supermarket groceries set icons vector illustration design

An Examination of The Proposed Kroger and Albertsons Merger, Its Potential Effects on the Economy, and Its Regulatory Battle With the FTC

in Business Organizations/Capital Markets/M&A/Volume VI

By Simon Lockard

Introduction:

On October 14, 2022, Kroger and Albertsons announced their plan for a $24.6 billion merger to consolidate the two largest traditional grocery store corporations in the United States.[1]  Kroger and Albertsons claim they must merge to remain competitive against Walmart and Amazon in the grocery space.[2]  The proposed merger would create a corporation with the second-largest grocery store in the United States in market share, just behind Walmart.[3]  Market share is the percentage of the market controlled by a particular company or product.[4]  If two companies with significant market share merge, there is a fear that they have no market checks and can do whatever they please. In our situation, there are fears the merger will negatively affect workers and consumers in areas where Kroger and Albertsons are the only grocers available, such as by price gouging, lowering wages, and making unionizing more difficult. The Federal Trade Commission (“FTC”) has yet to approve the merger despite Kroger and Albertsons’ hopes of approval.

This article will further analyze the scope of the merger between Kroger and Albertsons and explore the economic implications for both the companies’ consumers and employees.  Moreover, this article will discuss the FTC antitrust laws that scrutinize mergers, and the concessions Albertsons and Kroger are proposing to make to get the FTC’s approval. 

What is a Merger?

A merger is the unification of two existing companies, which are broadly on equal terms with each other, into one new company.[5]  A horizontal merger involves combining two companies operating in the same industry and at the same stage of the production and distribution process.[6]  Horizontal mergers are usually done to expand the market share of the corporations involved. Expanding market share through mergers is beneficial because it eliminates competition, lowers costs, increases profit due to access to more capital, gives companies a better bargaining position, and decreases risk through increased value-making assets and diversification of products and markets.[7]  Some examples of other horizontal mergers include T-Mobile/Sprint and Daimler-Benz/Chrysler.  In 2020, Sprint and T-Mobile, respectively, the third and fourth biggest cellular providers in the country, merged after selling off assets to Dish, ensuring there would still be four competitors in the market.  In 1998, Daimler-Benz and Chrysler merged the 14th and 6th largest automakers in the world to remain competitive, expand market share, and lower costs for both companies.[8]  Additionally, companies can get bigger and gain market share through large acquisitions of other companies.  Acquisitions are when one company buys another outright. Sometimes, this will result in the company that was bought becoming a subsidiary of the larger parent company.  An example of an acquisition company becoming a subsidiary is when Disney acquired Pixar.  Two current large-scale acquisitions are Chevron’s Acquisition of Hess[9] and Microsoft’s acquisition of Activision.[10]  Chevron’s acquisition of Hess has just been announced on October 23, 2023.  It is considered a consolidation of U.S. oil manufacturers and an arms race against rival oil powerhouse Exxon.  Chevron and Exxon were already the biggest U.S. Oil manufacturers by far, and this deal, along with Exxon’s recent 60-billion-dollar acquisition of Pioneer Natural Resources, is only further widening the gap.  Microsoft’s acquisition of Activision will happen because of a court ruling that the FTC could not stop the merger from moving forward.[11]   However, even though the FTC was not able to halt the merger before it happened, it is continuing to litigate against it, arguing that Microsoft, once acquiring Activision, would be able to suppress its competitors by having both Microsoft and Activision’s games be only exclusive through Xbox’s game pass subscription, which would get rid of a large number of games from being available on other game cloud platforms, which hurts competition and eliminates choices for consumers. 

What Does Albertsons and Kroger’s Merger Look Like:

Albertsons and Kroger are the two biggest traditional grocery companies in the United States.[12]  Albertsons currently has a market share of 5.7%, and Kroger has a market share of 9.9%, the two highest market share percentages for traditional grocery stores nationwide.  Once merged, the corporation would have 16.6% of the market share and over 5000 stores nationwide.   Additionally, they would be the largest or only grocery corporation in several regions of the United States, particularly in Phoenix, Dallas, Seattle, Chicago, and parts of Southern California.  

The Merger’s Effect on the Economy:

Albertsons and Kroger allege that their merger would positively affect consumer prices higher wages and create more employee opportunities.  However, research shows that the merger would lead to price-gouging consumers due to a lack of competition,[13] harm the wages of grocery store workers,[14] and cause a long-term decline in competition and choices for consumers.  Consolidation of grocery store markets has historically been associated with increased prices because an increase in market share decreases consumers’ and smaller food companies’ bargaining power, and consolidation eliminates store signature brands, which are consistently more affordable when compared to name-brand foods.  Further, per the Economic Policy Institute, if the merger is approved, wages will fall on average for all grocery store workers in areas where Albertsons and Kroger are the primary grocery stores because there will be a sharp decrease in wage competition and lack of bargaining power.  Additionally, due to the proximity of Kroger stores to Albertson stores, the merger will likely result in a reduction of grocery stores in communities, leading to price hikes and decreased food accessibility.  For Example, Per Cal Matters in Los Angeles and Orange County, 115 of 159 Albertsons, or 72%, are within two miles of Kroger stores, which will likely result in one of the two stores being closed if the merger is approved.

Consolidation also has negative effects on employees.  The Economic Policy Institute found that the proposed merger would lower wages for over 746,000 grocery workers in the United States, including salaries of employees employed by other grocers due to decreased employer competition.  The Institute estimates that the merger would result in over $300 million in lost wages annually for grocery store workers, mostly concentrated in high-cost-of-living metropolitan areas. 

Critics of the Merger:

Many prominent unions and politicians have also spoken out and filed lawsuits against the merger.[15]  The United Food and Commercial Workers International Union publicly opposes the merger because of Kroger and Albertsons’ lack of communication and transparency and the consequential decrease in jobs that would result from the consolidation process.  On October 12, California Attorney General Rob Bonta stated that California is preparing a lawsuit to block the merger on concerns that the deal will hurt consumers and workers.[16]  Further, secretaries of state from Colorado, Arizona, Maine, Minnesota, New Mexico, Rhode Island, and Vermont have written the FTC to block the merger.[17]  Their letter stated the corporate consolidation would drain Americans of their hard-earned wages and livelihoods because Kroger-Albertsons would have no competitive incentive to bring down prices, consumers would be powerless to hold them accountable, and the merger would give Kroger-Albertsons substantial power to dictate prices and suppress competition which would hurt growers, shippers, local suppliers, farmers, and small businesses. 

The FTC and the Concessions Being Made to Get the Merger Approved:

The FTC is a government organization whose mission is to protect consumers and competition by preventing anticompetitive, deceptive, and unfair business practices through enforcement, advocacy, and education.  The FTC enforces federal antitrust laws prohibiting anticompetitive mergers and other business practices that could lead to higher prices, lower choices, or less innovation.[18]  The Sherman Antitrust Act was passed in 1890 and established federal antitrust law.  The Sherman Antitrust Act prohibits conspiracies that unreasonably restrain trade and makes it illegal to monopolize, conspire to monopolize, or attempt to monopolize a market for products and services.  Additionally, another antitrust law called the Clayton Act prohibits mergers and acquisitions whose effect may be to substantially lessen competition in a particular market.[19]  These two laws and the FTC Act, which created the FTC, are the three core federal antitrust laws in effect today.  In July 2023, the FTC and DOJ released an update on their merger guidelines, which lay out 13 principles the FTC uses to determine whether a merger is anticompetitive and violates antitrust laws.[20]  Some of the guidelines that are relevant to this merger include: (1) the merger should not eliminate substantial competition between firms, (2) the merger should not further a trend towards concentration, (3) it must examine whether the merger will substantially lessen competition for workers and other sellers, (4) merger should not entrench or extend an already dominant position, (5) and merger should not tend to create a monopoly.  These guideline updates reflect the FTC’s more aggressive recent interpretation and enforcement of antitrust laws.[21]  

The FTC has not yet approved the Kroger and Albertsons merger.  Many unions, consumers, government officials, including several California Secretaries of State, have come out against the merger.  As discussed in the aforementioned article, Will  Kroger-Albertsons Deal Get Past Regulators, Daniel Rubinfeld, a professor at New York University and former attorney general for antitrust with the Department of Justice, stated that if the FTC were to look at the merger as the two largest supermarket chains in the United States merging, then it would be a clear violation of the Sherman Antitrust Act because they would have effectively cornered the market.  However, due to the rise of non-traditional grocers such as Amazon and Walmart taking up such a significant market share, the scope of competition now creates a wider lens for Kroger and Albertsons to argue.  The FTC will likely need to agree with Kroger and Albertson’s wide-lens argument to approve the merger.  Suppose the FTC were to view the merger through the narrower lenses of only traditional supermarkets.  In that case, the FTC would likely not approve of the merger because Kroger and Albertsons are the two biggest competitors in the conventional market, and the merger would allow the two companies to corner the market and make it anticompetitive. 

Kroger and Albertsons plan to sell some of their brands and stores in a bid to help secure FTC regulatory clearance.[22]  Kroger and Albertsons plan to divest 413 grocery stores, eight distribution centers, and two offices in a $1.9 billion deal to C&S Wholesale Grocers in areas where Kroger and Albertsons are presently the only or main options for groceries.[23]  Currently, C&S Wholesale is primarily a grocery distributor and only operates about two dozen stores under the Gran Union and Piggly Wiggly brands.  The divested stores are mainly in the Pacific Northwest, mountain states, California, Texas, Illinois, and the East Coast; Albertsons and Kroger are currently near each other. Additionally, as part of the deal, C&S will receive private food labels QFC, Mariano’s, Carrs, Debi Lilly Design, Primo Taglio, Open Nature, and Ready Meals Brands. 

FTC Chairperson, Lina Khan, has met the merger skeptically.  In 2017, she coauthored a paper in the Harvard Law and Policy Review called Market Power and Inequality: The Antitrust Counterrevolution and Its Discontents, where she criticized how Albertsons handled its acquisition of Safeway.[24] In her article, she discussed how Albertsons, to ease the FTC concerns, sold 146 Albertson stores in towns and cities where they competed with Safeway to Haggen, which was an extremely small grocery company that only had 18 stores. After the acquisition, Haggen failed to manage the stores successfully, filed for bankruptcy, and sold numerous stores back to Albertsons. In the article, Khan contends that the Albertsons-Safeway deal was an example of what not to do with corporate mergers and that even a casual observer could have predicted that Haggen would have difficulty expanding its storefronts nearly ten-fold in a short period.  In the aforementioned article, Will the Kroger-Albertsons Deal Get Past Regulators?, Jim Burns, an antitrust lawyer at the law firm Williams Mullen, stated “the FTC will not be satisfied with divesture remedies if the company the merging companies are divesting the assets to does not have the ability to replace the competition lost by the merger.” In the Safeway acquisition, Albertsons’ divesting remedy was ineffective because Haggen did not have the resources to compete with Albertsons, went bankrupt, and sold back the divested assets to Albertsons for less than what it paid. 

Opinion & Recommendation on Whether the FTC Should Approve the Merger: 

No, they should not. Kroger and Albertsons’ desire to remain competitive should not be solved by creating another monopoly that would inevitably cause higher consumer prices and lower employee wages. The solution to fixing Walmart’s and Amazon’s unfair advantage in the market should not be allowing Kroger and Albertsons to merge and form a third monster corporation. Three companies would own roughly 50% of the nationwide grocery market if this merger were to occur. The merger would give consumers and employees diminished bargaining power, leaving people vulnerable to lower-quality products, reduced choices, and price gouging. 

Additionally, like FTC Chair Khan, I am very skeptical of Kroger and Albertsons’ attempt to replace competition by divesting their stores in regions where they are the dominant grocery stores. Kroger and Albertsons’ divesting strategy will have an outcome similar to when Albertsons acquired Safeway. Kroger and Albertsons are divesting grocery stores to a company whose current business model is in the grocery supply chain and not managing grocery stores. This new and inexperienced grocery store company would compete in markets primarily against Kroger/Albertsons, who would have significant competitive advantages against them. If or when the smaller company fails to compete in the market and goes bankrupt, there would be no competition in many markets across the United States. Additionally, Kroger and Albertsons would likely regain all the stores they divested for pennies on the dollar like Albertsons did, making their initial gesture of divesture meaningless. Further, the current scenario would be a worse outcome than during the previously discussed Albertson acquisition of Safeway because, at least then, Albertsons still had competitive checks because they were competing against Kroger. 

The FTC should use a narrow lens approach when assessing the scope of the merger because, from that angle, allowing the two biggest grocery companies to merge will enable them to corner the market and suppress competition. While the merger may reduce costs and increase profits for Kroger and Albertsons, they will unlikely pass those savings and profits to consumers. Likely, the merger will reduce choice in the market for consumers, decrease the number of grocery stores in areas where Kroger and Albertsons are currently the main or only players, and suppress competition, which would thereby allow Kroger and Albertsons to charge higher prices and pay lower wages without any repercussions or checks from the market. The FTC and antitrust laws aim to prevent monopolies and unfair competition from flourishing; therefore, the FTC should block this merger and preserve competition in the grocery market. 


[1] Kroger and Albertsons Plan $25 Billion Supermarket Merger That May Face Hurdles, (2023), https://www.nytimes.com/2022/10/14/business/kroger-albertsons-merger.html.

[2]Why the Kroger-Albertsons Merger Is a Mess for Consumers, (November 22, 2023), https://www.promarket.org/2023/11/22/why-the-kroger-albertsons-merger-is-a-mess-for-consumers/#:~:text=Grocers%20Kroger%20and%20Albertsons%20want,offer%20lower%20prices%20to%20consumers.

[3] Why Kroger, Albertsons Need To Merge Immediately To Compete With Walmart, (Aug. 18, 2023) https://finance.yahoo.com/news/why-kroger-albertsons-need-to-merge-immediately-to-compete-with-walmart-164312464.html.

[4] Market Share: What It Is and the Formula for Calculating It, (Aug 23, 2023) https://www.investopedia.com/terms/m/marketshare.asp.

[5] Merger: Definition, How It Works With Types and Examples, (May 8, 2022), https://www.investopedia.com/terms/m/merger.asp.

[6]Understanding Horizontal Merger vs. Vertical Merger, (July 12, 2023) https://www.investopedia.com/terms/h/horizontalmerger.asp#:~:text=Horizontal%20mergers%20involve%20the%20combination,and%20achieve%20economies%20of%20scale.

[7]9 Benefits of Mergers and Acquisitions, (Jan 14, 2021)https://www.globalexpansion.com/blog/benefits-of-mergers-and-acquisitions.

[8] Chrysler to Merge With Daimler-Benz in $40-Billion Deal, (May 7, 1998), https://www.latimes.com/archives/la-xpm-1998-may-07-mn-47240-story.html.

[9] Chevron to Buy Hess Corp For $53 Billion In All-Stock Deal, (Oct 24, 2023), https://www.reuters.com/markets/deals/chevron-buy-hess-corp-53-bln-stock-2023-10-23/ .

[10]The Winners And Losers From The $69bn Microsoft-Activision Mega-Deal, (Jul. 20, 2023), https://www.economist.com/business/2023/07/20/the-winners-and-losers-from-the-69bn-microsoft-activision-mega-deal?utm_medium=cpc.adword.pd&utm_source=google&ppccampaignID=17210591673&ppcadID=&utm_campaign=a.22brand_pmax&utm_content=conversion.direct-response.anonymous&gad_source=1&gclid=CjwKCAiA04arBhAkEiwAuNOsIjCeBOSx72BWTtiPEr7HZigdtbl6IbZkdlXuUd0nA0ttJDOZuCClHhoCYYoQAvD_BwE&gclsrc=aw.ds.

[11]Microsoft-Activision Is A Done Deal – But What If The FTC Still Wins? Ask Whole Foods, (Oct. 19, 2023) https://www.reuters.com/legal/transactional/column-microsoft-activision-is-done-deal-what-if-ftc-still-wins-ask-whole-foods-2023-10-19/.

[12] Will the Kroger-Albertsons Deal Get Past Regulators?,(Oct. 20, 2022), https://www.grocerydive.com/news/kroger-albertsons-merger-ftc/634524/.

[13] Why the Kroger-Albertsons Merger Is Bad News For Accessing Healthy Food, (May 17, 2023) https://www.cspinet.org/blog/why-kroger-albertsons-merger-bad-news-accessing-healthy-food.

[14]Kroger-Albertsons Merger Will Harm Grocery Store Worker Wages, (May 1, 2023) https://www.epi.org/publication/kroger-albertsons-merger/.

[15]US Unions Talk Out Against The Albertsons-Kroger Merger, (June 14, 2023), https://www.competitionpolicyinternational.com/us-unions-talk-out-agaings-the-albertsons-kroger-merger/.

[16] California Eyes Lawsuit to Block Kroger-Albertsons Deal, (Oct. 12, 2023), https://www.ttnews.com/articles/california-kroger-albertsons.

[17]Secretaries Of States Want FTC To Block Kroger, Albertsons Merger, (Aug 17, 2023), https://www.supermarketnews.com/retail-financial/secretaries-states-want-ftc-block-kroger-albertsons-merger.

[18]Enforcement, Federal Trade Commission, https://www.ftc.gov/enforcement#:~:text=The%20FTC%20enforces%20federal%20consumer,fewer%20choices%2C%20or%20less%20innovation(last visited Nov. 23, 2023).

[19]Antitrust Laws, United States Justice Department, https://www.justice.gov/atr/antitrust-laws-andyou#:~:text=The%20Sherman%20Antitrust%20Act,or%20markets%2C%20are%20criminal%20violations. (last visited Nov. 23, 2023).

[20]  FTC and DOJ Seek Comment on Draft Merger Guidelines, Federal Trade Commission, https://www.ftc.gov/news-events/news/press-releases/2023/07/ftc-doj-seek-comment-draft-merger-guidelines (last visited Nov. 23, 2023).

[21]FTC AND DOJ RELEASE DRAFT OF UPDATED MERGER GUIDELINES: WHAT THIS MEANS FOR COMPANIES’ M&A PLANS NOW AND IN THE FUTURE, (July 20, 2023),  https://www.klgates.com/FTC-and-DOJ-Release-Draft-of-Updated-Merger-Guidelines-What-this-Means-for-Companies-MA-Plans-Now-and-in-the-Future-7-20-2023.

[22]Kroger and Albertsons Plan To Sell Over 400 Stores In Connection With $24.6B Merger, (Sep. 10, 2023),  https://www.foxbusiness.com/markets/kroger-albertsons-plan-sell-over-400-stores-connection-24-6-billion-merger.

[23]Kroger, Albertsons Plan To Offload Over 400 Stores For Close To $2 Billion, Sources Say, (Sep 6, 2023), https://www.reuters.com/markets/deals/kroger-albertsons-talks-sell-stores-cs-softbank-bloomberg-news-2023-09-06/.

[24] Lina M. Khan, Market Power and Inequality: The Antitrust Counterrevolution and its Discontents, (2017), https://scholarship.law.columbia.edu/cgi/viewcontent.cgi?article=3795&context=faculty_scholarship.