Kroger striving to be USA’S primary grocer
Will government approve merger deal and let it?
Two colliding forces may control where millions of Americans shop for groceries in the coming years: Kroger, and a team of Biden administration lawyers.
Six months after Kroger proposed one of the largest retail takeovers in history, regulators remain silent on whether they will permit or fight the $25 billion merger with rival grocer Albertsons.
Antitrust experts say the Federal Trade Commission may ultimately go to court to halt the deal. They note the acquisition was unveiled months after the Biden administration vowed tougher regulatory scrutiny of big mergers as it seeks to protect both consumers and workers.
Kroger’s bid is a huge deal: Just shy of a $28 billion merger in 2016 of two European chains that included 2,000 stores in the U.S., the current proposal will likely have a bigger impact on America. The current proposal would create a network of nearly 5,000 stores in almost every U.S. state and give it more than 700,000 workers – more than the U.S. Postal Service.
● The Cincinnati-based retailer would employ one out of six of all 4.2 million American workers at supermarkets, supercenters and club warehouses,according to the U.S. Bureau of Labor Statistics.
● Kroger’s annual food sales would hit $170 billion (excluding fuel and pharmacy sales) – about a fifth of the nearly $1 trillion Americans spend on groceries every year, according to the Economic Research Service at the U.S. Department of Agriculture.
● The deal would make Kroger the No. 1 player in six (up from three) of America’s 10-biggest metropolitan markets: Los Angeles, Dallas, Chicago, Atlanta, Phoenix and Philadelphia and a close No. 2 in two more (Houston and Washington, D.C.), according to Tampa-based industry
tracker Chain Store Guide.
Kroger says the end result will be smaller after they sell off a few hundred stores to mollify regulators – adding they pledge to cut food prices.
But antitrust experts say that may not be enough.
“(Regulatory) agencies are more likely to go for an injunction than spin-off fixes,” Eleanor Fox, a trade regulation professor at New York University, told The Enquirer.
She added federal review of proposed mergers has gotten “a lot tougher” under Biden.
In the meantime, Kroger’s acquisition proposal has drawn a swarm of critics who claim it will hurt consumers and smaller grocery stores with higher prices. Several state attorneys general have announced antitrust investigations of their own or taken legal action.
“In addition to skyrocketing prices, the proposed merger raises questions about the potential for store closures that could force consumers to travel farther for groceries – possibly creating food deserts that disproportionately affect minority communities,” said Arizona Attorney General Kris Mayes, in a February announcement that her office
was launching an anti-trust investigation.
In a statement to The Enquirer, Kroger ignored questions about Biden regulators but tried to quell some doubts by again pledging “not lay off any frontline associates or close any stores, distribution centers or manufacturing facilities.”
While Kroger won’t keep all the stores, it further promised to sell off supermarkets “qualified operators” with experience and the financials to succeed.
“(The merger) is about growing jobs and careers for associates and bringing lower prices and more choices to customers,” Kroger said in a statement, adding company officials believed the deal would also “benefit our farmers and suppliers” and provide them with “opportunities to grow.”
‘We went through this type of merger before – we lost 43 stores’
Regulators at the Federal Trade Commission, the U.S. agency charged with protecting consumers, won’t discuss the merger.
In December, Kroger disclosed the
agency had requested additional information, a move that prompts some businesses to drop takeover bids, antitrust experts say.
But Kroger is pressing ahead.
“We are working cooperatively with regulators responding to the (FTC) request and its discussions about the transaction,” CEO Rodney Mcmullen told Wall Street analysts in early March. “(We) will work towards finding a solution that benefits all stakeholders will remain on track to close the transaction in early 2024.”
As part of the deal, Kroger said it will cut food prices $500 million as the U.S. struggles with the worst food inflation period at supermarkets since the late 1970s, with shoppers shelling out 10.2.% more in February for the same goods as a year ago.
Food economists say grocery inflation will likely flatten – but not reverse. Food prices of 2019 may never return. Meanwhile, many shoppers remain skeptical of supermarket pricing.
“I think that’s a bunch of garbage – a lot of these companies are making record profits,” Ian White, a 37-year-old bartender from Green Township told The Enquirer outside a Cincinnati Kroger. He blamed grocery companies, not inflation, for high prices. “Do eggs really have to cost that much?”
Meanwhile, past store sell-offs have proven to be tricky.
Just ask 54-year-old Safeway cashier and mother of four Naomi Oligario.
In 2015, Albertsons bought Safeway. As part of the deal with regulators, Albertsons agreed to divest 168 supermarkets, including her Safeway store in Port Orchard, Washington, about an hour west of Seattle, that was sold to a regional grocer, Haggen. Conditions at the store quickly fell apart as Haggen struggled to compete and filed for bankruptcy within a year. Several of the divested stores – including hers – were eventually reacquired by Albertsons.
“Hours started to be cut because there wasn’t enough business,” Oligario told The Enquirer, adding only her 30-plus years of seniority allowed her to get enough hours to live on. She needed the work to support family members at the store who lost their hours and moved back home.
“I had eight mouths to feed in my house,” Oligario recalled, adding the deal put her family on food stamps.
Among the most vocal opponents of Kroger’s takeover of Albertsons are local chapters of the United Food and Commercial Workers International Union in western markets who fear their membership could lose hours, jobs, benefits and more by potential store closings.
“We’re very, very worried in Colorado. We’re going to have a huge impact, probably one of the worst,” Kim Cordova, president of UFCW Local 7 of Colorado and Wyoming, told The Enquirer, noting four different store banners in her region are owned by the two companies. “We went through this type of merger before when Albertsons and Safeway merged – we lost 43 stores.”
Antitrust experts say the Kroger transaction faces tougher scrutiny because of the fallout from past supermarket mergers like the Albertsons-safeway deal. Before becoming chair of the FTC, Lina Khan called the deal “a spectacular failure” in an academic paper.
William Kovacic, the director of the Competition Law Center at George Washington University, said the current leadership at the regulatory agencies believes too many mergers have been approved in the past and that solutions, such as divestitures, didn’t work or go far enough. “The FTC has staked out a more militant position . ... The FTC is going to ask for a lot and the companies may say ‘too much,’” Kovacic told The Enquirer.
‘Monopsony’ and why it matters for Kroger
Labor groups may get a very sympathetic ear from the current administration.
In 2021, President Joe Biden unveiled an executive order to “promote competition” in America. It called for regulators to beef-up antitrust enforcement and specifically ordered regulators to consider the impact on workers.
“What we’ve seen over the past few decades is less competition and more concentration that holds our economy back,” Biden said in a speech announcing the order. “Rather than competing for consumers, they are consuming their competitors. Rather than competing for workers, they’re finding ways to gain the upper hand on labor.”
So far, Biden’s efforts to block big deals has been mixed with a few high-profile deals dropped and a few court losses. But it’s won one high profile case where labor issues were key, antitrust experts note: Last year, the U.S. Department of Justice won its lawsuit to block the merger of publishers Penguin Random House and Simon & Schuster.
Critically, the government’s case wasn’t based on consumer issues, such as claiming books would become more expensive. Instead, regulators killed the deal arguing fewer – and bigger – book publishers would harm the competition for authors, the labor force that provides content for book companies. Celebrity author Stephen King even testified in the trial, arguing the deal would hurt authors.
A situation where one company controls a disproportionate number of jobs and sets the pay is called a “monopsony.” It’s similar to a monopoly, except instead of a company having a stranglehold on something to sell, it has unfair market power because it’s the only buyer of something, such as the labor of workers.
In his 2021 speech, Biden said he wanted antitrust regulators to protect workers from “company towns … where one big corporation runs the show,” adding those dynamics depress wages.
Elena Prager, an economist with the University of Rochester, told The Enquirer mergers can depress workers’ wages in communities. When two big employers in a city or town merge, the combined company can dominate the local job market.
“(It leaves workers) in a weaker bargaining position as this company controls basically all of the available jobs,” Prager said. “The union can’t credibly threaten that the workers will walk.”
Merger proposal affects one out of four U.S. supermarket workers
Despite the misgivings of many critics, Kroger says grocery shopping in America has changed in the 21th century. It no longer competes against just other supermarket chains.
Kroger executives believe the company needs to get bigger to effectively compete against nontraditional rivals that use cheap groceries to drive customer traffic, such as Walmart and digital juggernaut Amazon, which will still be bigger.
“When I joined Kroger, the average family bought most of their groceries during a weekly trip to their neighborhood store. Today, the industry is larger, more complex, and more competitive,” Mcmullen testified in November during a Senate committee meeting regarding the acquisition. He also stressed that his biggest competitors, including Costco, are non-union companies and will remain larger even with a completed Kroger acquisition.
Kroger further points out it has plowed $1.9 billion in the last five years to increase store associate pay to an average hourly rate to $18 per hour or $23.50 per hour including benefits.
But has Kroger’s market power ever worked against local workers?
Andrea Zinder, the president of UFCW Local 324 in Southern California, thinks so. In early 2021, when Long Beach officials passed a local ordinance mandating an extra $4 per hour of hazard pay during the ongoing COVID-19 pandemic. Kroger quickly shut two local stores, one Ralphs and one Food 4 Less.
“It was heartless and retaliatory, it was intimidation. They wanted to create a chilling effect to workers and local officials,” Zinder told The Enquirer, adding the move was aimed at threatening employees’ jobs and local communities with potential food deserts if they tried to boost pay.
Those stores remain closed, Zinder added.
Kroger also closed company-owned stores in Los Angeles and Seattle over such local initiatives. At the time, Kroger labelled such legislation as “misguided,” noting some competitors were exempt from paying the extra money. The company said tacking on extra employee costs made it harder to keep “long-struggling” stores viable.
Meanwhile, federal data doesn’t paint a very rosy picture for the 2.6 million grocery workers in America.
Average weekly pay for supermarket workers reflects the industry’s turmoil and consolidation in the past 15 years.
The average supermarket worker at the end of 2022 made $604 a week or about $31,400 a year, according the U.S. Bureau of Labor Statistics. Excluding inflation, the average worker made less money between 2007 and 2019 than they did in 2006. Since the COVID-19 pandemic, average supermarket pay has rebounded amid a labor shortage, which has forced companies to pay more.
Meanwhile, back in Cincinnati, persistent food inflation remains top of mind for shoppers. Annette Eberhardt, 53, an office coordinator and mother of four, thought her grocery bill would ease since some of her adult kids moved out, leaving her with one 18-year at home.
“Our groceries haven’t gone down as much as we thought,” she said.