Blocking Kroger’s mega-merger with Albertsons won’t save your local grocery store

CNN

Analysis by Nathaniel Meyersohn, CNN

New York (CNN) — Citing higher prices and weaker competition, the US government sued to block Kroger and Albertsons’ $25 billion mega-merger Monday. But scuttling the deal isn’t a given – and even if it’s ultimately dismantled, keeping the supermarket chains separate may not save your local grocery store.

Kroger and Albertsons want to merge to fight Amazon, Walmart and other competition. But the FTC says the merger is anti-competitive and will harm consumers and workers. The companies have criticized the FTC’s lawsuit, and Kroger says it will appeal the decision.

Here are five major takeaways from the lawsuit to block the largest supermarket merger in US history.

High grocery prices helped scuttle the deal

Inflation at the grocery store loomed over the proposed merger.

The proposed merger comes as food prices have skyrocketed. Americans are spending 26% more on groceries compared to 2020, according to the Bureau of Labor Statistics, and the highest portion of their income on food than any point over the past 30 years.

“The stakes for Americans are exceptionally high. Over the past four years, grocery prices have risen significantly,” the FTC said in its lawsuit.

The FTC charged that the merger, which would eliminate direct competition between Kroger and Albertsons, risked raising prices and reducing service for consumers in areas where the two chains compete head-to-head.

“Kroger and Albertsons engage in aggressive price competition,” the FTC said. “The proposed acquisition would eliminate that competition.”

The companies pushed back on this, however. They say that merging would allow them to drive down costs and pass along the savings to shoppers.

Kroger had committed to invest $500 million in lower prices and $1.3 billion to improve Albertsons’ stores if the merger cleared. But it wasn’t enough to satisfy regulators.

Your local grocery store is still struggling

The FTC said the merger would increase market concentration and hurt competition.

Yet consolidation in the grocery sector is growing, and small grocery stores are struggling.

In 2019, the 20 largest retailers controlled 64% of total food sales, more than double the share from 1990, according to the Agriculture Department.

Traditional grocery stores have also lost ground to Walmart, Costco, dollar stores and online retailers during that span.

The share of spending at traditional supermarkets dropped from 80% in 1990 to 62% in 2012, according to the Agriculture Department.

Independent grocery stores strongly opposed the merger. They argued that the merger would increase the companies’ leverage with merchandise suppliers and leave independent stores unable to stock their own shelves.

“This corporate marriage of two supermarket giants is engineered to enhance the largest conventional grocery chain’s leverage over suppliers at the expense of smaller rivals,” Greg Ferrara, CEO of the National Grocers Association, which represents independent stores and wholesalers, said in a statement.

The FTC is playing hardball

The FTC’s action to stop the merger is the latest example of the agency’s aggressive new antitrust approach under President Joe Biden.

Under FTC Chair Lina Khan, the agency has taken Amazon, Meta, Microsoft and other corporate giants to court for alleged anti-competitive practices.

Khan has embarked on an ambitious program to scale up US antitrust and consumer protection enforcement and expand the scope of the law in new ways.

It marks a shift from the FTC’s lax approach to antitrust enforcement since the 1970s, which allowed for consolidation in a range of industries.

Unions, Democrats cheer the suit

Kroger and Albertsons employ roughly 700,000 employees, most of them union workers.

In its lawsuit, the FTC said the deal would harm collective bargaining and give workers less power to negotiate wages and benefits in contracts.

The United Food and Commercial Workers’ union came out early against the merger, fearing it could lead to store closures and job losses. The union supported the FTC lawsuit.

“The UFCW stands – and will continue to stand – in opposition to any merger that would negatively impact our hundreds of thousands of hard-working members who work at Kroger and Albertsons,” UFCW President Marc Perrone said in a statement Monday.

Top Democratic lawmakers also praised the FTC.

“By blocking this deal, the @FTC is fighting to both protect workers’ jobs and lower food prices,” Sen. Elizabeth Warren (D-MA) said on Twitter.

But Kroger and Albertsons said the merger would benefit workers by allowing them to better compete against non-union giants such as Walmart, Amazon, Aldi and other chains. Kroger and Albertsons had committed not to close stores as a result of the merger.

The deal isn’t dead yet

The FTC’s lawsuit doesn’t mean the merger won’t go through.

The FTC has lost several cases that went to court, including Microsoft’s $69 billion acquisition of video game company Activision.

Kroger said it would continue its pursuit of the merger and litigate the FTC lawsuit in court.

Some retail analysts expected the FTC to attempt to block the merger, and they believe the two companies will eventually merge.

“We are not surprised by the FTC’s decision to sue to block the merger of Kroger and Albertsons, given the FTC’s tendency to block major deals in recent years,” Joe Feldman, an analyst at Telsey Advisory Group, said in a note to clients. “We are supportive of the deal” because the two companies will be able to use their combined scale to compete with larger companies like Walmart.

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