The Federal Trade Commission is challenging Kroger’s acquisition of Albertsons, saying their merger would be anticompetitive. The Washington Examiner will take a deeper look at what this lawsuit and potential merger would do to food prices — particularly on the cusp of the November election. Part 1 of Supermarket Sweep Up will focus on the arguments of each side.
As the Federal Trade Commission looks to block a merger between grocery giants Albertsons and Kroger, both the agency and the companies have competing statements about what exactly will happen to prices should the merger go through.
FTC officials say it will decrease competition among neighborhood grocery stores, leading to higher prices and poorer quality, but Kroger executives say it will, in fact, lower prices as their stores will be able to compete with big-box retailers such as Walmart and Costco. The $24.6 billion deal would be the largest supermarket merger in U.S. history.
Kroger owns 2,750 stores in 35 states and the District of Columbia, and its regional brands include Ralphs, Smith’s, Fred Meyer, Food 4 Less, and Harris Teeter. Albertsons owns 2,273 stores in 34 states and the District of Columbia, including regional brands Safeway, Jewel Osco, Vons, and Acme. The chains have heavy overlap in some markets in large cities such as Chicago, Dallas, Los Angeles, and Seattle, according to the New York Times.
If the merger goes through, C&S Wholesale Grocers, which owns Piggly Wiggly, has agreed to buy 413 stores, eight distribution centers, and two offices in 17 states and the District of Columbia. Washington would be the most affected state, with 104 stores expected to be purchased by C&S. Kroger and Albertsons own more than 50% of the grocery stores in the state, according to Washington Attorney General Bob Ferguson.
The new grocery giant would operate more than 5,000 stores nationwide if the merger is not blocked.
The FTC’s definition of the grocery market only includes traditional supermarkets, excluding big-box or discount retailers including Walmart, Costco, Amazon, Trader Joe’s, Aldi, and other food retailers with different business models that have strong customer bases.
The FTC is fighting to block the merger, suing Kroger over its acquisition of Albertsons. The attorneys general of Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming are all joining the FTC in the fight. All of the attorneys general are Democrats, save Republican Bridget Hill of Wyoming.
The attorneys general of Alabama, Iowa, Georgia, and Ohio, all of whom are Republicans, have joined the case to support the merger.
Meanwhile, Ferguson and Colorado Attorney General Phil Weiser, both Democrats, have independently sued to block the merger. The judge in the Colorado case temporarily blocked the merger in July until that lawsuit, which went to trial this week, is resolved.
The trial began this week, and hearings for lawsuits filed by the Washington and Colorado attorneys general are scheduled for the coming weeks. Here are the arguments on what will happen to prices from both Kroger and the FTC broken down:
What Kroger is arguing
Kroger executives claim prices would actually go down as the company would be able to compete against big-box stores including Walmart, Target, Costco, and Trader Joe’s, where many people prefer to shop.
“The day that we merge is the day that we will begin lowering prices,” Kroger CEO Rodney McMullen said in a federal court hearing this week.
On Aug. 16, Kroger promised to double its commitment to $1 billion in what it calls its investment in lower prices. The company also promised not to “close any stores, distribution centers or manufacturing facilities or lay off any frontline associates as a result of the merger.”
“All existing collective bargaining agreements will continue, and associates will continue to receive industry-leading health care and pension benefits alongside bargained-for wages,” a release from Albertsons and Kroger reads.
In his opening statement in the trial, Matthew Wolf, a lawyer for Kroger, said the increase in popularity of big-box retailers for grocery shopping needs has created complications in the traditional grocery market. Walmart accounts for around 22% of grocery sales in the country.
“Supermarkets are losing this food fight” to Walmart, Costco, and Amazon, Wolf said. He claimed the merger would lower grocery prices by $1 billion.
In 2023, Walmart had 23% of the grocery market share, Kroger was second at 10.1%, and Costco came in a close third with 9.2%. Ninety percent of the U.S. population lives within 10 miles of a Walmart store, according to the retail giant, which experienced approximately 255 million customer visits each week last year.
While grocery prices and the economy have been focal points as voters get ready for the Nov. 5 election, some experts say food prices are out of the company’s control and can be the result of other factors.
“In the grocery market, it’s really hard to tell what prices are going to be in two months because there are so many variables that go into grocery pricing,” Donald Polden, a law professor and former dean at Santa Clara University, told the Los Angeles Times.
Uncontrollable events such as droughts and poor crop seasons can affect prices. The costs of ingredients, worker wages, and management efficiency at the store and corporate level also play a role.
The effect of grocery store mergers on prices can provide a mixed bag of results. A 2012 study from the FTC Bureau of Economics found some of the mergers resulted in estimated price increases, while others caused price decreases or had relatively little change in prices.
Geographic differences can also occur with mergers. In large cities, where there are bountiful grocery options and customers have the choice between many stores, increases in prices may not be detrimental. Small towns and rural communities tell a different story.
Grocery store mergers in places with lots of competition have typically led to reduced prices, but they can lead to higher prices in lower-populated areas if, say, one of the affected grocery stores is the only one in town.
What the FTC is arguing
FTC officials claim the merger would lead to lower-quality products and services as consumers’ choices diminish. They also say the merger would “immediately erase aggressive competition for workers.” They are backed by unions, consumer advocates, politicians and independent grocery chains.
“This supermarket mega merger comes as American consumers have seen the cost of groceries rise steadily over the past few years,” Henry Liu, director of the FTC’s Bureau of Competition, said in a statement in February. “Kroger’s acquisition of Albertsons would lead to additional grocery price hikes for everyday goods, further exacerbating the financial strain consumers across the country face today. Essential grocery store workers would also suffer under this deal, facing the threat of their wages dwindling, benefits diminishing, and their working conditions deteriorating.”
In the press release, FTC officials said Kroger and Albertsons have acknowledged that their brands are competitors, which forces them to lower prices in competition with each other. Agency officials believe the merger would “eliminate head-to-head price and quality competition.”
The FTC cited one Kroger executive who candidly said, “You are basically creating a monopoly in grocery with the merger,” citing it as a sign that executives at both companies believe the merger is anticompetitive. FTC officials also believe the merger would diminish Kroger’s incentive to compete on quality, not just the price of goods.
They argue that supermarkets such as Kroger and Albertson’s are completely different from Walmart, which the supermarkets view as their competitor, not each other. The FTC argues that because Walmart sells so many other products besides groceries, it is not considered solely a supermarket. The FTC sees these two stores as entirely different markets and industries.
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During her opening statement at the trial, Susan Musser, the FTC’s chief trial counsel, said the deal “would eliminate the competition that shoppers and workers depend on in one fell swoop.”
“This lawsuit is part of an effort aimed at helping Americans feed their families,” Musser said.
This article was originally published at www.washingtonexaminer.com
