Kroger-Albertsons: What Grocery Mergers Mean for Retail

The grocery merger between Kroger and Albertsons, valued at $24.6 billion, is facing significant legal and regulatory hurdles. The Federal Trade Commission (FTC) has filed a lawsuit to block the merger, citing concerns that it would eliminate competition, leading to higher grocery prices and reduced quality for consumers. The merger is also opposed by attorneys general from several states, who argue that it would harm both consumers and workers by reducing competition and leading to potential store closures​.

Despite these challenges, Kroger and Albertsons are still pushing forward with their merger plans. They have proposed a comprehensive divestiture plan and agreed to sell a substantial number of stores to C&S Wholesale Grocers. The total number of stores to be divested has increased to 579, including 91 in Colorado. The divestiture plan aims to ensure that C&S Wholesale Grocers can effectively compete in the market and maintain union jobs, with no planned store closures or layoffs for frontline associates.

Union leaders and local officials have expressed reservations about the effectiveness of the divestiture plan, citing past issues with similar agreements. Despite these concerns, Kroger and Albertsons remain confident that the merger will bring lower prices, more choices for customers, and significant investments in employee wages and benefits​. Overall, while the grocery merger is progressing, it is still subject to regulatory approval, and both companies are actively working to address the concerns raised by regulators and stakeholders.

Legality of Grocery Mergers

According to the U.S. Department of Justice Antitrust Division website, and as said by the Clayton Act, an illegal merger occurs “when two companies join together in a way that may substantially lessen competition or tend to create a monopoly in a relevant market.” An illegal merger resulting in reduced competition can severely harm consumers, who lack adequate choices for products or services, and workers, who face lower wages and fewer employment opportunities.

Kroger and Albertsons are known for comprising grocery-anchored centers, an increasingly favored option for real estate capital due to their immunity to market disruptors. Following the move, the supermarket giants released individual statements refuting the lawsuit, claiming that a blocked merger would actually harm the very people the FTC aims to protect while strengthening retail titans like Walmart, Amazon, and Costco.

Grocery Retail Market Share

This year, stories about retail M&As, closures, and new concepts have all but dominated the headlines. The FTC’s decision to block the Kroger-Albertsons link came as somewhat of a shock, considering the current market share for U.S. grocery stores. Ironically, while the FTC cautions against a potential monopoly, one may already exist.

In 2022, Walmart made up 25.5% of the grocery retail market—more than any other retailer. Kroger, in comparison, claimed 9.8% of the market, followed by Albertsons at 3.6%. During the same year, Walmart consistently drew an overwhelming majority of weekly store traffic (Figure 1). Because Walmart’s dominance in the grocery space shows no signs of slowing, market analysts believe the FTC’s proposed block lacks quantifiable substance. In other words, Walmart needs a competitor to prevent a true monopoly.

FIGURE 1: WEEKLY U.S. GROCERY VISITS, 2024 YTD

Source: Placer.ai; Note: Walmart trend line excludes Walmart Neighborhood Stores (668K average visits per store, 682 stores)

If the grocery merger proceeds, Kroger-Albertsons would gain a massive bump in market share and compete more closely with Walmart, Amazon, and Costco. A combined 5,000 stores would generate $220 billion and place Kroger-Albertsons second in the U.S. grocery retail space with an estimated market share of 13.4%, behind only Walmart. Shifting market shares will inevitably impact the demand for retail spaces in affected areas, meaning owners of those assets must be prepared for anything.

What Should Landlords Do?

This isn’t the first time an Albertsons merger has been in trouble. In 2018, the retailer sought to join forces with Rite Aid in what would be a similarly lucrative yet unsuccessful supermarket merger. At the time, investors eyed Albertsons-anchored centers across the country for their promise of post-merger value. The same could be said now for Kroger-Albertsons—if the deal happens, owners can expect those properties to change in value.

While any merger poses a genuine concern for consumers and workers, perhaps equally at risk in a mega-merger like Kroger-Albertsons are landlords. Owners of Kroger and Albertsons stores now face more pressure than ever to assess the risk of their properties. Last year, Matthews reported that 56.5% of all Albertsons stores are within a five-mile radius of a Kroger store, which means that the chances of divestitures—or even cannibalization—are high. Since divestitures bring a high chance of vacancies, property owners need to know the exact risk their assets face. 

How can landlords determine if a particular property is likely to be divested? There are three factors to consider when determining possible divestitures: store performance; proximity to the next closest Kroger or Albertsons store; and ownership of the nearest store. The result of these considerations can help property owners build risk profiles and be proactive. When investors and owners finally see the impact that the mega-merger (or lack thereof) has on their Kroger or Albertsons investment, it may be too late.