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Epic Economist 11/9/23
"Kroger Reports Mass Store Closings As
America's Biggest Chains Brace For A Deep Dark Winter"
"A new report reveals that Kroger and Albertsons, two of the nation’s biggest grocers, are abandoning hundreds of stores right now. At the moment, U.S. regulators are extremely worried about the emergence of food deserts given that even more shutdowns are expected to occur by 2024. They say multiple communities will lose their local grocery store, while hundreds of thousands of workers will be threatened by mass job cuts.
Both chains have been struggling to compete with giants like Amazon and Walmart over the past few years. In recent months, their financial results have been quite disappointing. Kroger CFO Gary Millerchip admitted that the company expects sales to drop this quarter, predicting further pressure on consumers who are already being squeezed on several fronts due to high prices, debt, and interest rates. Amid such economic challenges, the company’s sales plunged by about $700 million year over year in the third quarter. Now, Kroger is planning to buy Albertsons for nearly 25 billion dollars. The deal is set to close next year. But there’s a whole lot that can go wrong until then, according to regulators. In fact, the merger can either make or break the grocers.
If they do get the approval of the Federal Trade Commission and seal the deal, which seems unlikely at this point, the companies can create the next grocery behemoth in the United States. On the other hand, if they don’t get the approval, the two struggling chains could face huge financial losses that would put their businesses in peril. In both cases, there would be mass store closings and job losses, which are, actually, already in motion. In other to get the approval of the Federal Trade Commission, the grocery retailers agreed to sell 400 stores to C&S Wholesale, the same operator of Piggly Wiggly.
On top of that, it appears that an additional 430 stores are being abandoned by the two chains across 17 U.S. states. The shutdowns are being conducted to ease concerns about their potential control over the grocery market. The biggest issue is that they’re acting before there’s an official confirmation. If the deal doesn’t go through, the loss of retail footprint will likely damage their finances and place them further behind in the grocery market.
Advocates believe the merger would destroy smaller grocery chains, and leave shoppers scrambling with less choice and higher prices. The fact that Kroger and Albertsons have been raising prices faster than their competitors certainly doesn’t help their case. Between June 2020 and June 2023, Kroger prices rose on average by 31%, while at Walmart, prices rose by 28.1% over the same period, with a 0.4% and 0.7% decline in August, and September, respectively.
In the face of all of these issues, several state treasurers are urging the FTC to oppose the merger, citing concerns about a further reduction in employees’ wages. In a letter to FTC, treasurers pointed to an Economic Policy Institute study that found the merger could result in the loss of $334 million in wages for three-quarters of a million grocery workers across more than 50 metro areas. That’s an average annual wage shortfall of about $450 per worker.
All of this means that Kroger and Albertsons may have gone ahead of themselves by selling and shuttering stores before a deal was reached. The companies could be looking at billionaire losses that would completely devastate their grocery business in 2024. Instead of building an empire, they could be setting up their companies for failure. And no matter what the end result will be, everyone will ultimately lose."
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