What’s next for Kroger and Albertsons following their failed merger?

The news: Albertsons terminated its merger agreement with Kroger and sued the grocer for failing to meet its contractual duties to take “any and all actions” to secure regulatory approval.

Two judges—one federal, one state—separately blocked the merger on the grounds that it would drastically reduce grocery competition, raising prices for shoppers and reducing workers’ bargaining power.

The claims: Albertsons alleges that Kroger chose to act “in its own financial self-interest” rather than make meaningful attempts to engage with regulators and advance the merger.

• Kroger repeatedly refused to divest assets needed for antitrust approval and ignored feedback from regulators. It rejected “stronger” offers for divested stores and failed to cooperate with Albertsons, the latter said in a press release.
• The merger would have gone through were it not for Kroger’s obfuscating behaviors, Albertsons claims—leading the retailer to seek billions of dollars in damages on behalf of itself and its shareholders.

Kroger fired back, calling Albertsons’ allegations “baseless and without merit.” The grocer also alluded to its counterpart’s “repeated intentional material breaches and interference throughout the merger process,” which it intends to prove in court.

What’s next? A merger between the two companies would have been hugely beneficial for both: It would have created a retail media network with access to 85 million US households, a physical store footprint of nearly 5,000 (more than Walmart), and a massive trove of first-party data.

Without those revenues, the two companies now face a more challenging path to growth as more shoppers seek out cheaper alternatives like Walmart or turn to the convenience of Amazon.

• Kroger is in a better position than Albertsons, given its thriving private-label business, strong loyalty program, and fast-growing retail media arm, which is on track to grow at least 20% this year.
• Albertsons’ prospects are more uncertain. Attorneys emphasized the grocer’s weakness compared with rivals when defending the deal in court. But now that the merger has fallen through, CEO Vivek Sankaran and largest shareholder Cerberus Capital Management are trying to reshape the narrative by emphasizing its long-term ability to create value and strength as a standalone retailer.

Our take: The Kroger-Albertsons merger was a long shot from the beginning, as we noted when the deal was first announced.

Now that the two companies can no longer look to each other to shore up their businesses, they will have to double down on efforts to deliver more value to shoppers—while also strengthening the appeal of their retail media offerings.

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