In early December, a judge granted the White House's request to block a proposed merger between Kroger, based in Cincinnati, Ohio, and Albertsons, based in Boise, Idaho. However, this disappointment may have opened up a trading opportunity for astute investors. The FTC claimed the merger would result in a monopoly that would raise consumer prices.
White House National Economic Council Deputy Director Jon Donenberg said, 'The Kroger-Albertsons merger would have been the biggest supermarket merger in history—raising grocery prices for consumers and lowering wages for workers.' The companies subsequently terminated their merger agreement. Several politicians and the current administration have favored a narrative that the steep inflation in grocery prices consumers have faced over the past few years resulted from 'price-gouging.' Unsurprisingly, the administration targeted the deal and patted itself on the back. However, revenue and income margin trends at the largest grocery chains, including Kroger and Albertsons, present a very different picture. Over the past eight years, Albertsons Companies' revenues have grown by about 35%, which may seem okay until one realizes the U.S. economy has grown by more than 55% over the same period. The grocery business is an exceptionally low-margin business generally and for Albertsons particularly. As the chart above reveals, while margins did expand through the middle of 2020, that's mainly because the company had been barely breaking even or even losing money in the years before. Even so, the company's profit margin peaked at 2.6% in the pandemic period, less than the 2.8% the company achieved for the quarter ending February 24th, 2018. The average profit margin since YE2019 has been unimpressive, at 1.6%. Buyers of Albertsons stock before the Kroger deal was terminated may have hoped that the merged company's margins would be at least as good as the 2% to
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