(Bloomberg) -- In a bid to appease regulators, Kroger Co. said it plans to lower grocery prices by $1 billion if its nearly $25 billion merger with Albertsons Cos. comes to fruition.
That’s double the $500 million in cuts the grocery operator, which houses chains including Ralphs and Dillons, had previously committed to implement at Albertsons locations.
Kroger agreed to acquire its rival Albertsons in October 2022 to compete more effectively against bigger rivals like Amazon.com Inc. and Walmart Inc. The supermarkets have also said they would spend $1 billion to increase worker wages and benefits and $1.3 billion on improving Albertsons stores.
Since unveiling their plans to merge, the grocers have faced pushback from elected officials and union groups over whether the deal would lead to higher prices for consumers and lower wages for workers. The merger is facing several legal hurdles, including a federal court challenge in Oregon, two state lawsuits and an administrative trial in the Federal Trade Commission’s in-house court.
It’s difficult to track if companies actually make good on these kinds of promises, because big chains operate in so many different markets and sell tens of thousands of products. That means prices can vary widely.
The shares of Albertsons rose after Bloomberg reported the increase in proposed price cuts to products and were up 1.7% at 3:39 p.m. in New York. Kroger’s stock gained 0.4%.
Grocery prices have been top of mind for many consumers and politicians following a period of the highest inflation in decades. While inflation has slowed in recent months, food prices have been among the key drivers of economic discontent because households shop for food every week.
The grocery industry has now been pulled back into the political sphere, with US Vice President Kamala Harris calling for a federal ban on food and grocery price gouging. The move is part of a broader set of initiatives the Democratic presidential nominee plans to use to reduce consumer costs.
The grocers have been working on ways to be more efficient so they can invest back in prices, employee wages and store conditions, a Kroger spokeswoman said.
Kroger has made similar moves with other deals. The company spent more than $100 million to cut the prices of thousands of products, including staples like eggs and bananas, at Roundy’s after acquiring the chain in 2015. Gross margins declined about 1 percentage point to 24.3% over five years, according a company presentation. Following its purchase of Harris Teeter a decade ago, it invested $125 million in lowering prices and margins dipped to 26.7%, roughly a 2 percentage point decrease over seven years.
Investing more in cutting prices is adding to a merger that’s already racked up costs. The companies have already spent more than $800 million on merger-related costs, which consist mostly of fees for lawyers, bankers and consultants. It doesn’t include hundreds of millions of dollars in potential breakup fees the grocers would pay if the deal gets blocked.
(Updates with shares.)
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