Kroger has initiated a publicity campaign to sway regulatory approval for the proposed merger with Albertsons.  Statements by Chairman and CEO Rodney McMullen emphasize “investment” through reducing prices.

Kroger points to the “investment” of $125 million to reduce prices at Harris-Teeter, their up-market regional supermarket acquisition in 2014 that also included an additional $2.5 million actually invested in upgrades.  In point of fact, Harris Teeter operated with a Whole Foods Market price image. Kroger substituted specialty items applied their buying power to reduce the price of products sold in order to enhance revenue.

As a justification for the proposed merger with Albertsons, Kroger has indicated that it will “invest” $500 million to reduce prices.  By this commitment does Kroger intend to take a lower gross margin?  The company neglects to provide details of how customers and also suppliers would benefit from this intended $500 million “investment”.  For the first nine months of FY2023, Kroger posted a gross margin of 22 percent and an operating margin of 1.6 percent over all their banners.  Reducing gross margin may have a decidedly negative impact on operating margin and net margin. The transaction can only be beneficial to earnings over the intermediate term by reducing administrative and store headcount, applying pressure on suppliers and to exploit their dominant geographic market position to increase gross margin.