Grocery Update #37: Simple Truths: Why The Kroger-Albertsons Merger Was Blocked.
Some Context for Y'all.
Simple Truths: Why The Kroger-Albertsons Merger Was Blocked.
A Federal Judge and a King County Judge in Washington state have blocked the $25 billion merger of grocery giants Kroger and Albertsons. The decision is a victory for consumers, grocery workers, small scale suppliers and the Federal Trade Commission (FTC). It is a "likely death knell for the deal," according to Bloomberg. The FTC successfully argued that the merger would raise prices by eliminating competition and weaken union bargaining power.
The FTC has stirred from a 40+ year slumber to start applying antitrust doctrine to the food system, pushing for economic fairness, worker welfare and diversified ownership. The Kroger-Albertsons merger ran head first into that new paradigm, bolstered by the efforts of thousands of economic fairness and labor advocates across the country.
Kroger and Albertsons argued that they needed to merge to compete with Walmart, Costco and Amazon, and that selling 579 stores off to C&S Wholesale would preserve competition after the merger. The resulting grocery behemoth would have had over 5,000 stores. The two companies spent close to $1 billion to push the merger through regulators, money that maybe could have instead gone towards lowering grocery prices.
The Institute for Local Self Reliance, which opposed the merger, stated, “The last thing Americans need is more concentration in the grocery industry. As the FTC’s evidence showed, this merger would have allowed Kroger and Albertsons to hike grocery prices even higher and muscle aside smaller competitors. It would have put many communities at risk of becoming food deserts… This historic ruling marks the first time that the government has blocked a supermarket merger in decades. It shows that the administration's push to reinvigorate our antitrust laws is succeeding, including, crucially, in the courts.
“Our food system remains highly concentrated, however, and there is much more that antitrust enforcers need to do, including restoring enforcement of the Robinson-Patman Act to prevent price discrimination and ensure that giants, including Walmart, Kroger, and Dollar General, cannot continue to exert their power as dominant buyers to corner the grocery market.”
A group of UFCW local unions (UFCW 7, 324, 400, 770, 1564 and 3000) leading the Stop the Merger coalition of more than 100 organizations opposed to the proposed merger of Kroger and Albertsons, also put out a statement,
“The well-reasoned decisions today by both Courts make plain what union grocery workers have known all along – this mega-merger would be bad for workers who deserve a workplace where they can be paid well for their labor, be safe and be respected. It would be disastrous for shoppers who deserve competition that leads to better choices and lower prices. The merger would be detrimental to our communities, would harm farmers and suppliers who deserve a healthy balance to negotiate fair prices for their hard work. Instead, the proposed merger would create an out-of-balance system that drives up prices, drives out competition, and drives down wages and safety standards.”
Grocery Retail: Made From Concentrate.
For context, here is the math on grocery concentration at retail and CPG (consumer processed goods) manufacturing:
The top 6 chains control 65% of grocery retail sales nationally, the top 4 over 50%. Walmart. Kroger. Albertsons. Ahold-Delhaize. Walmart alone controls nearly 30% nationally and over 50% in many regions. In a few areas other regional chains are large market share leaders, like in Central and East Texas (HEB) and Florida (Publix).
Kroger and Albertsons own dozens of regional banners that millions of people shop in daily. They are, for the most part, excellent operators with deep customer insights and full service stores across neighborhoods in all income brackets. Kroger owns Fred Meyer, Harris Teeter, Vitacost, Smith’s, Ralph’s and King Soopers, and others, while Albertsons owns Jewel-Osco, Safeway, Vons, Pavilion, QFC, Acme, King’s, Shaw’s, Tom Thumb and Randalls and others. (And as a sidenote, Ahold-Delhaize owns Food Lion, Giant, GIANT, Stop&Shop and Hannaford).
Kroger or Albertsons are the #1, 2 or 3 market share leader in almost every metro area they operate in. (Source data via Axios via Chain Store Age via an internet search for each metro area.):
Atlanta: Kroger 26%, Publix 22.5%, Walmart 19%;
Raleigh Durham: Walmart 20%, Kroger/Harris Teeter 17%, Food Lion/Ahold 15%
Cincinnati: Kroger 43%, Walmart 21%
Columbus: Kroger 43%, Walmart 19%
Chicago: Albertsons/Jewel-Osco 22.6%, Walmart 17%, Kroger 7%
Seattle: Kroger (Fred Meyer/QFC) 32%, Safeway 17%
Northern California: Safeway (Albertsons) 21%, Walmart 8%
Southern California: Albertsons/Vons/Pavilions 19.8%, Kroger (Ralphs/Food4Less) 18.6%
Salt Lake City: Smith’s/Kroger 27%, Walmart 21%
Denver: Kroger/King Soopers 36%, Walmart 17%, Safeway 11%
Arizona: Fry’s (Kroger) 28%, Walmart 17%, Safeway/Albertsons 14%
DFW: Walmart 29%, Kroger 19%, Albertsons/Tom Thumb 12%
Houston: HEB 24%, Kroger 24%, Walmart 20%, Randall’s (Albertsons) 2%
Nashville: Kroger 33%, Walmart 24%
Detroit: Kroger 33%, Meijer 16%, Walmart 13%
Portland: 52% combined Kroger and Albertsons
Another way to look at this is that grocery retail is heavily consolidated on a metro area basis. In Salt Lake City, Portland and Seattle, the top 2 control 50%. In Chicago, the top 3 control 50%, in Southern California the top 2 control 40%. In Detroit, Atlanta, DFW, Arizona and Denver, Colorado, the top 3 control 60%. In Houston, the top 3 control nearly 70%. In Austin, the top 2 control 75%. Walmart alone has over 60% market share in dozens of metro areas. And in all cases either Walmart and/or Kroger are in 1 of the top 2 slots. It should be no surprise then that the number of grocery stores has declined by 30% in the last 25 years.
This retail consolidation among a handful of chains enables concentration further back in the supply chain, especially CPG, or consumer packaged goods. Concentration means more uniformity among fresh products, elbowing out smaller, diversified growers. Concentration also means lower wholesale costs, a cost factor usually invisible to consumers. While larger chains like Walmart and Kroger can leverage store count, market density and sales volumes to ensure lower logistics costs, smaller chains without such efficiencies can sometimes rack up 3-5 times such costs. These economies of scale enable Walmart, Kroger and a handful of other mass merchants to dominate market share in dozens of metro areas.
The market share concentration on shelf by CPG conglomerates is more extreme than retail.
The top 4 yogurt companies, including Danone, Lactalis and Chobani, control 75% of sales and the top 3 cereal companies, including General Mills, Post and Kellogg’s, control 90% of your crunchy breakfast options. Four or fewer corporations also control 93% of soda sales, including Coke and Pepsi, 80% of candy, such as Hershey, Mondelez and Mars, 60% of snack bars, including Mars, Kellanova and General Mills, 66% of frozen pizza, 60% of bread, 80% of toothpaste and 80% of toilet paper sales.
Such retail and CPG concentration supercharged the price inflation that in turn created windfall profits from 2020-2022. This is why grocery prices are up 30% while unit volumes are actually flat or down in most categories since 2019. Yes, that is correct. Demand is down. People are buying less food. Price inflation is thanks to market concentration and profit seeking:
Grocery units down 1.6% and prices up 40%
Dairy units down .1% and prices up 33%
Meat units down 10.5% and prices up 41.5%
Frozen units flat at 1% and prices up 35.6%.
The Covid-19 pandemic and the war in Ukraine created ample consumer concerns to give cover fire for companies up and down the supply chain to pass prices to consumers above the rate of their own cost inflation. These practices, called “sellers inflation” by economist Isabella Weber, may have contributed to over 50% of all food price inflation from 2020-2022, when prices were skyrocketing. What that means is that the price increases would have been half of what everyone has experienced if wasn’t for market share concentration and the resulting profit taking.
No, Joe Biden didn’t increase prices. Big Grocers and CPGs sure did, though.
And the Biden Administration didn’t do much of anything to push back on this price gouging. Cost of living and food prices were among the main reasons why Donald Trump will be the 47th president. Nice work, Joe. #MAHA indeed.
Inflation has always been part of the grocery playbook, but big chains took it to new heights in recent years. The CEO of Kroger stated that they operate best at 3-4% annual inflation. This would add up to over 15% compound inflation since he made that statement in 2021. The CEO of Albertsons justified higher prices because he figured customers would keep buying more food while the economy was growing and they had pandemic-era benefits to spend. Both companies, with a combined 16% grocery market share, raised prices well above the rate of their own cost increases because they could. Everyone in the grocery business was feeling supply chain pressure and the biggest chains, alongside their largest suppliers, had the most pricing power. (This was admitted under oath during the Kroger-Albertsons merger trial the week of August 26th, 2024, as documented below.)
Between 2019 and 2022, Walmart raised prices on thousands of items well above the rate of inflation, including potato chips by 35%, cookies by 62% and yogurt by 92%. Prices at Albertsons on store brand oils increased by 117%, potato chips by 68% and packaged cheese by 125%.
Kroger, Albertsons, Target and Dollar General all saw double digit net income growth from 2020-2021. Walgreens income growth hit triple digits with all the pandemic pharmacy traffic and Ahold-Delhaize increased net income despite sales declines. In 2020, Walmart and Kroger saw windfall profits as the economy shut down, adding $45 billion to the Walton family wealth and 2 billion dollar rounds of Kroger stock buybacks.
Merger Trial Revelations.
During the Kroger-Albertsons merger trials, lots of information was revealed to add fuel to these concerns (notes taken by Laurel Kilgour, Research Manager at the American Economic Liberties Project):
There is currently robust head-to-head competition between Kroger and Albertsons across multiple lines of commerce.
A merger between Kroger and Albertsons would increase market concentration in thousands of communities across the country, and the loss of competition in any single geographic market is sufficient to meet the Federal Trade Commission’s burden of proof.
Market Concentration Worries: The FTC emphasized the significant market share Kroger and Albertsons hold in many regions. While Kroger continues to attempt to keep the focus on national competition, the Commission emphasized that merger would further concentrate power in these smaller and mid-size markets, reducing competition and likely leading to higher prices for consumers.
The corporations also compete as employers. Both have unionized workforces which depend on being able to play employers off each other through credible threats that they will go on strike in order to win higher wages and safer, better working conditions. With fewer employers in the labor market, unions would lose that leverage.
Labor Market Implications: The hearing also highlighted concerns about the potential impact on the labor market. Albertsons executive Carl Huntington, who oversaw stores in Portland, Oregon, confirmed that strikes at traditional supermarket competitors like Kroger can lead to a “massive” sales influx.
Both Kroger and Albertsons have unionized workforces, and the merger could weaken unions’ leverage—especially in markets where Kroger and Albertsons dominate—leading to worse conditions for workers.
Kroger’s Strategic Price Hikes: Testimony from Andrew Groff, Director of Retail Insight & Strategy at Kroger, revealed that Kroger deliberately raised prices on essential goods like milk and eggs more than necessary during inflationary periods, directly benefiting from the increased margins at the expense of consumers. Groff claimed that price hikes in areas with no or low competition from traditional supermarkets like Albertsons were needed to offset labor and transportation costs– but Kroger was regularly spending money on stock buybacks.
Undermining Consumer Narrative: Internal communications and court testimony revealed that Kroger’s approach to pricing was more about maintaining high margins than offering competitive prices, which casts doubt on claims that the merger would lower prices for consumers. Michael Marx, President of Roundy’s Division (part of Kroger) confirmed internal documents showing that stores with a Mariano’s banner kept egg prices high even when their own costs went down and even after Walmart lowered prices, only lowering them weeks later once Jewel Osco (owned by Albertsons) cut prices.
Head to Head Competition with Albertsons: Despite Kroger’s argument that the merger is necessary to compete with Walmart, evidence showed that Kroger primarily focuses on matching prices with Albertsons rather than competing aggressively with Walmart. This contradicts their narrative of needing the merger to challenge Walmart’s dominance.
Strategic Price Ceilings: Kroger’s use of Albertsons as a “price ceiling” indicates a strategic avoidance of lowering prices in markets where they compete directly, suggesting that the merger could lead to even less price competition.
And way back in October 2022, the month the merger was announced, I wrote the following:
A merger may make it tougher for unions; a 2004 grocery strike for better wages in California was squashed once Kroger and Albertsons joined forces against their own employees. Now the combine duo would become the latest private sector unionized employer. And a merger will mean large scale layoffs in redundant white collar jobs, such as office-based marketing, procurement, analytics, digital sales and category management roles.
A merger would give the combined company tremendous purchasing power with suppliers, even if they spin off a few dozen stores to avoid the most blatant antitrust practices. A 5,000 store chain in over 48 states could more easily set payment terms, negotiate shelf space and assortment, and extract better costs and greater trade allowances for promotions, couponing, ad placement and slotting fees.
Meanwhile, for suppliers, especially smaller and emerging brands, doing business with the combined chain would not get easier. Grocery shelves, while seemingly abundant with choices, are already heavily concentrated among just a handful of companies in many packaged foods categories, such as Pepsico, Kraft Heinz, Nestle and Kelloggs, as well as meat and poultry barons such as Tyson, JBS and Smithfield. The merger would make it unlikely that a 5,000 store chain would double down on localized assortments, seasonality and sustainability trends, such as regenerative organic agriculture and climate-friendly plant-based foods. It would further centralize industrial agriculture supply chains from GMO-fed, concentrated animal feedlot beef, pork, poultry and dairy, as well as chemical-intensive fruit and vegetable monocultures that ensure uniformity of supply and low shrink.
Independent grocers have already testified to Congress about the leverage that such “power buyers’ have in the supply chain, including priority access to inventory, as well as exclusive pack sizes and volume deals.
And I concluded with this, which I still stand behind:
Regulators and policy makers should do more than just block the Kroger and Albertsons merger. Nor should the grocery industry be a quarterly ATM for investors. The grocery industry is far too concentrated and suppliers, employees and consumers would all benefit from disaggregating the grocery giants. The goal should be a food industry organized through retail and wholesale cooperatives, independents and a public food sector that operationalizes a right to food. The vital role played by grocers should reflect the diversity, regionalism and fairness that communities deserve and expect.
Ok. What Next?
We need to build a grocery industry that diversifies ownership and governance, that prioritizes worker welfare and their standards of living, that reflects a true cost accounting, especially in terms of diversified, regenerative and organic food production, innovative and ethical suppliers, and is transparent and accountable to communities. Such economic populism should be common sense, not just wishful thinking. And the energy towards these goals should reflect the scale of our compound crises at hand: Covid-19 and now bird flu, climate change and the huge cost externalities from unhealthy food, as well as poverty wages and retail food deserts.
These are the unpleasant realities of our food system. But we can repair them.
These judges blocking the Kroger Albertsons merger- this is a hard won victory, a small but important step in moving our food supply in a better direction.
And now, what about Walmart…
peace.