The news: Kroger plans to buy Albertsons in a deal that values the company at $24.6 billion, per The Wall Street Journal.

• Kroger is the largest supermarket operator in the US with 2,800 stores in 35 states, while Albertsons has roughly 2,200 stores in 34 states.
• The combined company would have significant purchasing power to help it compete with Walmart, which accounts for 21.3% of US grocery sales, per Numerator. Kroger accounts for 10.2% and Albertsons 5.8%.

The impact on digital grocery sales: While the growth rate of digital grocery sales has slowed significantly since 2020, its share of overall sales continues to grow. Our digital grocery report expects digital will account for 9.9% of overall grocery sales this year and that share will reach 15.0% by 2026.

• Walmart and Amazon dominate the online grocery space; combined, they account for nearly half of all US digital sales, per our estimates.
• The deal would help Kroger gain share. The company has been building a network of fulfillment centers to enter markets where it doesn’t have a physical presence. But a combined company would enable it to add physical stores, which could also bolster digital growth, particularly in click and collect, said Blake Droesch, eMarketer senior analyst at Insider Intelligence. “Kroger's strategy is indicative of the increasingly hybrid future of the grocery business,” he said.

Not so fast: The combined company would have a market cap of nearly $48 billion.

• But the two companies have significant overlap in several key markets, including Southern California, Texas, and Chicago, which will undoubtedly attract antitrust scrutiny.
• While the companies would likely have to divest overlapping stores, that may not be enough to mollify regulators who are likely to be focused on the possibility that a deal could decrease competition and cause food prices to rise.

The big takeaway: The grocery space is already heavily consolidated, making further consolidation bound to attract scrutiny, particularly at a time when food prices are already soaring.

Go further: Read more digital grocery industry insights in our US Digital Grocery Forecast 2022.

This article originally appeared in Insider Intelligence's Retail & Ecommerce Briefing—a daily recap of top stories reshaping the retail industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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