How a Kroger-Albertsons merger could affect grocery prices

by Ryan Nebeker

Published: 3/06/24, Last updated: 3/06/24

In 2022, the U.S. grocery giants Kroger and Albertsons announced plans to merge. The $24.6 billion deal, which would bring more than 5,000 stores under unified control, would be the largest supermarket merger in history.

The proposal attracted immediate pushback, first from concerned employees and their unions, then officials from several states and, late this February, a lawsuit from the Federal Trade Commission and nine state attorney generals to block the merger. With previous administrations allowing mergers to go relatively unchecked, recent decades have been a fruitful time for big acquisitions in food and agriculture, making the Biden administration’s moves against this deal a notable change in direction.

So what’s behind the lawsuit?

The grocery industry is already tightly consolidated, with Walmart’s empire of superstores alone claiming 25 percent of the market. Kroger and Costco, in spots two and three, control about 10 percent each, with Albertsons coming in close behind. And while those numbers paint a grim picture for shoppers and independent retailers nationwide, the lack of options on a local level — where a single chain can dominate most of the grocery market — can be even more pronounced. This is a major point of contention in the Kroger-Albertsons merger: In the Northwest, the two chains together hold a whopping 57 percent of the grocery market.

If the merger were to go through, Kroger would sell off at least 413 of its stores to a smaller chain, C&S Wholesale Grocers. Divestitures like these are often required by regulators before deals can be approved in the name of preserving a competitive market, but the FTC has alleged that, in this case, it’s simply not enough. The sale would diminish Kroger’s share in some markets on paper, but that doesn’t guarantee the divested stores would become genuine competition: The FTC argues it would be very difficult for the new owner, which operates only a handful of C&S stores now, to operate these additional assets effectively, making it entirely possible that the divested stores could fail (and potentially be re-purchased by the new Kroger). Even if those former Kroger stores were to survive under C&S, the chain would still be too small and too scattered to be much of a counterweight against the market power of the new 5,000-store Kroger-Albertsons.

As grocery expert Errol Schweizer outlines in Forbes, a new chain on the scale of Kroger-Albertsons would hurt everyone else in the grocery market. As we’ve seen with Walmart, a highly consolidated company can force suppliers to cater to them with special rates, something that often leaves smaller players paying even higher prices to offset those deals. Big chains also have an advantage when supplies of a given product are tight: Suppliers will stock their largest customers first. This ultimately pushes suppliers themselves to consolidate so they can best ensure they’re able to meet the demands of their largest customers. Moving up the supply chain, this leaves farmers with fewer options for selling their food, forcing them to accept lower prices than they could get in a more competitive market. Consolidation among meat suppliers has already wreaked financial havoc on chicken farmers and cattle ranchers, as companies like Tyson, Perdue and JBS gobble up smaller players.

In the past, companies have justified their mergers by arguing that these slimmed-down, uncompetitive supply chains allow them to pass on savings to their customers. And for the last several decades, those potential savings have been the yardstick — known as the “consumer welfare principle” — that the federal government uses to determine whether a deal should go through. But the actual record of what happens to prices after big mergers tells a very different story: Grocery mergers can often increase prices simply because stores without competitors can charge what they want, especially in markets with few options to begin with, like most of the rural U.S. “When you have market share like that, you’re not charging competitive prices,” agricultural and antitrust policy expert Austin Frerick told FoodPrint — “you’re going to put a little cream on the top.”

22%

increase in corporate profits in 2021

Grocery prices are especially important right now. For most goods, inflation has now slowed or even reversed, and people are finally seeing prices dropping for things like electronics and a host of other goods that saw supply chain-related price hikes during the pandemic. But food prices remain stubbornly high, even as economists predict that the actual cost to produce and sell food will fall over the course of 2024. The administration’s preferred explanation for that gap is “greedflation,” alleging that companies have used the cover of pandemic, and subsequent economic disruptions, to increase their own profit margins. There’s some good evidence that this has been happening across the economy: Analyses show that corporate profits increased nearly 22 percent in 2021 and another 10 percent in 2022. The accompanying trends of “shrinkflation” and “skimpflation” (which see portion sizes and quality, respectively, go down as prices remain constant) are other manifestations of companies keeping high consumer prices in place even as they cut their own costs.

Because groceries are a regular expense, shoppers notice price increases in that area more than they might for things they only purchase occasionally, so grocery inflation plays an outsized role in public perception of how the economy is doing. That’s especially important in an election year, and the Biden administration has already made corporate greed a major talking point, with the president expected to address it directly in his State of the Union. And because companies in a consolidated market have more power to distort consumer prices than they could in a competitive one, the administration has aggressively moved to block mergers. As the largest supermarket deal in history, the Kroger-Albertsons merger has been a primary target for the FTC, one with a demonstrable potential to harm shoppers.

But it’s not just consumers the administration is trying to protect: When companies aren’t competing to attract workers, they have little incentive to raise wages or offer good benefits. This ultimately hurts workers whether they’re employed by a large chain or not, since large chains end up setting a low bar for other companies’ wages. As the FTC suit points out, Kroger and Alberstons are also the country’s two largest employers of unionized grocery workers, with the majority of in-store staff belonging to the United Food and Commercial Workers International Union (UFCW). Because unions can leverage gains at one company to push improvements at another, they’re strongest in a competitive job market; it’s much harder to make progress when dealing only with one big employer. That’s the dynamic that’s helped the largest employer in retail, Walmart, become so successful at union busting, ultimately spurring concern that a merged Kroger-Albertsons would hurt the pockets of working people in more ways than one.

Top photo by jetcityimage/Adobe Stock.

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