Kroger seeks to create grocery giant with $20B Albertsons bid

Two of the nation's largest grocers have agreed to merge in a deal they say would help them cut costs and better compete with Walmart, Amazon and other major companies that have stepped into the grocery business.

Kroger on Friday bid $20 billion for Albertsons Companies Inc., or $34.10 per share.

Together the two companies operate more than 5,000 stores across the country with 710,000 employees.  

The deal will affect just one store on Long Island: Albertsons owns a Kings Food Market in Garden City that it acquired through a subsidiary, Acme Markets Inc. 

Most of the employees at the store are members of United Food and Commercial Workers International, as are the majority of Kroger's hourly workers.  That union also represents workers at Albertsons-owned Safeway.

About 30 employees working as cashiers and in produce, dairy and other departments at the Garden City store are represented by UFCW Local 1500 in Westbury, president Rob Newell said. 

Also, UFCW Local 342 in Mineola represents nine employees in the store’s meat, deli and seafood departments, said Keeley Lampo, activities and communications director for Local 342.

It's too early to say whether the merger will benefit the store employees but Local 1500 has a good bargaining relationship with Albertsons, Newell said.

"In today’s fast-changing retail grocery industry, any time one of the stores we represent is purchased by another union operator, we usually consider that a victory for the workers and their families," he said.

Kroger Chairman and CEO Rodney McMullen  said a merger could save $1 billion annually in operating costs. McMullen said the company would plow those savings back into lower prices, higher wages and improved stores.

Kroger stock closed down more than 7%, while Albertsons shares declined more than 8%. 

Ohio-based Kroger operates 2,800 stores in 35 states, including brands like Ralphs, Smith’s and Harris Teeter. Idaho-based Alberstons operates 2,273 stores in 34 states, including brands like Safeway, Jewel Osco and Shaw’s. 

The deal will likely get heavy scrutiny from U.S. antitrust regulators, especially at a time of high food price inflation. The Justice Department and the Federal Trade Commission were already in the process of updating merger guidelines to better detect and prevent anticompetitive deals.

To ease the regulatory process, Kroger and Albertsons said they would divest stores in markets where they overlap. The companies said they would spin off up to 375 Albertsons stores in a standalone public company.

But the Kings in Garden City won't be spun off, Lampo said.

"It is our understanding this store will be part of the [merger] deal," she said.

Together, Kroger and Albertsons stores would control around 13% of the U.S. grocery market, assuming the sale or closure of around 400 stores for antitrust reasons, according to J.P. Morgan analyst Ken Goldman. Still, that is a distant second to Walmart's 22% share.

— with Tory N. Parrish