Most legal experts agree that the Federal Trade Commission (FTC) will likely attempt to block, rather than approve, a recently proposed merger between grocery giants Kroger and Albertsons. The question is whether the FTC will succeed when it does. If recent history is any indication, the answer is no.
Announced late last year, the $24.6 billion deal would be the nation’s largest supermarket merger ever, combining the nation’s first and second-largest supermarket chains into a single company. The deal could be finalized as early as 2024 but must first receive approval from the FTC, something that is far from certain.
Over the last few years, the FTC has increasingly taken an aggressive approach to antitrust enforcement, fueled by mission creep and the naive belief that everything “big is bad.” Perhaps nowhere is this more apparent than in the Commission’s increasing willingness to litigate large mergers. Recent examples include last year’s attempt to block Meta’s purchase of the virtual reality (VR) start-up Within, and the lawsuit against Microsoft for its proposed acquisition of video game maker Activision Blizzard.
At first glance, this would appear to be a bad omen for the Kroger-Albertsons merger given its large size. However, the FTC has lost a string of recent court cases. In February, a California district judge rejected the Commission’s lawsuit against Meta, noting that the agency had failed to show that Meta would have entered the VR market without the acquisition. In July, the U.S. Ninth Circuit Court of Appeals denied the Commission’s request to halt the Microsoft-Activision merger. A northern California district court judge previously ruled against the Commission on the matter stating that while the deal “deserves scrutiny,” the agency had failed to show that it would “substantially lessen competition” or harm consumers. Other recent defeats include a case involving semiconductor company Qualcomm and another involving tobacco and e-cigarette manufacturers Altria Group and Juul Labs. Despite such routine setbacks, the agency has appeared undeterred in its liberal use of legal action.
For this reason, the FTC seems likely to try but fail to block the Kroger-Albertsons merger. As noted in a recent policy brief by the International Center for Law and Economics, the Commission is unlikely to account for the “dramatic changes in the retail food and grocery landscape,” that have occurred over the last few years and led to greater market competition. Instead, it will likely seek to define the grocery market narrowly much as it has done for other markets in the past.
For instance, in their initial complaint against the Microsoft-Activision merger, the FTC argued that relevant gaming market only included “high-performing gaming consoles, multi-game content library subscription services and cloud gaming subscription services, all of which are limited to the U.S.” The FTC also defined high-performance video game consoles as being limited to just Microsoft’s Xbox series X|S and Sony’s PlayStation 5 even though consumers play games on other platforms as well, including Nintendo Switch and most notably PC. In addition, many games are available on multiple consoles and many gamers own multiple consoles, meaning competition and choice are far more widespread than the FTC would prefer to acknowledge.
The FTC is likely to make a similar argument in its case against the Kroger-Albertson merger. For instance, the FTC may seek to narrowly define the grocery market as exclusively brick-and-mortar supermarket chains and independent grocery stores. Conveniently left out will be the growing assortment of e-commerce giants like Apple and Amazon; discount grocers like Aldi and Lidl; mass merchants like BJs, Cosco, Harris Teeter, Publix, Safeway, and Walmart; and delivery providers like FreshDirect and DoorDash, which have each significantly altered the food and grocery consumer market. These new market entrants have kept grocery prices competitive and pushed consumers to reimagine what grocery shopping looks like. The reality is the grocery market is much bigger and more competitive than the FTC would like to believe, and a Kroger-Albertsons merger wouldn’t change that.
In fact, the merger would most likely increase competition by allowing Kroger to compete with other industry giants like Walmart. Larger economies of scale would allow Kroger to lower unit costs and pass those cost savings onto consumers in the form of lower prices. Kroger has already indicated that it plans to use $500 million in new cost savings for that very purpose. It will also earmark another $1.3 billion for improving the customer service experience at Albertsons stores.
The FTC also seems likely to raise labor concerns about the merger’s potential impact on workers. Yet, in this area too, the Commission appears to have a weak hand. Both Kroger and Albertsons have already stated that they have no intention of closing any stores, manufacturing centers, or distribution facilities. Such statements make the potential for mass layoffs unlikely. In addition, both grocery chains have pledged to invest $1 billion in worker wages and benefits should the merger occur. Separately, in March, Kroger announced it would spend more than $770 million on their associates in 2023. This money will go toward improving wages and healthcare as well as creating new training and development opportunities for employees. There is simply no evidence that a merger would result in harm to workers.
However, even if none of these corporate promises materialize, it is worth noting that many Kroger and Albertsons employees are unionized, meaning workers already possess strong collective bargaining power needed to win concessions from their employers. According to union membership data, two-thirds of workers at Kroger’s 2,726 stores belong to the United Food and Commercial Workers International Union (UFCW). Meanwhile, a majority of workers at Albertson’s 2,200 stores also belong to the UFCW. That is far higher than the membership rate at most other private companies. According to the Bureau of Labor Statistics (BLS), the union membership rate for private sector workers is just six percent. With such strong union representation and no store closures on the horizon, it seems highly unlikely the merger would harm labor.
Rather than relying on overly narrow market definitions and unfounded labor concerns, the FTC should instead focus on how consumers are impacted by the proposed merger. Afterall, it’s consumers who have the most to lose and the most to gain.
You can also read this article at the Economic Standard, here.
Nate Scherer is a policy analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit us at www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.