Big Grocery Merger Gets Chilly Reception by Senators Worried About Price and Quality

November 29, 2022 by Tom Ramstack
Big Grocery Merger Gets Chilly Reception by Senators Worried About Price and Quality
An Albertsons grocery store is seen in Boise, Idaho, on Oct. 14, 2022. (Sarah A. Miller/Idaho Statesman via AP, File)

WASHINGTON — A Senate panel showed a cynical attitude toward a proposed $24.6 billion merger of major grocery chains Kroger Co. and Albertsons Cos. during a hearing Tuesday.

The chief executive officers promised consumers would benefit if the Federal Trade Commission approves the merger.

Kroger announced Oct. 14 that it would buy Albertsons in a deal scheduled to close in early 2024. Kroger ranks second in U.S. grocery market share while Albertsons is fourth, according to Numerator, a market-research company that compiles consumer data.

A combined company would control about 13% of U.S. retail food sales, according to J.P. Morgan analysts. 

Several senators said the consolidated companies would eliminate competition between them, reducing their incentives to keep prices low and quality high.

“Too many Americans are striving to put affordable, nutritious food on the table,” said Sen. Amy Klobuchar, D-Minn., chairwoman of the Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights.

Food prices have increased 13% in the past year as inflation digs in, raising the average American household’s grocery bill by $110 a month, according to the U.S. Consumer Price Index. 

If a joined Kroger and Albertsons company maximizes profits with higher prices and by closing its least profitable stores, consumers would have fewer choices, Klobuchar said.

“This has serious implications for health and safety,” she said.

In addition to stores under its own name, Kroger operates chains like Harris Teeter, Ralphs and King Soopers. Albertsons also operates the Safeway, Acme and Jewel-Osco supermarket chains. Each of the parent companies has more than 2,000 stores.  

Some small towns have as few as two grocery stores, one owned by Kroger and the other by Albertsons, Klobuchar said.

“If those two stores are owned by the same owner, there’s no incentive to compete on quality and prices,” she said.

Sen. Mike Lee, R-Utah, questioned the timing of the merger.

“Inflation, to put it gently, is wreaking havoc on our entire economy,” Lee said.

Some consumers are forced to choose between buying groceries and putting gasoline in their cars, he said.

The Kroger and Albertsons chief executives said the competitive landscape for groceries has changed radically in the past decade, meaning the senators’ concerns are outdated.

“I just don’t see less competition going forward,” said Rodney McMullen, chief executive of the Cincinnati-based Kroger Co.

He was referring to the explosive growth of retail department stores expanding into the grocery market. The biggest is Walmart, Inc., which operates as the biggest U.S. grocer. Others are Target and Costco. 

None of them need to depend entirely on food sales. Instead, they can shift revenue from consumer product sales to their grocery operations, giving them a competitive advantage over traditional supermarkets.

In addition, online retail giant Amazon sells groceries. Some of its food is sold under its own low-cost brand.

“We operate on razor thin margins,” McMullen said.

A Kroger-Albertsons merger would give the combined company more buying power with its suppliers, ultimately resulting in better bargains for their customers, he said.

Vivek Sankaran, chief executive of Albertsons Companies, Inc., said the proposed merger “will result in more competition, not less.”

The Federal Trade Commission continues to investigate possible antitrust implications of the Kroger-Albertsons merger at the request of lawmakers who wrote a letter to the agency saying the deal “could exacerbate existing antitrust, labor and price-gouging issues in the grocery sector.”

Tom can be reached at [email protected] and @TomRamstack

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