The FTC’s challenge of the Kroger-Albertsons merger is part of a broader push to rein in corporate power and profiteering
The Federal Trade Commission’s (FTC) recent suit to block the Kroger-Albertsons merger marks a major milestone in the Biden administration’s effort to combat high food prices. The $24.6 billion deal, announced in October 2022, would mark the largest grocery merger in history, and would give the resulting chain command of nearly 22% of the retail food market.
Though the grocery giants are billing the merger as an answer to big box domination from the likes of Walmart and Costco, the FTC suit makes clear that the answer to consolidation is never more consolidation. By eliminating competition, this merger would lead to higher prices for consumers, lower wages and worse benefits for workers, and store closures that cut off access to quality food, especially for low-income communities.
Even without the merger, Kroger and Albertsons currently hold the two highest market share percentages for traditional grocery stores in the U.S. Kroger owns around 2,750 grocery stores spread across more than 30 states, including Ralphs, Fred Meyer, and Dillons. Albertsons operates about 2,200 stores across the country including Harris Teeter, Safeway, and Vons. Notably, Kroger and Albertsons are direct competitors—as their executives have admitted—and their merger would eliminate the need to compete for customers and workers, particularly in certain regions of the U.S.
'You are basically creating a monopoly in grocery with the merger.'
Historically, the FTC has found that mergers of this magnitude lead to about a 2 percent rise in grocery prices. But the effects of this merger could be worse. With little to no competition, a vertically integrated supply chain, and enhanced power over workers, a more consolidated Kroger will be able to extract additional revenue from consumers at will. As an Albertsons executive said in reaction to the proposed deal, “You are basically creating a monopoly in grocery with the merger.”
The deal would also come as American consumers are already facing record-high prices due to outsized corporate pricing power and profiteering. A recent Groundwork report found that corporate profits drove 53% of inflation from April to September 2023.
Profiteering has been particularly rampant for essential goods since big corporations know that their customers can’t go without essentials like groceries, diapers, and baby formula. Another Groundwork report found that families are now paying 25 percent more for groceries than they were before the pandemic, outpacing overall inflation, even as input costs have largely come down.
Kroger has touted a $500 million investment in lower prices as proof that the merger would not lead to price gouging. However, this short-term investment would not address a consolidated Kroger’s ability to hike prices in the future. If the corporate price gouging spree of the pandemic years is any lesson, we’d be foolish to think otherwise. As high prices swept the nation, Kroger and Albertsons were among the many corporations that reaped record profits by raising prices. That is why Kroger’s CEO said that “a little bit of inflation is always good for our business.”
Another Groundwork report found that families are now paying 25 percent more for groceries than they were before the pandemic, outpacing overall inflation, even as input costs have largely come down.
Additionally, as a major buyer in the grocery sector, a new mega-chain could leverage its consolidated purchasing power to gain an advantage over suppliers, pricing out smaller competitors. Big chains can generally negotiate lower prices and more favorable terms, leaving independent grocers to shoulder higher inventory costs that often get passed on to consumers at the checkout line.
Kroger and Albertsons are also in direct competition for the labor of grocery workers, allowing workers to switch jobs and negotiate for better pay and working conditions.
Analysis from the Economic Policy Institute suggests that over 700,000 workers across various metro areas could face wage losses due to the consolidation. By diminishing competition in places where Kroger and Albertsons are the only two grocery employers, this merger would also stifle workers by taking away opportunities to seek better wages and benefits at competing stores.
As the FTC’s complaint notes, workers could also see a decline in bargaining power since grocery unions play competing grocery chains against one another to negotiate favorable contract terms. Unions would lose this bargaining power if the merger were to go through.
Over the last 25 years, consolidation in the grocery market has caused the number of grocery stores to fall by 30 percent. After significant acquisitions, stores within the resulting mega-corporations that fail to meet expectations often close. The dwindling count of grocery stores signifies more than just a reduction in shopping options. Each closure exacerbates the prevalence of food deserts at a time when nearly 40 million Americans reside in areas with limited to no access to quality food.
Despite the obvious negative effects of grocery mergers, Kroger is hoping to gain approval for the merger by pledging to divest 413 stores to C&S Wholesale, a notoriously anti-union grocery company based in New Hampshire. The United Food and Commercial Workers (UFCW) and the Teamsters, who represent a combined 122,000 Kroger and Albertsons workers, oppose the merger largely due to the divestiture proposal, which they argue would lead to layoffs and the transfer of operations to C&S’s non-union sites.
Additionally, divestitures, like the kind Kroger proposed, have failed to maintain competition following previous grocery mergers. When Albertsons acquired Safeway in 2015, for example, the FTC mandated that Albertsons divest 168 stores to address any anti-competitive effects. But shortly after, Albertsons reacquired 33 of the sold-off stores at a discount when the purchaser was unable to handle the large acquisition and declared bankruptcy.
The FTC challenge of the Kroger-Albertsons merger aligns with the Biden administration’s broader efforts to tackle the root causes of food price inflation and ensure that American families have access to affordable and nutritious food.
These initiatives include expanding the Supplemental Nutrition Assistance Program (SNAP) in 2021, which increased benefits by over 50% since 2019 for a family of four—far outpacing the rise in grocery prices. This increase in SNAP benefits is estimated to enhance economic security for over 40 million Americans.
The administration has also tackled the underlying causes of rising grocery prices by targeting anticompetitive practices in food, retail, and agricultural industries, as well as harmful pricing practices. In July 2023, the U.S. Department of Agriculture announced it would be partnering with state attorneys general and providing states with resources to help crack down on anti-competitive practices in food and agricultural markets. Since then, the Attorneys General of Minnesota, California, North Carolina, and Tennessee have collaborated in a civil antitrust lawsuit, initiated by the Justice Department’s Antitrust Division, targeting the company Agri Stats Inc. for helping major meatpackers coordinate their price-fixing.
The USDA has also provided 1.2 billion dollars in loans to combat outsized pricing power in the meat industry and diversify the meat and poultry market. Earlier this week, the USDA announced a final rule that would improve enforcement of the Packers and Stockyards Act, a law designed to prevent meatpackers from discriminating against or deriving unfair concessions from farmers and ranchers.
A new bill introduced by Senator Bob Casey also targets the deceptive practice known as “shrinkflation,” which involves reducing the size or quantity of a product while keeping the price the same or higher. Senator Casey’s Shrinkflation Prevention Act would direct the FTC to regulate shrinkflation as an unfair deceptive act or practice. A new report from Groundwork Collaborative—”Big Profits in Small Packages”—finds that shrinkflation accounted for about 10% of price increases in household essentials like paper towels, toilet paper, and snacks during the inflationary period. As Groundwork Collaborative Executive Director Lindsay Owens writes in the report, “While shrinkflation is not new, it is arguably the most deceptive pricing practice companies use and has come under renewed scrutiny as Americans face grocery prices 25% higher than prior to the pandemic.”
A new report from Groundwork Collaborative—”Big Profits in Small Packages”—finds that shrinkflation accounted for about 10% of price increases in household essentials like paper towels, toilet paper, and snacks during the inflationary period.
Finally, the Biden administration has announced a new multi-agency “strike force” to better harness government tools like competition laws to act as a check on corporate power and crack down on greed-fueled pricing.
Suing to block the merger of two major grocery giants is a big, important step for an administration trying to rein in excess profit-seeking, and we hope to see many more major actions to come.