Loyola University Chicago School of Law, JD 2024
The current largest supermarket powerhouse Kroger announced on October 14 their intent to merge with Albertsons Companies, Inc., another huge supermarket retailer in the industry. Kroger owns many well-known stores such as Mariano’s, Ralphs, and of course it’s’ namesake, Kroger. Albertsons Companies owns the Chicago-land staple Jewel Osco and Safeway, among other supermarkets as well. The companies have executed an agreement for Kroger to acquire Albertsons for $24.6 billion. The merger comes in response to the rise of grocery shopping being done at “big box” stores like Walmart and Target, on top of rising food and produce prices from inflation and supply chain issues. However, the merger is facing a lot of backlash, and many are questioning whether it will even be able to pass regulatory procedures. If the deal is approved, it is questionable whether the merger between the two grocery giants will trickle down benefits to consumers.
In order for the merger to happen, the Federal Trade Commission (FTC) will have to review the deal and whether it may bring about negative impacts on consumers and the economy. The FTC, along with the Department of Justice, review big mergers and acquisitions to ensure that there are no antitrust issues. The initial review will take approximately thirty days, after which a second review with additional information may be requested. The FTC will then decide whether the deal may proceed or prohibit the deal from moving forward.
One aspect of the industry that the FTC may take into consideration is the rise of grocery shopping at “big box” stores such as Walmart, Target and Costco. The top grocery retailer, taking into account both “big box” and traditional grocery stores, is Walmart. Even though Kroger and Albertsons are two of the largest grocery store companies in the country, the FTC may weigh the high percentage of shoppers purchasing groceries from “big box” stores into their decision. However, in the past the FTC has blocked mergers by companies trying to compete with “big box” stores, because they also need to look at the effect the merger will have on consumers and the industry, and not just that a company wants to compete with “big box” stores.
Divestiture of stores
Kroger and Albertsons are also looking to divest in a large number stores in light of the merger. A company may choose to divest, or get rid, some of their assets for a variety of reasons. Kroger and Albertsons are planning on divesting the stores to a new subsidiary company that would be held by Albertsons’ shareholders to make their chances of getting the deal approved more likely. However, many experts in the antitrust field are predicting that the FTC will take an aggressive approach to reviewing the merger deal given the heightened focus on consumer impacts.
Further, the divestiture of stores presents certain issues. In the past, stores that were divested to an existing or new holding company had trouble staying afloat. For example, this is exactly what happened with Albertsons when they merged with Safeway back in 2015, and divested stores to Haggen Holdings LLC. Due to the overwhelming number of stores that Haggen Holdings took over, they soon filed for bankruptcy. Now the question is whether creating a new subsidiary to take over the divested companies will lead to a more favorable outcome from the FTC after their regulatory review.
Impacts on the industry and consumers
While Kroger and Albertsons executives are hopeful that a merger will be beneficial for competing with “big box” stores and e-commerce, many are scrutinizing the deal for its possible impacts on consumers. This past year has already seen a rise in grocery prices because of inflation, with an expected 11% increase as compared to last year. A merger between two of the largest grocery store companies can lead to less competition and hit small business grocers hard. Bigger stores are able to negotiate with suppliers for lower prices, but then to compensate these suppliers may raise prices for smaller buyers.
The merger raises concerns for employees as well who feel unstable in their job security during divestiture. Many unions are in opposition to the merger, including the United Food and Commercial Workers International Union (UFCW), which represents many grocery workers throughout the country, including both Kroger and Albertsons.
Since both companies are currently the top two grocery stores, excluding “big box” and e-commerce stores, many are concerned with monopolization. Politicians such as Bernie Sanders and Elizabeth Warren are hopeful that the FTC will block the deal from happening because of fears that the merger will be disastrous for the industry and consumers. Kroger and Albertsons allege that the deal will have the positive impact of increasing access to food at a lower cost. However, it is hard to believe that the merger will bring positive outcomes for consumers with food prices on the rise. Hopefully, the FTC will weigh all the factors and make the right decision with consumers in mind.