The U.S. Federal Trade Commission sued to block the USD 24.6 billion (EUR 22.7 billion) proposed Kroger-Albertsons merger on 26 February. The suit will almost certainly further delay the merger – originally proposed in October 2022.
In the FTC’s suit, the commission argued the tie-up would lead to “higher prices for groceries and other essential household items for millions of Americans.”
“The loss of competition will also lead to lower-quality products and services while narrowing consumers’ choices for where to shop for groceries,” the FTC said.
Policymakers throughout the country have voiced the same concerns.
If the deal were to go through, Cincinnati, Ohio, U.S.A.-based Kroger would acquire all of Boise, Idaho, U.S.A.-based Albertsons’ outstanding shares for around USD 24.6 billion (EUR 22.8 billion). Albertsons would also spin off a newly created standalone public company, SpinCo, and divest 413 stores to C&S Wholesale Grocers. Currently, Kroger operates more than 2,700 stores, while Albertsons owns nearly 2,300. With the acquisition, Kroger would nearly double its total number of locations, and together with Walmart, they would control about 55 percent of the food retail market in the U.S.
Kroger criticized FTC’s suit, contending the merger would actually result in lower consumer prices.
“The FTC’s decision makes it more likely that America’s consumers will see higher food prices and fewer grocery stores at a time when communities across the country are already facing high inflation and food deserts. In fact, this decision only strengthens larger, non-unionized retailers like Walmart, Costco, and Amazon by allowing them to further increase their overwhelming and growing dominance of the grocery industry,” the retailer said.
Kroger also said that no stores, distribution centers, or manufacturing facilities would close as a result of the merger, including those divested to C&S Wholesale Grocers.
The merger might give the company the opportunity to lower costs, but that's not the most likely outcome, according to Rich Wolverton, the owner of retail and foodservice consulting firm Grow Foodservice.
"How often does that happen?” he told SeafoodSource. "History proves the FTC correct that less competition typically means higher prices to the consumer,” said Wolverton, who was an executive at Food Services when US Foods acquired the company in a merger in 2019.
Chuck Anderson, the vice president of operations and a partner at Certified Quality Foods, said the situation is a bit more nuanced. If the correct stores are divested, competition can be preserved, he said.
“When assessing the grocery competition landscape, does the FTC consider all the various competitors, not just traditional supermarkets? So many outlets are competitively offering groceries now, including Aldi, Lidl, Trader Joe’s, WalMart, and Meier,” Anderson said.
However, Anderson said if the right stores are not divested, competition will suffer, leading to fewer options and potentially higher prices.
“If approved, this and other regional and national supermarket mergers could put more pressure on independent grocers,” Anderson said.
Anderson said if the merger goes through, fresh, frozen, and shelf-stable seafood suppliers would most likely be asked to lower prices to compensate for the increase in volume they would be able to move.
“As Kroger and Albertsons are already high-volume accounts, many suppliers may already be providing their lowest cost, so how much savings can be achieved is debatable,” Anderson said. “The key for the new combined procurement teams is to work with suppliers to remove costs from the supply chain. It can’t be just a bigger stick. It has to be the carrot of more volume and improved supply chain efficiencies.”
For suppliers to succeed in the possible landscape of a Kroger-Albertsons merger, they really need to know their costs and margins, Wolverton said. He said that scenario would only benefit the largest suppliers.
“The larger [supplier] could offer lower prices. How will Kroger/Albertsons judge the company’s success? Will it be based on giving away their margin to the consumer or keeping profits for the company?" Wolverton said. "As a capitalist, Kroger/Albertsons will offer consumers the pricing needed to hit their goals, which does not mean lower prices to the consumer."
Post-merger, fresh seafood suppliers may fare better approaching a local or regional Albertsons or Kroger office rather than the main corporate office, according to Wolverton.
“There are products that sell well in certain regions, [such as] catfish in the Southeast and walleye in the upper Midwest. Some items sold nationwide may be negotiated differently than regional or local items,” he said. “Fresh seafood draws in consumers with higher incomes, so if the competition is strong enough in an area, fresh seafood could be the difference-maker.”
The Center for Science in the Public Interest (CSPI), which called on the FTC to block the deal last fall, warned many suppliers will lose placement on Kroger and Albertsons shelves if the deal goes through.
“Retailers and leading manufacturers already enter into cozy contractual relationships that place preferred brands of soda and other low-quality food items in multiple, desirable locations in a store, like check-out aisles, end caps, and floor displays. So-called category captains, appointed by retailers for a price, literally let one manufacturer decide where its competitors’ products are shelved. These anti-competitive practices are also migrating online with prime placement on grocery store shelves replaced with premium placements in search results, pop-up ads, and email promotions.” CSPI said on 26 February. “The proposed merger would only exacerbate the anti-competitive nature of those practices as the combined company’s buying power grows larger, leading to less bargaining power for smaller food companies and farmers and fewer choices for consumers.”
