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, smaller suppliers and the Federal Trade Commission (FTC). The FTC successfully argued that the merger would raise prices by eliminating competition and weakening unions’ bargaining power.

Kroger and Albertsons countered that they needed to merge to compete with Walmart, Costco and Amazon, and that selling 579 stores would maintain competition after the merger. The resulting grocery giant would have over 5,000 stores. The two companies spent nearly $1 billion to push through the merger, money that perhaps could have gone toward lowering food prices instead.

The Institute for Local Self Reliance, which opposed the merger, stated: “This historic ruling marks the first time in decades that the government has blocked a supermarket merger. It shows that the administration’s efforts to revitalize our antitrust laws are succeeding, especially in court.”

A group of local UFCW unions (UFCW 7, 324, 400, 770, 1564 and 3000) that lead the Stop the Merger coalition also released a statement: “Today’s well-reasoned decisions from both courts make clear what union grocery workers have always known: This mega-merger would be bad for workers who deserve a job where they are well paid, safe and respected for their work.” It would be disastrous for shoppers who deserve competition that leads to better choices and lower prices. The merger would be harmful to our communities and would hurt farmers and suppliers who deserve a healthy balance to negotiate fair prices for their hard work.”

The top six chains control 65% of grocery retail sales nationwide, and the top four control over 50%. Walmart alone controls nearly 30% nationwide and over 50% in many regions. Kroger and Albertsons own dozens of regional banners where millions of people shop every day. 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.

Kroger or Albertsons are market leaders #1, #2, or #3 in almost every metropolitan area in which they operate, such as:

• Atlanta: Kroger 26%, Publix 22.5%, Walmart 19%.
• Chicago: Albertsons/Jewel-Osco 22.6%, Walmart 17%, Kroger 7%.
• Southern California: Albertsons/Vons/Pavilions 19.8%, Kroger (Ralphs/Food4Less) 18.6%
• Salt Lake City: Smith’s/Kroger 27%, Walmart 21%

This retail consolidation to a handful of chains allows for concentration further down the supply chain, particularly in CPG or consumer packaged goods. The four largest yogurt companies, including Danone, Lactalis and Chobani, control 75% of sales, and the three largest cereal companies, including General Mills, Post and Kellogg’s, control 90% of your crunchy breakfast options. Four or fewer companies also control 93% of soda sales, including Coca-Cola 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 the Bread, 80% of toothpaste and 80% of toilet paper sales.

Such retail and CPG concentration accelerated price inflation, which in turn led to unexpected gains from 2020 to 2022. Inflation was not demand-driven, as some economists suggest. Overall, food prices have risen by over 30%, while unit numbers have actually stagnated or declined since 2019:

• Grocery stores (center store) decreased 1.6% and prices increased 40%
• Dairy product units (milk, yogurt, etc.) decreased by 0.1% and prices increased by 33%.
• Meat units down 10.5% and prices up 41.5%
• Frozen foods (meals, pizza, desserts) remain at 1% and prices increase by 35.6%.

The Covid-19 pandemic and the war in Ukraine have raised significant concerns among consumers, providing companies across the supply chain with an excuse to pass on prices to consumers above the rate of their own cost inflation. These practices, dubbed “seller inflation” by economist Isabella Weber, may have contributed to over 50% of all food price inflation between 2020 and 2022.

During that period, Walmart increased prices on thousands of items well above inflation, including potato chips by 35%, cookies by 62% and yogurt by 92%. At Albertsons, prices for branded oils increased 117%, potato chips increased 68% and packaged cheese increased 125%.

Kroger, Albertsons, Target and Dollar General all posted double-digit net income growth from 2020 to 2021. In 2020, Walmart and Kroger posted unexpected gains as the economy stalled, increasing the Walton family’s fortune by $45 billion and prompting $2 billion in Kroger stock buybacks.

Much information was revealed during the Kroger-Albertsons merger process that reinforces these concerns, as Laurel Kilgour of the American Economic Liberties Project documents:

• A merger between Kroger and Albertsons would increase market concentration in thousands of communities across the country, and the loss of competition in a single geographic market is enough to meet the Federal Trade Commission’s burden of proof.
• The corporations also compete as employers. Both have unionized workforces that rely on pitting employers against one another through credible threats to go on strike in order to secure higher wages and safer and better working conditions. With fewer employers in the labor market, unions would lose this influence.
• Kroger’s strategic price increases: The testimony of Andrew Groff, Director of Retail Insight & Strategy at Kroger, revealed that Kroger intentionally raised prices on essential goods like milk and eggs more than necessary during times of inflation, directly benefiting from increased margins at the expense of consumers has benefited. Groff claimed that price increases in areas with little or no competition from traditional supermarkets like Albertsons were needed to offset labor and transportation costs – but Kroger regularly spent money on stock buybacks.
• 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 as their own costs fell and even after Walmart cut prices, and they It wasn’t until weeks later, when Jewel Osco (owned by Kroger) lowered prices on eggs from Albertsons) lowered prices.
• Direct Competition with Albertsons: Despite Kroger’s argument that the merger was necessary to compete with Walmart, the evidence showed that Kroger is primarily focused on matching prices with Albertsons rather than competing aggressively with Walmart. This contradicts their narrative that the merger must challenge Walmart’s dominance.

Blocking such a massive merger is a brief victory for antitrust and labor rights advocates. This is a small step given the challenges facing the food industry that go beyond market concentration and higher prices, such as bird flu, climate change, the huge cost externalities of unhealthy food, and poverty wages and retail food deserts.

Instead, the future could be a food industry with diversified ownership and governance, prioritizing workers’ well-being and living standards, and reflecting real cost accounting, moving towards diversified, regenerative and organic production. Such sustainable and economic populism should not just be wishful thinking. Like blocking such massive food mergers, it should be common sense.