This Ruinous Grocery Store Merger Must Be Stopped

Should the Albertsons and Kroger supermarket chains be permitted to merge? If you live in the Northeast, you might say, “Sure, why not?” Odds are you’ve never been inside either store, because Albertsons supermarkets are all situated west of the Mississippi River, and Kroger supermarkets are all situated in the Midwest and the South. This week’s news (broken by Bloomberg) that the Federal Trade Commission is preparing to file a lawsuit next week to block the merger might puzzle you. Why initiate antitrust action against two supermarkets of which you’ve scarcely heard?

Well, Albertsons owns Safeway. You’ve heard of Safeway, right? Albertsons also owns Balducci, the chain of specialty markets that grew out of a much-missed Greenwich Village gourmet shop. They own Star Market, a Massachusetts grocery chain that Bay Staters, endearingly, pronounce “Stah Mah-ket.” Then there are the assorted other chains tucked in Albertsons’ sprawling portfolio of which you would definitely have heard of if you lived and bought vegetables someplace else. Nationwide, Albertsons owns no fewer than 22 separate grocery chains.

Kroger’s is even bigger. Kroger owns Harris-Teeter, a Southern supermarket chain that’s expanded north as far as Delaware. It also owns the California chain Ralph’s and the Wisconsin chain Metro Market—17 separate supermarket chains in all. Excluding Amazon, big-box stores like Walmart, and drug stores like CVS, Kroger rakes in more worldwide revenue—$148 billion in 2022—than any other retailer. Albertsons ranks second, with $76 billion in worldwide revenue.

An Albertsons-Kroger merger would give the combined companies a combined share of the United States market in groceries totaling about 17 percent. Seventeen percent may not sound like a lot, but it’s a large market share for a commodity so universally necessary as the food you cook at home to feed your family. Even without the merger, a mere four companies (Kroger, Walmart, Costco, and Ahold Delhaize, which owns Giant and Food Lion) currently control 65 percent of the grocery market.

In Washington state, where Attorney General Robert Ferguson has already sued to block the merger, the combined company would command a market share more than 50 percent. “You are basically creating a monopoly in grocery with the merger [so] it makes no sense,” an unidentified Albertsons vice president said on hearing rumors of the merger, according to Ferguson’s complaint. Colorado Attorney General Phil Weiser followed Ferguson’s lead last week. It’s not hard to see why: The merger, the Washington and Colorado complaints argue, will create higher prices, close stores, and worsen the quality of service.

The price issue is especially salient, given public outrage over food prices. Writing earlier this month in The Washington Post, Abha Bhattarai and Jeff Stein reported that food prices rose 25 percent during the past four years, compared to an overall inflation rate of 19 percent. More than two-thirds of voters said, in a November poll by Yahoo Finance/Ipsos, that the increase in food prices hit them harder than any other kind of inflation. The price spike effectively ended last year, but food prices did not come down, and President Joe Biden has started accusing the grocery chains (not by name) of price gouging. Biden even complained about it in a Super Bowl ad. By reducing competition, further supermarket consolidation is virtually guaranteed to push food prices higher. Kroger has promised to invest $500 million after the merger to lower prices, but even if the merged company achieved a short-term price reduction, no sane person would count on that to last.

Store closings are another likely outcome from the proposed merger. Between 1994 and 2019, a period of furious consolidation in the supermarket sector, the number of individual grocery stores fell by 30 percent, according to an analysis by Food and Water Watch, a Washington-based nonprofit. To win approval for the Kroger-Albertsons merger, the two firms have pledged to sell off 413 stores to C&S Wholesale Grocers. The Washington state and Colorado complaints point out that Albertsons followed the same strategy when it purchased Safeway in 2015, offloading 146 stores to a regional supermarket chain called Haggen in order to secure regulatory approval.

It was a fiasco. Haggen, which was majority-owned by a private equity firm, was woefully unprepared to manage the expansion. Within seven months, it filed for bankruptcy and closed 127 of the stores. (Haggen, for its part, said its acquisition failed because Albertsons managed the handover indifferently, stiffing the new owners with insufficient inventory and poorly maintained facilities, among other problems.) Even if that history doesn’t repeat itself, a merged Albertsons-Kroger will quickly close down any Albertsons supermarket situated too close to a Kroger supermarket, or vice versa. The deleterious impact of dwindling grocery stores will be felt the keenest in rural America; National Public Radio reported last year that 76 counties nationwide already lack a single grocery store.

At a Senate hearing shortly after the merger was proposed two years ago, Vivek Sankaran, chief executive of Albertsons, argued that the merger was “the best way to compete with megastores like Walmart and highly capitalized online companies like Amazon,” which since 2017 has owned Whole Foods. Kroger chief executive Rodney McMullen made the same point. But as Business Insider’s Alex Bitter was quick to point out, the highly capitalized Amazon possessed at that point only 1.2 percent of the United States grocery market (compared to 8 percent for Kroger and 5 percent for Albertsons). Since then, Amazon’s share has zoomed up to, uh, 3 percent. I know Jeff Bezos plays the long game, but at this pace it will be 15 years before Amazon exceeds Kroger-Albertsons’ 17 percent.

Sankaran’s point about Walmart merits greater consideration. Walmart is the 800-pound gorilla here, commanding (in combination with Sam’s Club) an astounding 30 percent of grocery market share in the United States. This is not ideal. But consolidating in order to reduce consolidation is a strategy whose outcome should be well familiar to us by now; you don’t get less consolidation, but more. In the 1990s and the 2000s, for instance, health insurers merged to expand their control over pricing. Hospitals fought back in the 2000s and the 2010s with a wave of further mergers that eventually lured in private equity firms. Concentration in the health care arena didn’t get better; it got worse—and customers paid the price.

What about labor unions? Usually we can presume when there are mergers that the resulting reduction in competition for labor will result in lower wages than we’d see if the merged companies had remained separate. We can presume that because unionized workforces are a rarity in mergers. (Only 6 percent of the private workforce belongs to a union.) But Kroger and Albertson’s are both unionized. A strong labor union can change the monopsony calculus by compelling management to share its monopoly profits with the rank and file. That’s why you don’t hear the United Auto Workers demanding that the FTC bust up General Motors.

But the Teamsters, which represents 22,000 workers at the two companies, and the United Food and Commercial Workers both oppose this merger, in large part because of the promised sale of 413 stores to C&S Wholesale Grocers to appease the antitrust gods. Tom Erickson, Teamsters Central Region International Vice President, called C&S an “anti-union company” that “has driven one grocery business after another into the ground for 30 years.” Writing in The American Prospect, two union-side lawyers said C&S had a history “of acquiring unionized distribution centers, closing them down, and moving the work to non-union facilities.” But UFCW Local 555, which represents about 1000 Albertsons and Kroger workers in the Pacific Northwest, takes a different view, supporting the merger at least in part out of fear that if it doesn’t go through, Albertsons will be bought by a big-box store.

One can’t dismiss out of hand the possibility that if you keep one bad thing from happening, then another, worse thing will happen down the road. A year from now, Donald Trump may once again be president. I still judge that unlikely, but it may happen. Still, even Trump, in his erratic way, stepped up antitrust enforcement even as he worked to wreck the country in a thousand other ways. It’s entirely plausible to me that a Trump FTC would bar any big-box merger with either Albertsons or Kroger. At any rate, you can’t run a government that way. Let’s stop this merger now.