The $25B Kroger-Albertsons Merger Is Going to Fail
The Federal Trade Commission sued to block the supermarket chain Kroger from buying Albertsons. Does this deal have a chance? Not really.
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On Monday, the Federal Trade Commission moved to block the $25 billion Kroger-Albertsons supermarket deal. So that’s what I’m writing about.
Before I get to that, I have three announcements. First, economists Larry Summers, Marijn Bolhuis, Judd Cramer, and Karl Oskar Schulz wrote a paper based on a BIG post and cited us. It’s titled The Cost of Money is Part of the Cost of Living: New Evidence on the Consumer Sentiment Anomaly. They asked the question, why are people mad at inflation if the traditional measures of inflation are low? The answer, they found, is that those traditional measures do not include the cost of borrowing, and the cost of borrowing explains “almost three quarters of the gap in US consumer sentiment in 2023.” If that sounds familiar, it’s because BIG published this idea back in September. Summers et al do a lot more development of this idea, including a way of measuring inflation that includes borrowing costs. Their paper could become influential and change monetary policy. So yay.
Second, I work at a think tank called the American Economic Liberties Project, and we submitted a brief encouraging the Supreme Court to rule against big tech in a case heard yesterday called NetChoice vs Paxton. It was co-authored by a group of scholars, including Zephyr Teachout, Tim Wu, Larry Lessig, Richard John, and Matthew Lawrence. The Texas Solicitor General cited our brief in his arguments (at 42:15). If you want to learn more, Teachout was on an excellent Federalist Society panel today discussing the case.
Third, the Antitrust Division opened a wide-ranging antitrust investigation of UnitedHealth Group, and you’ll recognize significant parts of what they are finding from the BIG piece last year, How Obamacare Created Big Medicine.
And now…
On Monday, the Federal Trade Commission and nine states sued to block the $25 billion Kroger-Albertsons supermarket combination, the largest supermarket merger of all time. I’ll go over what the FTC is saying, but first I wanted to touch on the potentially criminal activity involving these chains that came out over the last few months.
Last week, I wrote up how two state attorneys general are taking on the merger, not only challenging it directly but also exposing evidence that came out in the investigation showing that the two supermarket chains were colluding to suppress wages during strikes, which would be a crime. The FTC's complaint confirms what they did. Here the FTC says that Kroger and Albertsons “successfully coordinated” in Portland in 2019 to hold down wages.
That’s a crime called wage-fixing. So why didn’t the FTC do anything with this information except try and block the merger? Well, the FTC doesn’t have criminal jurisdiction, that’s up to the Department of Justice, and the DOJ don’t announce criminal investigations until an indictment happens. So we won’t know anything for awhile about whether they believe there was criminal activity.
Ok, now on to the merger challenge itself, and the explosively popular political response to what the FTC just did. The case is simple. Kroger and Albertsons, if they combine, will raise consumer prices and lower wages. And these are already extremely big chains who have themselves done massive acquisitions. The FTC provided some graphics in its complaint showing the many mergers that built the two chains. Here’s Kroger:
And here’s Albertsons:
So this merger would be a merger of mergers, or roll-up of roll-ups, with 700,000 employees.
What’s the gist of the complaint? Well, the two giant chains compete against each other aggressively right now, benchmarking prices against each other, offering promotional pricing discounts to lure shoppers, checking the freshness and quality of each others’ produce, and remodeling stores where there is competition, including extra services like pharmacies. They also hire each others’ workers, and unions, such as the United Food and Commercial Workers, get better collective bargaining agreements by playing the two chains off each other. If Kroger and Albertsons merged, all that goes away.
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And the government has evidence, including quotes from executives, and lists of dozens of cities where prices are likely to go up. (I’ve included that list in the post-script after this piece.) Indeed the merger is so egregious that CNBC’s Jim Cramer, who has spent a lot of time bashing FTC Chair Lina Khan, said Kroger has no shot of winning. Beyond that, the government got what looks like a good draw in terms of the judge, it was assigned to a Biden-appointee, Adrienne Nelson, who has a background in public service.
While the case is simple to understand, it’s also a novel application of antitrust law. The FTC is making the first ever merger challenge on labor grounds. The government is arguing not only that prices will go up and that workers will have lower wages if Kroger and Albertsons combine, but that unions will get worse collective bargaining terms if it goes through. That’s never been done before. The FTC is also using the new merger guidelines they recently crafted with the help of thousands of citizens, including you.
The one wrinkle here is that Kroger and Albertsons are pledging to sell some of their stores to a third party, C&S, a food distributor that does not have a significant retail division, in the hopes that will convince a judge this merger won’t reduce competition. The FTC complaint comes close to mocking this notion, pointing out that as late as 2021, C&S told investors that “we do not intend to grow our grocery retailing operations or to operate the retail grocery stores in the long term. We expect to divest our retail grocery stores as opportunities arise.” It is a somewhat clownish divestiture, and I don’t think it’ll convince anyone this is a good deal. But it’s there.
All that said, the big story here is the politics. Unions are happy, with the Teamsters and the United Food and Commercial Workers International Union praising the merger challenge (as did other unions in solidarity.) Politicians from both sides also weighed in, which is unusual. I haven’t done a thorough check, but there are statements from California Senate candidates Katie Porter and Adam Schiff, Nevada Senator Jackie Rosen, Alaska Senators Dan Sullivan and Lisa Murkowski, Minnesota Senator Amy Klobuchar, Utah Senator Mike Lee, Oregon Senator Ron Wyden, and Congressman Chris DeLuzio. And the Biden campaign may tout this challenge, though they often seem skittish to talk about the stuff they do involving antitrust.
So that’s the deal. It’s a bad one. Fortunately, I doubt it’s going through.
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cheers,
Matt Stoller
P.S. Here are the cities listed in the complaint where this merger may substantially lessen competition.
Alaska: Anchorage; Fairbanks; Juneau; Kenai; Soldotna
Arizona: Flagstaff; Lake Havasu City-Kingman; Payson, Phoenix-Mesa-Chandler; Prescott Valley-Prescott; Sierra Vista-Douglas; Tucson; Yuma
California: Bakersfield; El Centro; Fresno; Los Angeles-Long Beach-Anaheim; Oxnard-Thousand Oaks-Ventura; Riverside-San Bernardino-Ontario; Salinas; San Diego-Chula Vista-Carlsbad; San Francisco-Oakland-Berkeley; San Luis Obispo-Paso Robles; Santa Maria-Santa Barbara
Colorado: Alamosa; Boulder; Cañon City; Colorado Springs; Cortez; Delta; Denver-Aurora-Lakewood; Durango; Edwards; Fort Collins; Fraser; Granby; Grand Junction; Greeley; Gunnison; Montrose; Pueblo; Steamboat Springs •
District of Columbia and Virginia: Washington-Arlington-Alexandria •
Idaho: Boise-Meridian-Nampa; Coeur d’Alene; Idaho Falls; Pocatello; Twin Falls • Illinois and Indiana: Bloomington; Chicago-Naperville-Elgin; Kankakee •
Louisiana: Alexandria; Lake Charles; Shreveport-Bossier City •
Maryland: Baltimore-Columbia-Towson; Easton • Montana: Bozeman; Great Falls; Kalispell •
New Mexico: Albuquerque; Farmington; Santa Fe; Taos
Nevada: Elko; Las Vegas-Henderson-Paradise; Pahrump; Reno
Oregon: Albany-Lebanon; Bend; Coos Bay; Corvallis; Eugene-Springfield; Grants Pass; Klamath Falls; Medford; Newport; Portland-Vancouver-Hillsboro; Roseburg; Salem; The Dalles; Tillamook
Texas: Dallas-Fort Worth-Arlington; Houston-The Woodlands-Sugar Land; Sherman-Denison
Utah: Salt Lake City; St. George
Washington: Bellingham; Bremerton-Silverdale-Port Orchard; Ellensburg; Hadlock; Kennewick-Richland; Longview; Mount Vernon-Anacortes; Olympia-Lacey-Tumwater; Port Angeles; Port Townsend; Seattle-Tacoma-Bellevue; Shelton; Spokane-Spokane Valley; Wenatchee; Yakima
Wyoming: Casper; Cheyenne; Gillette; Jackson; Rock Springs
I was interested to see Chicago's Mariano's is now a Kroger company. Interesting story there. Bob Mariano started bagging groceries at Dominick's, the duopoly partner with Jewel, way back when, rising to become a senior manager. When the family wanted to sell Dominick's, Bob made an offer, but they sold to Safeway, assuming a big company would be able to keep the brand/family name alive. Dominick's collapsed due to shabby stores and poor management. Bob went on to start his own chain and his stores are AWESOME, selling everything you want, plus things you never knew you needed. Sad to see he sold it to Kroger, but they haven't ruined the place yet...
I was not expecting Houston to be listed as a city that have less competition. It’s true that Randall’s is here (Albertsons) but they have been closing stores for years and have practically given up the market. The obvious reason is a very strong local competitor in H-E-B. If the merger goes through there would be marginally less competition when the remaining stores are inevitably closed or converted to Kroger but H-E-B is the 800 pound gorilla in this market.