Kroger and Albertsons, two of the largest grocery chains, plan to sell 579 stores to help them merge. Regulators have raised concerns that combining these companies could reduce competition and increase prices for groceries.
Grocery Chains Sell More Stores for Merger
Kroger and Albertsons are increasing the number of stores they sell, adding 166 locations to the previous deal with C&S Wholesale Grocers. The companies announced this move on Monday as part of their effort to win approval for their $25 billion merger.
The expanded sale responds to growing concerns from regulators that the merger could lead to higher prices, store closures, and job losses. Under the updated agreement, C&S will pay Kroger approximately $2.9 billion in cash for the stores, which is $1 billion more than initially agreed.
With the additional 166 stores, Kroger and Albertsons will now sell a total of 579 stores to C&S. This deal also includes rights to Albertsons' Signature and O Organics private label brands.
Rodney McMullen, chairman and CEO of Kroger, described the sale of stores as a crucial step towards merging with Albertsons. He stressed that this move is key to their strategy. McMullen also highlighted that the merger would improve customer service and make their offerings more competitive.
The agreement to sell stores to C&S Wholesale Grocers depends on whether Kroger and Albertsons can successfully merge, a decision that still awaits federal approval. Both companies are optimistic that their efforts to address regulatory concerns will be enough to move forward with their plans to merge.
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Store Branding Remains Amid Sale Plans
Even though Kroger and Albertsons are selling stores to C&S Wholesale Grocers, customers won't start seeing C&S signs above their local grocery stores.
Instead, C&S will take over the Haggen stores in Washington from Albertsons. Additionally, C&S will use the Albertsons brand in California and Wyoming and the Safeway brand in Arizona and Colorado. This means shoppers will still see familiar store names and find the same private-label products they're used to.
C&S plans to keep all the acquired stores open and will continue to honor existing labor agreements, according to the proposal.
It's still uncertain whether this plan will meet regulatory approval, and no specific timeline for the sale has been announced yet.
Kroger announced its intent to buy Albertsons in October 2022, but the U.S. Federal Trade Commission (FTC) and eight states have sued to block the deal, citing potential price increases for millions of Americans. Maureen Ohlhausen, former FTC head, recently noted skepticism about divestitures as a competition remedy during a webinar.
An Oregon court has scheduled an August hearing for the FTC's injunction request to halt the merger, which would position Kroger as the second-largest U.S. grocery chain. The FTC has remained silent on Kroger's expanded plan to sell more stores to address regulatory concerns.
Analyst Steven Shemesh from RBC Capital Markets argued that selling more stores to C&S Wholesale Grocers doesn't resolve underlying issues, as C&S lacks deep operational experience and tends to resell assets quickly.
Tom Geiger of UFCW 3000, representing Kroger and Albertsons employees in the Pacific Northwest, expressed union fears that C&S could sell store properties if it can't manage them due to poor IT infrastructure, customer loyalty, and manufacturing capabilities.
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