The looming potential merger of Kroger and Albertsons promises to impact, not just the two companies involved, but also the entire industry, from retail competitors to the companies’ suppliers and business partners.
As previously reported, Kroger and Albertsons have agreed to merge in a $24.6 billion deal that is scheduled to close early next year, pending FTC approval.
Perhaps nowhere is concern about the merger felt more strongly than among the workers of the two companies who fear the deal may cost them their jobs. Although Kroger and Albertsons have both stated that no stores would be closed as a result of the merger, hundreds of locations could be spun off to a new owner.
In addition, many corporate-level positions at both companies are likely to be eliminated as duplicate functions are consolidated, although those job cuts will likely take place over an extended period of time.
“Kroger’s history with acquisitions has always been that they’ve taken it very slowly in terms of changes in the workforce,” said Jose Tamez, managing general partner at Austin-Michael, a Golden, Colo.-based executive search firm specializing in grocery retail. “I think they’ve done that consciously to make the integration process go much more smoothly.”
The fact remains that there will be considerable overlap in senior-level jobs, he said, adding that he believes the companies will address that issue “on a case-by-case, region-by-region, and brand-by-brand basis.”
Many corporate-level positions are likely to be redefined by the merger, with new responsibilities, and some jobs would likely be relocated as the newly formed company would seek to drive operational efficiencies.
“It will be up to the employee whether they want to accept their new role, or accept a severance package,” said Tamez. “For example, if someone is offered a redefined role in another city, they might opt for the severance package, rather than, say, move to Cincinnati, if that’s where the new position will be located.”
Such consolidation and potential relocation of job functions is common in mergers, and companies often manage these changes “in a very professional and fair-handed way,” said Tamez.
“I anticipate there will be a number of situations like that with this deal,” he said. “As the integration progresses, I think you'll see more and more people moving on by choice, or as their function or territory or region is redefined.”
Aaron Sorensen, lead partner in the business transformation and behavioral science practices at corporate advisory firm Lotis Blue Consulting, agreed that the merged companies would revamp corporate staffing as they seek to drive efficiencies.
“There won’t be a need to have two versions of the systems that enable core business processes,” he said, citing functions such as human resources, finance, marketing, IT, and supply chains.
“The combined companies should be looking to realize accretive value from this merger by taking out costs by consolidating technologies and costs mid- and senior-level management roles,” Sorensen said.
The pending merger will likely create a level of anxiety among some corporate-level workers, who may begin looking at the job market to see what other opportunities are available, said Tamez.
“That’s commonplace in any type of integration and merger,” he said. “People will be uncertain, and that may lead them to test the marketplace. There will always be people who are updating their resumes and poking around to see what else is out there, no matter what assurances they receive from Kroger and Albertsons.”
He said he expected that the companies will offer retention bonuses to incentivize people to stay on through the merger, and in fact he said that some of the plans for retaining key managers are already being discussed.
Opportunity for competitors
Sorensen, meanwhile, said rival retailers might have opportunities to bolster their own ranks with Kroger and Albertsons veterans as the proposed merger unfolds.
“There’s certainly going to be talent made available in the market as this moves forward,” he said. “Competitors should be looking to take advantage of this opportunity to fill skill gaps they have in key functions.”
He said that, contrary to what many people may believe, it’s not always the most talented professionals who are retained in the wake of a merger.
“The assumption that competitors are picking off the scraps that were left behind is a false assumption,” he said, noting that “politics and bias” are often stronger determinants of which workers stay with the newly formed company.
Tamez noted that although Kroger and Albertsons are likely to take a gradual, deliberate approach to integrating the two companies, they may face external pressures to move more quickly.
“On the one hand, Kroger easing into the integration should make the transition go more smoothly, but on the other hand, any delay in completing the full integration may leave them vulnerable to competitive pressures,” he said. “A full and expedient integration can be a positive, only because the market moves so quickly these days.
“For example, a slow integration in the Dallas-Fort Worth area, on one hand, is a good thing at its core,” said Tamez. “However, a slow integration in Dallas-Fort Worth could also be sub-optimal, relative to the pace at which H-E-B plans to build more conventional stores in the marketplace.”
Some store-level jobs in question
Both Tamez and Sorensen agreed that store-level workers would likely feel little disruption from the merger.
“At the store level, you obviously need to have personnel to run the stores, so there won’t be this type of disruption, and the unions are there to ensure that doesn’t happen,” said Tamez.
The United Food and Commercial Workers union has spoken out against the merger, however.
In an interview with SN, Kathy Finn, president of UFCW Local 770 in Los Angeles, said the merger would give the combined companies expanded power in labor negotiations, which could adversely impact workers.
“The proposed mega-merger between Kroger and Albertsons threatens the collective bargaining process by eliminating one of the top union employers in most of the markets across the country,” she said. “Kroger’s power at the bargaining table would be unprecedented and would unfairly tilt the bargaining table in Kroger’s favor.”
Given the profits that both Kroger and Albertsons have generated during the past few years, worker salaries should already be higher than they are, she said.
“Both companies need to drastically improve their workers’ wages and working conditions,” she said. “Having just one big grocery chain will decrease the number of job options available to workers, affecting workers’ ability to negotiate better wages, benefits, and working conditions.”
She also expressed concern over the divestiture of stores, which Kroger and Albertsons acknowledged was likely to happen.
“In the event of store closures, there will be massive worker layoffs and reduction of work hours, loss of health care and retirement benefits,” she said. “Good union jobs with guaranteed pay and seniority protections will be lost.”
A spokesperson for Kroger said the merger would have a positive impact on employees. “We will invest an additional $1 billion to increase wages and expand our industry-leading benefits starting on day one following close, and we expect to provide new and exciting career growth opportunities for many associates,” the spokesperson told SN. “This merger also secures the long-term future of union jobs by establishing a more competitive alternative to large, non-union retailers,” the spokesperson said.