In his first public appearance as Ahold CEO, Frans Muller made no secret of it: he wanted to grow his company further in the United States. Ahold Delhaize was therefore emphatically open to mergers and acquisitions on the other side of the ocean, Muller said on an investor day at the end of 2018. According to him, the American supermarket sector would thicken rapidly. Ahold had to become ‘the merger partner’ in that game.
Naturally, the Dutchman did not mention any names that afternoon. But in the minds of the fanatical followers of Ahold Delhaize, the connections were quickly made. The Dutch-Belgian group has been regularly linked to Kroger, the largest supermarket chain in the US for years. More recently, another suitable candidate was added: this spring it was rumored that Albertsons, the number two in that country, was up for sale.
It turns out it won’t be either of them in the end. Kroger and Albertsons choose each other. The news that the two companies were in far-reaching merger talks came out on Thursday in a report from financial news agency Bloomberg, although nobody wanted to comment at the time. Friday afternoon, before the opening of the US stock markets, the formal announcement came after all.
big gritter
The merger will fundamentally change the US grocery industry. Kroger and Albertsons together form a new food giant with combined sales of $210 billion, which supplies approximately 85 million Americans with groceries. The two companies own about 5,000 supermarkets, 4,000 pharmacies and 2,000 gas stations. With 710,000 employees, the combined company will soon become one of the largest employers in the country.
Together, Kroger and Albertsons hope to provide an “attractive alternative” to the giant retail companies that have increasingly dominated the US grocery market in recent decades. Because Kroger may be the largest supermarket chain in the country, the company loses out by a large margin against even more powerful retail giants.
For example, the Walmart and Costco hypermarkets, which sell just about anything a consumer desires, are increasingly dominating the US grocery market. In recent years, competition from internet giant Amazon has also been added, which has also had many physical supermarkets since the acquisition of Whole Foods in 2017.
Kroger and Albertsons see each other as a logical addition: the merger will give them access to regions where they were not yet very strong. For example, Albertsons is mainly active in the western half of the United States, while Kroger mostly has stores in the eastern half of the country. This is contrary to Ahold’s field of activity, which is the third largest supermarket chain in the US with subsidiaries Hannaford and Food Lion.
Airplanes
Although the two American supermarket groups speak of a merger in their announcement, the plans are very similar to a takeover. The market value of the publicly traded Kroger is about twice that of Albertsons, which is partly owned by a private equity firm. It is therefore Kroger that is taking over the shares of its smaller industry peer. Kroger will also supply the CEO and financial man of the merged company.
With an offer of $34.10 per share, Albertsons is valued in the transaction at $24.6 billion. That’s nearly a third more than what the stock was trading for before the merger rumours. After Bloomberg wrote about the plans, Albertsons shares rose 11 percent on Thursday. Kroger closed 1 percent higher.
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For Ahold, Friday’s announcement will feel like a major setback. By joining forces, Kroger and Albertsons will only further increase their lead over the Dutch-Belgian group. The American market is by far the most important for Ahold: the parent company of Albert Heijn and Etos, among others, achieves about 60 percent of its turnover there.
Moreover, it seemed strongly that Ahold was also interested in Albertsons. For example, the avid air traffic followers noticed this summer that two corporate aircraft of the American group visited Bedford this summer, not far from the American headquarters of Ahold. And earlier this year, an Ahold plane landed in Boise, Albertson’s home base. In the past, such flight movements proved to be a good indication for later announcements.
When Ahold CEO Muller was asked at the presentation of the half-year figures in August, he kept aloof. Muller said his company never responds to speculation, but that Ahold is always “looking for opportunities in all our markets.” Where did those planes come from? “I think to visit their own shops there. In any case, I haven’t seen them.”
Market power
Still, it is far from certain that Kroger and Albertsons can go through with their plans. The plans must first receive approval from the American competition authority FTC, which has been cracking down on companies that threaten to gain too much power since President Biden took office.
At Kroger and Albertsons, those concerns also exist. For example, interest groups fear that the merger is bad for the position of suppliers, employees and consumers. “There is no reason to allow the two largest supermarkets in a country to merge — especially now that food prices are skyrocketing,” the American Economic Liberties Project, which champions economic equality, said in a statement.
Kroger and Albertsons, on the other hand, argue that the merger is good for consumers. By cutting out double costs, the group can cut spending by almost half a billion dollars, which will mean cheaper for consumers, according to the chains. Kroger and Albertsons expect to complete the merger in early 2024.