Key Takeaways

• Kroger and Albertsons axed their planned multi-billion dollar merger this week after it was blocked by federal judges.

• What does that mean for grocery prices? It's complicated. Prices tend to rise over time, impacted by a wide range of factors including weather conditions, global conflict, and the availability of labor.

• Research, meanwhile, indicates that grocery mergers typically increase prices in areas with fewer competitors, while prices tend to fall in denser areas with more competition.

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.