a roughly 1% loss in gross margins over the past five years. According to a Bloomberg report:.
The company also spent $125 million to slash prices after buying Harris Teeter in 2014, but profit margins fell 2% over the seven years, the report said.
