A Tale of Two Supermarkets

Hi everyone and welcome back to the interview and analysis corner. This week I wanted to give a short summary of what could be the largest supermarket merger in US history between Kroger and Albertsons.

In addition to giving the reasoning for the merger, I wanted to also provide the reasons against it and what we should be expecting in the coming weeks. Let’s dig in.

During the past two weeks there has been considerable discussion regarding the departures of chief executives at fast food and fast-casual chain restaurants. However, one particular story – one that I have been closely monitoring – is now gaining significant mainstream attention.

The merger between Kroger and Albertsons – two giants in the American supermarket space – is currently facing scrutiny from the Federal Trade Commission (“FTC”) and I wanted to take this opportunity to provide you with a comprehensive overview of the ongoing developments, so you don’t have to sift through numerous news outlets on your own.

A little background

Kroger initially proposed the merger with Albertsons in 2022. Kroger’s 2,800 stores would join Albertsons’ roughly 2,200 supermarkets to create one supermarket entity worth around $200 billion. If the deal were to go through, it would be the largest supermarket merger in US history.

However, a year and a half later, the FTC filed an antitrust lawsuit to block the deal. Now, as the FTC faces off with Kroger and Albertsons in an Oregon court, we await the decision by the September 13^th trial deadline on whether the merger will move forward.

The Kroger-Albertsons perspective

For merger supporters the deal would, counterintuitively, level the playing field among the biggest grocery chains in the world.

Kroger-Albertsons’ legal team argue that the merger would allow the new company to compete with non-traditional supermarket giants, such as Costco, Amazon, and, especially, Walmart, which alone commands about 22% of US grocery sales.

On top of that, Kroger representatives have tried to convince the FTC that the merger would allow Kroger to lower prices in Albertsons stores where the food is, on average, slightly more expensive.

The FTC perspective

The FTC is unconvinced by this logic, claiming that prices would not decrease and the power of unions would be threatened, as a result of the merger.

According to the FTC, the merger would give this new, 5,000-store supermarket entity 13% of US grocery sales, reducing competition and leading to higher prices for consumers.

More importantly, though, a merger of this size could weaken unionised workers’ bargaining power, wages, and benefits, as grocery workers may end up having fewer alternative employment options.

As the chief trial counsel for the FTC, Susan Musser, states, the deal “would eliminate the competition that shoppers and workers depend on in one fell swoop”.

What next?

There seems to be little sign of reconciliation between the FTC and the Kroger-Albertsons legal team. Even after both Kroger and Albertsons agreed to sell 579 stores to C&S Wholesale Grocers to ease antitrust concerns, the FTC remains sceptical.

The problem? C&S is mainly a wholesale food distributor and is likely unprepared to manage so many retail grocery stores, which could lead to job losses if they sell them off.

This week’s hearing in Oregon focuses on the FTC’s request for a preliminary injunction that would entirely block the merger, if successful. The FTC plans to call expert witnesses to discuss sales and competition in the grocery industry, while also inviting the CEOs of Kroger and Albertsons to speak before the trial wraps up in mid-September.

Concluding thoughts

As important as the trial is in the context of supermarket history, we also must consider overall consumer sentiment in the US.

Food prices are 27% higher than they were in 2019 and the Democratic presidential candidate, Kamala Harris, has vowed to stop grocers from price gouging and earning supernatural profits. Former president, Donald Trump, also highlighted his concerns about inflated food prices that have troubled consumers. Evidently, then, food prices are central concerns for millions of Americans and will have to be considered when assessing the Kroger-Albertsons merger.

Personally, I think that neither the FTC, nor the federal court will be able to accurately judge whether the merger will, in fact, help Kroger-Albertsons lower grocery prices. So, with November fast approaching, the merger’s success might just depend on who becomes the next president.

Of course, following the news that two other food industry giants - Mars and Kellanova - also plan to merge makes me worry about the general trend of corporate consolidation that is occurring in the food industry at the moment. At what point do we ask ourselves whether a handful of huge players that control the production and distribution of the food we eat are crossing the line?

Perhaps the answer to such a question will come next month? For now, though, we wait.