Wall Street skeptical as Kroger promises to slash grocery prices by $1B after Albertsons merger

Grocery giant Kroger pledged to slash prices at Albertsons stores by $1 billion following its proposed acquisition of the rival chain — but Wall Street is increasingly skeptical the deal will win government approval as food inflation continues to roil US politics.

Kroger is raising the stakes of the $25 billion mega-deal since previously promising to lower prices by $500 million across Albertsons stores — a concession meant to soothe antitrust concerns that the tie-up will create a monopoly that can hike prices for shoppers.

The deal is an attempt to better position Kroger against Walmart, whose grocery prices fall about 25% lower than traditional supermarkets and has been grabbing market share, according to CFRA analyst Arun Sundaram. 

Nevertheless, food prices are top of mind for politicians. While inflation is cooling off – US inflation last month rose 2.9% versus a year ago, below expectations – food prices are still 21% higher than they were when President Biden took office three years ago.

“I think the chance of this [merger] happening is really fading,” Mahoney Asset Management CEO Ken Mahoney told The Post. “It couldn’t have come at a worse time. Maybe it would’ve worked a few years ago.”

This week, Vice President Kamala Harris vowed to fight for a federal ban on grocery price gouging if elected to the White House.

Former President Donald Trump called Harris’ grocery price plan “communist price controls.” He argued the price gouging ban would worsen inflation.

Mahoney said that even though Kroger is going out of its way to cut prices, back employees and even close some stores, the merger is coming at a time when consumer sentiment has shifted downward.

“This is going to help [politicians] at these rallies and I believe these names are going to come up to show how they protect the consumers,” Mahoney told The Post. “It’s going to be a poster child of ‘Don’t do mergers.’”

A Kroger spokesperson said the company has continued to invest in customer prices, employee wages and store experience since the merger was announced two years ago.

Washington State Attorney General Bob Ferguson filed the first lawsuit challenging the deal in January, claiming the acquisition will create a monopoly.

In February, Colorado Attorney General Phil Weiser followed suit. His lawsuit put the merger on pause last month until the Colorado District Court issues a ruling. The trial is set to begin Sept. 30. 

The Federal Trade Commission is also challenging the merger. Mahoney said it will be easy for the FTC to squash the merger and use the breakup to prove its strength. 

The grocery chains first revealed the planned merger – which is expected to create a roster of more than 4,000 stores – in October 2022. 

If legal challenges prove successful and the merger is blocked, Kroger will lose out big time. The Cincinnati-based company has spent more than $800 million on merger-related costs, including lawyer and consultant fees, according to Bloomberg.

The grocery chain would be hit with additional fees landing in the millions if it is forced to break the merger.

Albertsons is not Kroger’s first major acquisition. 

It added Roundy’s supermarkets in 2015, then spending more than $100 million to cut product prices and losing about 1% in gross margins over five years, according to a Bloomberg report. 

And it bought Harris Teeter in 2014, spending $125 million on price cuts and seeing its margins decline 2% over seven years, the report said.