I wrote about grocery taxes last week. I only thought it fitting to write about another piece of news in the grocery industry this year. In late 2022, there were two major grocers that announced a merger: Kroger and Albertsons. If it goes through, this $24.6 billion acquisition will be the largest supermarket merger in U.S. history.
The merger was supposed to be completed this year. However, the U.S. Federal Trade Commission (FTC) has taken such issue with the merger that the FTC filed a lawsuit last week in federal court to block the merger. In its filing, the FTC makes two main arguments. One is that the merger will make the grocery market less competitive, which will result in higher grocery prices and reduce grocery quality. The second argument is that it will harm union grocery labor because the merger would increase leverage over the laborers.
The FTC became a major topic at my blog last year when the FTC decided to go after Amazon with a lawsuit alleging that Amazon is anti-competitive. I asked whether Amazon is a monopoly (it is not!), whether Amazon harms third-party sellers (it depends), and whether Amazon is beneficial to consumers (it really is). After writing this three-parter, I found that the FTC has an ideological axe to grind when it comes to companies that benefit consumers and makes for a healthier retail market. I have to wonder if the FTC is similarly grinding that axe with the Kroger-Albertsons merger.
Let us start with whether this merger would turn Kroger into a monopoly. I ask this question because when the FTC went after Amazon last year, the FTC omitted various retail competitors from their market sizing to make Amazon's market share look larger than it actually is. It looks like the FTC made the same mistake because the market has expanded beyond traditional supermarkets. The FTC's market sizing with Kroger-Albertsons excludes club stores (e.g., Costco), limited assortment stores (e.g., Aldi), dollar stores, or such e-commerce stores as Amazon. Determining proper market sizing helps us accurately answer whether or not this merger would create a monopoly.
Since data for 2023 have not been fully released, I am going to use 2022 market size data. Kroger had $148.3 billion in sales and Albertsons had $77 billion in 2022. Given that Kroger had 5.6 percent market share that year, that would give Albertsons and Kroger a collective 8.5 percent market size. Even market research firm Numerator estimates that it would be 10.8 percent of the grocery market size. A market size of 8.5 percent or 10.8 percent seems large for a market as fragmented as the grocery market. Conversely, it hardly constitutes as a monopoly. Even if combined, Kroger's market share would trail behind Wal-Mart's market size of 25.2 percent.
As the Wall Street Journal brings up in its editorial, the grocery store industry is by its nature a competitive market:
It's hard to think of a more competitive business than groceries. Traditional supermarkets have been squeezed from all directions. Most Americans shop and buy food and household products from a variety of sources, including dollar stores, farmers markets, big-box retailers, and online delivery services.
Competition has driven hundreds of supermarket stores to close in recent years. The Kroger-Albertsons merger is intended to make the two more competitive by increasing their leverage with suppliers and making their supply chains more efficient.
If you want to read more on the effects on union labor power, you can read this piece from the International Center for Law and Economics. Since antitrust lower has historically been based on the consumer welfare standard, I am going to conclude with whether this merger would harm or benefit consumers.
As previously mentioned, there are new types of stores that have expanded the market, thereby making the market more competitive. As economics professor and Chair of Georgetown University's business school John Mayo pointed out, the merger provides real opportunity to lower its distribution costs and the prices it pays to wholesalers.
Rather than diminish competitiveness, this merger was created in response to compete in an ever-evolving market. As this article from Food Industry Executive illustrates, Kroger will need to strengthen initiatives across its value chain to compete with others, whether that it is its rewards program, converting existing storefronts into micro-fulfillment centers, or adapting to evolving buying journeys. To compete with other grocery stores, Kroger will have to ramp up the quality of its product line rather than diminish it.
If the FTC is successful, all they will have succeeded in is strengthening the market share of the likes of Wal-Mart, Amazon, and Costco. Rather than operate under the facile assumption of "big is bad" and trying to pick which companies should win or lose, maybe the FTC should be more concerned about whether the merger will help with consumer welfare.
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