A Big Grocery Merger Is Off. Does That Mean Prices Will Fall?

Regulators said a Kroger-Albertsons merger would’ve raised grocery prices. The companies disagreed. Now the deal is off—so what’s next? Turns out it’s complicated.

Kroger (KR) and Albertsons (ACI) this week called off their long-planned deal after judges sided with the Federal Trade Commission (FTC), blocking the tie-up on the grounds it would decrease competition and likely lead to higher prices and lower wages. The grocers had argued that merging would allow them to save on costs, helping them lower prices and better compete with retailers like Walmart (WMT), Costco (COST), and Amazon (AMZN).

The FTC on Tuesday called the axed merger a “major victory for the American people,” and said the companies continuing to compete with each other would help consumers and employees.

But it may also get tougher for grocery chains: Bank of America analysts this week said the news means “conventional supermarket peers are less likely (through M&A) to be able to achieve Walmart’s competitive scale in terms of a national store footprint, buying power, supply chain efficiencies, omni-channel capabilities, and digital advertising potential.”

What Drives Grocery Prices?

Prices were likely poised to continue rising no matter what happened with the merger. A 2023 report from the Government Accountability Office found that grocery prices rose an average of 2% per year from 2013 through 2022, declining in only two of those years.

The report identified more than a dozen factors—including global conflict, animal and plant disease, and labor shortages—that can affect prices. Together, they have helped push prices higher in recent years. (One recent example: Wholesale egg prices jumped 54% in November amid an ongoing bird flu outbreak.)

A 2012 study from the Federal Trade Commission found that there was “no single price effect” of grocery mergers, as the impact varied across the mergers they studied. The study found, however, that local competition did impact post-merger prices. In smaller communities with fewer retailers, mergers often resulted in higher prices, while prices often declined after mergers in denser, more competitive markets.

One assessment of the U.S. grocery store landscape found that a Kroger brand was the only competitor within five miles of more than 30% of all Albertsons locations. The two had promised to sell more than 500 locations to address the FTC’s concerns about consolidation.

According to an analysis presented in Kroger’s Washington State trial, Kroger and Albertsons competed in 57 discrete markets within the state. After merging, the combined entity would have had an average market share of 75% in those markets and been a monopoly in a quarter of them.

‘It’s Hard to Bring Things Down Once They’re Up’

The retailers have turned their focus to the future. Albertsons sued Kroger, accusing it of not doing enough to appease regulators and get the merger approved. Kroger said the claims were “baseless and without merit” in a statement to Investopedia.

In another statement Wednesday afternoon, Kroger said it planned to resume stock buybacks and would continue to prioritize investments like lower prices and higher wages for its employees.

President-elect Donald Trump, who made lowering grocery prices a core promise of his campaign, said this week that doing so is a difficult task.

Improving the supply chain and lowering energy prices were two ways Trump has said he’d help lower grocery prices. The U.S. Department of Agriculture (USDA) estimates that just under 9 cents of every dollar Americans spend on groceries is attributable to energy and transportation costs.

“I’d like to bring them down,” Trump told Time. “It’s hard to bring things down once they’re up. You know, it’s very hard. But I think that they will.”