What the proposed Kroger and Albertsons merger could mean for shoppers and food prices

William Brangham:

Many of us spent a lot of time at the grocery store this week preparing for our Thanksgiving meals. Some of those stores could be in for major changes after two of the nation's largest grocers announced plans to become one, potentially creating a new supermarket titan.

John Yang has more.

John Yang:

William, the nearly $25 billion deal is an effort to compete with retailers like Walmart, the top U.S. grocery seller, and Amazon, which is expanding its food operations.

Kroger wants to buy Albertsons, which would bring together such well-known brands as Safeway, Ralphs, Harris Teeter, and Shaw's under the same corporate umbrella, 5,000 stores nationwide that would serve an estimated 85 million households. That is about 13 percent of the market.

Sam Silverstein is a reporter for Grocery Dive, which covers the grocery industry.

Sam, thanks for being with us.

Help us put this in perspective. How big a deal is this? Has the grocery industry ever seen anything like this?

Sam Silverstein, Grocery Dive:

I guess you could say this is an unprecedented transaction that they're proposing.

And what's so important here is that so much about the grocery industry is personal to people. It's not just about businesses coming together. In this case, it really is about people's access to food and their perception and sense of being able to get it when they need it and at prices they can afford.

So, the pandemic really put a spotlight on this issue. Of course, when other retailers had to close, your local supermarket was open. And so word that two of the largest companies running supermarkets want to get together has a lot of people taking notice. And it's not just Wall Street and it's not just regulators.

You have politicians weighing in on this. They want to be sure that they're looking at this deal and saying that they have got consumers front and center.

John Yang:

Let's take that apart a little bit. You talked about consumer prices.

Kroger says that this will generate or create savings — I think they estimated about $500 million — and that they will plow that into savings. How likely is that?

Sam Silverstein:

I think the way to look at it is that the jury is out on this one.

If you look back on the way that grocery stores have come together in the past, I think you have seen a lot of talk that, when the stores get stronger and have more economies of scale, that they are able to bring prices down. And so I think a lot of people are going to look at this and say, it makes a lot of sense that bringing two large grocery chains together would possibly bring prices down.

But the issue is the extent to which they're going to be able to pass costs on to consumers or they're going to feel pressure to make the business combination even more profitable for them. And that's obviously a really big part of this.

John Yang:

You also mentioned workers. And a lot of politicians are worried about what happens to labor.

What could happen or what is likely to happen, do you think?

Sam Silverstein:

So, Kroger and Albertsons have said this probably could take until 2024 to close. And the reason for that is that the federal government, probably the Federal Trade Commission, will get very deeply involved in what the new company would look like once the deal goes through.

So, what we're going to be seeing happening is, in market by market, regulators are going to be looking and seeing, how much overlap is there? How much competition would be lost if the grocery stores that Kroger and Albertsons own happened to be under the same roof?

So, as part of this divestiture kind of strategy that the FTC would be using to evaluate and ultimately perhaps approve some kind of a merger here, what you will see is potentially hundreds of stores, maybe more — it depends how it all works out — getting sold by Kroger and Albertsons to somebody else. They proposed a company that would take on those grocery stores. They could be sold to other buyers.

But the bottom line is, in terms of what would happen to workers, it depends where those stores go. If they get bought by strong companies, that might work out well. But there is precedent for this not working out quite that way. Albertsons and Safeway merged in 2015, and a lot of the stores that were divested as part of that deal went to a company that ultimately wasn't able to stay afloat.

And so my point here is that you really could see workers working for stores that don't have a strong owner anymore. We will just have to see.

John Yang:

You talked about the personal relationship consumers have with their grocery store. Are they — they're going to keep the names, they say. The overall company may have a new name, but the individual stores are going to remain the same.

Will the individual consumers see much difference?

Sam Silverstein:

Even though you have all of these different brands — you mentioned in the intro to this piece both Kroger and Albertsons own, between them, dozens of what are called banners, like Acme or Kroger itself or Albertsons or Safeway or whatever name you want to think of.

People don't necessarily sense that those are actually, together, part of one or another very large company. That goes back to the history of the grocery industry. You know people have connections with their local grocery store. And we have seen that, even as mergers have taken place over the years, that the large grocers want to keep that brand equity in individual markets.

So I think it's likely that you will see most or all of these brands sticking around even after any kind of merger is done. And that's happened in the past. When grocery companies have come together, sold stores, whatever it happens to be, the brands stay intact.

John Yang:

Sam Silverstein of Grocery Dive, thank you very much.

Sam Silverstein:

Well, it's a pleasure. Thanks for having me.