U.S. grocer Kroger in talks to merge with rival Albertsons -sources By Reuters

By Anirban Sen and Abigail Summerville

(Reuters) -U.S. grocery company Kroger (NYSE:) Co is in talks to merge with smaller rival Albertsons Companies Inc in a tie-up that would create a supermarket titan, people familiar with the matter said.

The merger of the nation’s No. 1 and 2 standalone grocers, if reached, could provide the retailers with a leg up in negotiations with consumer-product makers such as Procter & Gamble (NYSE:) and Unilever (NYSE:) at a time of steep price hikes.

A deal could be announced as soon as this week if the talks do not fall apart, said the sources, who requested anonymity as the discussions are confidential.

Major consumer products companies across the world have announced plans to boost prices at a faster pace as they too seek to curb the impact of soaring raw materials costs on their margins.

Some critics noted that a merger would lessen competition among United States grocery chains and potentially lead to higher prices for American shoppers. A deal would create a combined company with a market valuation of about $47 billion, representing one of the biggest mergers in recent years in the retail space.

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

Merger talks between the two biggest U.S. supermarket chains come at a time when Walmart (NYSE:) Inc has focused on expanding its own grocery business. Groceries now constitute roughly 55% of Walmart’s annual sales. Walmart traditionally has used its clout to demand the lowest possible prices from food and beverage suppliers, leaving rival supermarkets at a disadvantage in their own negotiations with suppliers.

But consultant Burt Flickinger, who holds shares of both Kroger and Albertsons, said a merger would give the two supermarket operators more buying power, making it easier for them to compete with Walmart.

COMPETING POWER

Roughly 25% of all dollars spent on groceries in the United States are spent at Walmart, according to data provided by Euromonitor. Kroger and Albertsons have roughly 8% and 5% of the U.S. grocery market, respectively, according to Euromonitor.

The razor-thin margins of standalone U.S. supermarket chains have been squeezed from soaring costs and supply-chain disruptions after a boom at the height of the pandemic. Major packaged food and consumer goods manufactures still are not supplying many grocers with products to fill their shelves, grocers have told Reuters.

Shares of Albertsons were up 11% on Thursday afternoon, while Kroger’s stock slipped 1.4%. Shares of British online supermarket and technology group Ocado (LON:) Group Plc were up over 10% in late London trade. Kroger is Ocado’s biggest client.

Kroger, which also houses supermarket chains such as Fred Meyer, Ralphs and King Soopers, trails Walmart, the top grocer in the United States. Boise, Idaho-based Albertsons includes the Safeway banner.

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

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

A deal could be reached as soon as this week, Bloomberg reported, adding that no final decision has been taken and talks could still be delayed or falter.