Do the two largest American supermarket chains merge into one?
This is the issue before U.S. regulators, who decide whether to oppose the Kroger’s $24.6 billion acquisition of Albertsons. A number of state attorneys general as well have made it clear thatthey could sue to stop the merger.
There is a potential shakeup in what is known as the U.S. grocery landscape, which the retailers claim have to contend with stiff competitors against Amazon, Walmart, Costco and even dollar stores. The employees, state officials as well as certain lawmakers have said the merger could reduce the choices for consumers and workers as well as farmers and food producers.
Kroger the biggest U.S. supermarket operator with 271 locations, is the owner of Ralphs, Harris Teeter, Fred Meyer and King Soopers. Albertsons is the second-largest chain with 2272 stores, has Safeway along with Vons. Kroger employs 430,000 workers; Albertsons 290,000.
The chains are particularly overlapping the chains that are located in Western states. The companies sought to alleviate the concerns of regulators over a reduction in the competition for groceries in these markets by agreeing to open up to 700 stores in the agreement.
However, antitrust experts within the Biden administration previously have expressed doubts that divestitures will effectively protect competition in terms of prices, employment or the terms of suppliers, for instance. Antitrust regulators have also called for more stringent examination of megadeals, which makes the merger a prominent test.
The Federal Trade Commission has been studying the proposed deal for more than a year and is set to announce its decision by this month. A lawsuit seeking to block the deal wouldn’t be an unexpected event. Then, in April 2023, Kroger CEO Rodney McMullen stated that the chain “committed to pursue litigation ahead” should federal regulators or state attorney general disapprove of the deal.
Joining forces to compete against Walmart
The Ohio-based Kroger as well as Idaho-based Albertsons claim that if they were to work together, they’d be better placed to compete with Amazon in the online marketplace in the online marketplace and Walmart at physical locations. Albertsons is the nation’s market leader in grocery, with sales greater than Kroger and Albertsons together.
“This merger will safeguard the local community grocery stores that customers love,” Albertsons CEO Vivek Sankaran declared during his testimony in an Senate antitrust hearing scheduled for 2022.
The firms also claim that if they work together, they’ll be able lower costs and pay more. They also claim that they provide jobs that are unionized, as opposed with their competitors.
But there is a United Food & Commercial Workers Union which has more than 350,000 members across both grocery chains, opposes the merger. In public forums in Colorado such as workers expressed concerns that it might be more difficult to bargain a union contract with an even larger and more dominant employer.
“The issues our members are most concerned about is the impact of competition on the cost of food,” UFCW International President Marc Perrone said, adding that his members are also concerned about the long-term outlook for their current collective bargaining agreements.
Can selling off stores please regulators?
The competition in the grocery industry is usually assessed at a local scale the question is: will shoppers in a specific location have fewer choices after the merger? To address this issue, Kroger and Albertsons in September announced that they would offer at minimum 413 storesin places where they merged with C&S Wholesale Grocers, a supplier that also operates several Piggly Wiggly supermarkets.
C&S has agreed to purchase retail stores located in Arizona, California, Colorado and Wyoming in addition to certain privately-owned brands as well as distribution centres, and offices. C&S said they were “committed to keeping” the store’s current employees, and pledged to honor the unionized workforce and to keep the collective bargaining agreement in all its forms.
Perrone said that his union was pleased with the move, but he is worried about the merger’s approval dependent on the sale to a smaller C&S:
“Can they run their business efficiently and remain competitive so that customers for the long term will remain loyal to them for the long haul?” He asked.
Many antitrust specialists in recent times have been questioning the validity of these divestitures.
For example the time Albertsons combined together with Safeway the year 2015 the FTC demanded that it close 168 stores as part the merger. Within a few months, one of its purchasers was granted bankruptcy protection, and Albertsons bought 33 of the stores at a bargain price.
“Over time, there’s been some doubts regarding the effectiveness of divestitures,” said Kathleen Bradish as the acting president of American Antitrust Institute, which calls for a more thorough examination of mergers. “The divestitures which were thought to be appropriate in past times might not be acceptable today.”
Indeed the federal antitrust regulators last year changed their guidelinesfor controlling mergers. This included such things as more attention not just on the way deals affect the consumer’s choices or prices but also on how they affect workers or suppliers.
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