Krueger agrees to buy Albertsons for $24.6 billion

Competitive grocers Kroger And the Albertson On Friday, it announced plans for the team.

The companies said Krueger agreed to buy Albertsons for $34.10 per share in a $24.6 billion deal. Albertson’s shares closed Thursday at $28.63, after rising on reports that a deal was imminent.

Kroger is the second largest grocery by market share in the United States, after Walmartand Albertsons is fourth after costco. Together, Kroger and Albertson will be closer to Walmart.

The two companies’ councils unanimously approved the agreement, which will need regulatory approval.

This engagement comes during a challenging time in the grocery industry. Supermarkets raced to keep up as shoppers embrace new ways to restock the fridge. Companies have had to invest in automation, employee training and more as consumers switch between browsing the aisles of stores, ordering home deliveries, and using curbside pickup.

Grocers have also been hit hard by inflation. food prices It jumped 11.2% from last year, according to the latest data from the Bureau of Labor Statistics. Companies have had weight in time to pass on higher costs to customers and when to absorb them to stay competitive.

The grocery industry is highly fragmented. Privately owned regional grocery stores, such as HEB in Texas and Publix in Florida, remain power players and command strong loyalty. Relative newcomers like discounts Aldi, Lidl and AmazonAmazon Fresh has also attracted customers. In addition, some Americans stock food in warehouse clubs such as costcoWalmart-owned Sam’s Club and BJ’s sentence.

Kroger and Albertsons also have many store signage, including names that operators have acquired over the years.

Kroger captured about 8.5% of the $1.4 trillion U.S. home food market last year, according to Morgan Stanley. Albertsons share was about 5%. The next three big players after Albertson are Ahold-Delhaize, Publix, Sam’s Club and Walmart-owned Target. Ahold DelhaizeCompany banners include Food Lion and Stop & Shop, along with Fresh Direct, an online grocer it has acquired.

To join a team, Krueger and Albertsons will need the organizers to sign. Eleanor Fox, a New York University professor who specializes in antitrust and competition policy, said regulators will look at where companies dominate and assess whether they have a lot of power if they come together. She said the merger would be unlikely to be approved if they were the two largest grocers in many markets.

Some corporate markets have significant overlap, such as Southern California, Colorado, Seattle, parts of the Midwest and Texas, Simon Guttman, a retail analyst at Morgan Stanley, wrote in a research note Thursday. Other regions, such as the Northeast and Southeast, have very little overlap.

“Albertsons Cos offers a complementary footprint and operates in several parts of the country with very few or no Kroger stores,” Kroger CEO Rodney McMullen said in a press release announcing the deal.

Guttman of Morgan Stanley said the merger would likely be subject to an extended period of review by regulators and could require the stores to be liquidated.

Gottman also cautioned about the financial side of the deal. He said consolidation in the grocery industry has historically not paid off in the form of higher profits. However, he said the industry may be at a tipping point where a major merger could also raise margins.