A proposed merger between grocery giants Kroger and Albertsons appears to be off after a federal judge issued an injunction stopping the deal.
Kroger had put together a $25 billion proposal to buy Albertsons. The deal has spent almost two years winding its way through the regulatory and judicial systems.
In the end, Adrienne Nelson, the judge presiding over the case in the U.S. District Court in Oregon, ruled in the Federal Trade Commission’s favor that a merger between the two companies would harm consumers and workers. The same day, shortly thereafter, a Washington State judge also ruled to block the deal.
Notably, the Teamsters union released a statement supporting the courts.
The labor union called the merger “reckless” and said it posed “a direct threat to workers, consumers, and competition in the grocery industry.”
Kroger ranks No. 6 in Digital Commerce 360’s Top 1000 Database of North America’s largest online retailers by annual web sales. Albertsons is No. 19. Both fall under the Food & Beverage category in the Top 1000 and play key roles in U.S. online grocery sales. Digital Commerce 360 projects that the combined web sales for Kroger and Albertsons in 2024 will reach $24.06 billion.
Why the Kroger-Albertsons merger was blocked
Kroger and Albertsons “engage in substantial head-to-head competition and the proposed merger would remove that competition,” Nelson wrote.
As a result, she said she believes the proposed merger would be likely to lead to outcomes that “unilaterally” harm consumers and is thus “presumptively unlawful.”
Not long after the decision was reached, both grocers responded. Each blamed the other for the merger’s failure.
Now, Albertsons is suing Kroger for allegedly not offering an adequate divestiture package and repeatedly ignoring regulators’ concerns, causing the merger with Albertsons to be blocked. The suit seeks billions of dollars in damages to account for harm to Albertsons’ business, consumers, associates and shareholders.
Kroger responded to the lawsuit from Albertsons by calling it “baseless” and “without merit.” In addition, Kroger accused Albertsons of repeated intentional material breaches and interference throughout the merger process.
“This is clearly an attempt to deflect responsibility following Kroger’s written notification of Albertsons’ multiple breaches of the agreement and to seek payment of the merger’s break fee, to which they are not entitled,” Kroger stated in a press release.
What’s next for Kroger and Albertsons?
In a separate announcement, Kroger announced that it determined pursuit of the merger is no longer in its best interests.
“Kroger is moving forward from a position of strength,” said Rodney McMullen, chairman and CEO at Kroger. “The strength of our balance sheet and sustainability of our model allows us to pursue a variety of growth opportunities, including further investment in our store network through new stores and remodels, which will be an important part of our 8–11% TSR model over time.”
The company also announced that its board of directors had authorized a $7.5 billion share repurchase program. The program includes a $5 billion accelerated share repurchase process in the wake of the merger’s termination.
Albertsons operates over 2200 supermarkets in 34 states and the District of Columbia. In addition to namesake Albertsons stores, some of its brands include, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb and others.
Meanwhile, Kroger operates 2,750 grocery retail stores under various banner names. They include Ralph’s, Dillon’s and QFC, among others.
Increasing competition in the grocery space
Madhav Durbha, the group vice president of consumer packaged goods and manufacturing at the supply chain platform Relex, anticipated that business as usual will resume for both companies.
“They will have to assume independent trajectories now,” Durbha said, adding that while there are advantages to economies of scale as a merged entity, each retailer is already operating at a significant scale that enables them to continue enhancing the value they deliver to shoppers.
Nevertheless, competition will continue to be an issue for both parties.
“Both companies will face increasing competition from Walmart, Costco and all of the regional players where Kroger has stores, so they’ll need to compete on multiple fronts, beating other like-for-like grocers as well as club/warehouse,” Durbha noted.
Amanda Oren, vice president of industry strategy for grocery at Relex, who has over 20 years of expertise as a retail and grocery strategist, added that competition is fueled by “ecommerce players like Amazon to more discount players like Target, Walmart, Costco, and dollar stores to all the newer specialty grocers like Sprouts.”
Neither Durbha nor Oren expects the companies to take up the merger between again any time soon. Still, they both noted that the regulatory environment in the upcoming Trump administration may be more favorable to large mergers.
Alasdair James, chief commercial and marketing officer at retail technology company Swiftly, said the deal’s termination would force both companies to up their digital strategies.
“Without the scale advantages the merger would have provided, investing in best-in-class digital tools and solutions that drive market-leading engagement will be more critical than ever,” James stated.
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