Jewel, Mariano’s owners announce $20 billion merger (2024)

Two of the nation’s largest grocers, competitors in Chicago via the Mariano’s and Jewel Osco chains, have agreed to merge in a deal they say will help them better compete against Walmart, Amazon and other major companies that have stepped into the business.

Kroger, which owns Mariano’s, on Friday bid $20 billion for Albertsons Cos. Kroger will also assume $4.7 billion of Albertsons’ debt. Albertsons is the smaller company of the two, but it is the market leader in the Chicago area with its Jewel stores.

Chicago market conditions could draw the attention of federal antitrust regulators who must approve the combination. It’s not known if any Chicago-area locations will change or get a new name.

Kroger Chairman and CEO Rodney McMullen, who would retain those titles at the combined company, said it will decide market by market whether stores will change their names. “We’ll want to evaluate each market individually, who has the stronger market share,” he said.

Jewel has about 185 stores in the Chicago area; a Kroger spokesperson said there are 44 Mariano’s.

The companies said they expect to spin off 100 to 375 Albertsons stores across the U.S. to satisfy regulators. The properties would form a new, publicly traded company owned by Albertsons shareholders. It would be an “agile competitor with quality stores,” the companies said in their joint announcement.

McMullen said a merger could save $1 billion annually in lower administrative costs, more efficient manufacturing and distribution and shared investments in technology. He promised something for everybody in the deal: lower prices and improved stores for customers, higher wages for employees and greater returns for shareholders.

“We will take the learnings from each company to bring greater value and a better experience to more customers, more associates and more communities,” McMullen said Friday in a conference call with investors.

Kroger, based in Cincinnati, Ohio, operates 2,800 stores in 35 states, including brands like Ralphs, Smith’s and Harris Teeter. It also owns Food 4 Less, which is in the Chicago market.

Albertsons, based in Boise, Idaho, operates 2,273 stores in 34 states, including brands like Safeway and Shaw’s. Together, the companies employ around 710,000 people.

The deal will get heavy antitrust scrutiny at a time of high food price inflation. The Justice Department and the Federal Trade Commission were already updating merger guidelines to better detect and prevent anticompetitive deals. In July, President Joe Biden signed an executive order promoting competition in business and calling for tougher scrutiny of mergers.

If approved by regulators, the deal is expected to close in early 2024.

“We are confident, from the extensive work that we’ve done, that we have a clear path to achieve regulatory approval with divestitures,” Kroger Chief Financial Officer Gary Millerchip said.

Together, the 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. Amazon, which bought Whole Foods in 2017, is also a growing player in the space, with 3% share. Warehouse store Costco controls 6%.

Value chains like Aldi and Dollar General — which have a combined 4% market share — have also been squeezing traditional grocers, particularly as red-hot inflation pushes people to cut costs.

Goldman said a stronger combined company could possibly help tame food price inflation since it would have more power to reject food producers’ price increases. The two chains combined have 34,000 private-label products at various price points that compete directly with food manufacturers.

Kroger said it would reinvest about $500 million into price reductions. It would also spend $1.3 billion updating Albertsons stores and $1 billion on higher employee wages and improved benefits.

The majority of Kroger’s hourly workers are unionized with the United Food and Commercial Workers union, which also represents workers at Albertsons-owned Safeway. The union didn’t immediately respond to a request for comment Friday from The Associated Press.

Kroger also said the combined stores would provide greater and faster access to fresh food, with a combined 66 distribution centers and 52 manufacturing plants. Together, the stores operate in 48 states and the District of Columbia.

Critics questioned a merger at a time of high food price inflation. Food prices rose 13% in September compared with last year, according to U.S. data released Thursday.

“A Kroger-Albertsons deal would squeeze consumers already struggling to afford food, crush workers fighting for fair wages and destroy independent, community stores,” said Sarah Miller, executive director of the American Economic Liberties Project, a nonprofit that supports stronger corporate accountability and antitrust measures.

It was no secret that Albertsons was thinking about selling the company. The chain announced in February that its board was reviewing options to enhance shareholder value, including developing new businesses or a sale.

And both Albertsons and Kroger have grown into huge operations, partially through acquisitions.

Albertsons was bought by a consortium of investors, including Cerberus Capital Management, a private equity firm, in 2006. Cerberus helped finance Albertsons’ 2015 purchase of the Safeway grocery chain and attempted a failed merger with Rite Aid in 2018. Albertsons became a publicly traded company in 2020.

Cerberus holds nearly 30% of Albertsons shares. The merger deal includes a $4 billion dividend to Albertsons shareholders.

In 2015 alone, Kroger purchased four chains: Roundy’s, Pick ’N Save, Metro Markets and Mariano’s. It bought the meal kit company Home Chef in 2018.

Kroger has long outperformed Albertsons in key areas, including the development of store brands and advanced technology, said Neil Saunders, managing director of Global Retail Data, a market research company. Last year, for example, Kroger opened the first of 20 planned warehouses where robots help fulfill delivery orders.

But Saunders said Albertsons allows Kroger to expand into markets where it has less presence, such as Nevada, Oregon and Washington.

Jewel, Mariano’s owners announce $20 billion merger (2024)
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