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Why are grocery prices so high? A look at the planned Kroger-Albertsons merger offers some clues [1]
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Date: 2022-10-28
A Kroger-Albertsons merger would put the new megacompany in a position to compete with the likes of Walmart—but the question is whether the benefits would really be passed along to customers or workers, or remain in the hands of top executives and investors. And why would we trust these companies?
As the Groundwork Collaborative noted a year ago, before this merger was proposed, Kroger “spent the summer of 2021 gloating that ‘a little bit of inflation is always good in our business’ before citing inflation to justify price hikes. Kroger publicly acknowledged that they could get away with increasing prices on consumers as long as prices didn’t rise by more than 3 or 4 percent.”
Then, in October 2021, Kroger’s chief financial officer said the company was “very comfortable with our ability to pass on the increases that we’ve seen at this point [...] and we would expect that to continue to be the case.”
So no, we can’t take Kroger and Albertsons at their word when they say that, following a merger, they’ll invest in lower prices. (And by their own account they’ll invest a fraction of the money in lower prices that they do in investor payouts.)
Companies wanting to merge often claim that economies of scale will allow them to decrease prices, but it doesn’t tend to work out that way. One 2008 study looked at five mergers and found that four of them led to increased prices. Michael Hiltzik at the Los Angeles Times looks at some more recent mergers—2011’s Comcast merger with NBCUniversal, 2018’s AT&T acquisition of Time Warner, the 2017 CVS-Aetna merger—and finds that they were sold with promised lower prices and better service that didn’t exactly materialize.
A 2012 study of supermarket mergers suggests that the effects would vary according to how concentrated the grocery market in a given area is; in less concentrated markets, a merger can decrease prices, but in more concentrated markets, “mergers in the supermarket industry can result in significant increases in consumer prices and thereby harm consumers.”
“At a time when grocery prices are soaring, in part because of monopolies in the food chain, this merger makes no sense,” former Labor Secretary Robert Reich told Hiltzik. “The current food inflation has two sources: (1) Grain prices have been increasing around the world because of grain shortages brought on by the war in Ukraine and climate change. (2) Domestic monopolies in seeds, fertilizer, and food processing have used the cover of inflation to raise their prices higher than their increasing costs — including the costs of agricultural commodities, labor and transportation.”
“There is no reason to allow two of the biggest supermarket chains in the country to merge — especially with food prices already soaring,” Sarah Miller, executive director of the American Economic Liberties Project, said in a statement when the plan was announced. “With 60% of grocery sales concentrated among just 5 national chains, a Kroger-Albertons deal would squeeze consumers already struggling to afford food, crush workers fighting for fair wages, and destroy independent, community stores. This merger is a cut and dry case of monopoly power, and enforcers should block it.”
There’s also a recent history of a merger involving one of these exact same companies to raise concerns. Kroger and Albertsons say that, as part of this merger, they will spin off at least 100 stores and possibly up to 375 stores to increase competition in some areas. But, David Dayen reports at The American Prospect, Albertsons sold off 168 stores when it acquired Safeway, selling those stores to a small chain called Haggen. Haggen wasn’t big enough to handle the rapid expansion, though, and went bankrupt. Then, “when Haggen liquidated its holdings in the bankruptcy, Albertsons bought 33 of the stores, including many of the same ones it had previously sold in the forced FTC divestiture. And it bought them back for about one-fifth of what it sold them for, making a nice profit in the exchange.”
On Tuesday, Sens. Elizabeth Warren and Bernie Sanders, along with Rep. Jan Schakowsky, wrote to Federal Trade Commission head Lina Khan, asking her to oppose the merger.
“Kroger’s and Albertsons’ histories of aggressive profiteering during the pandemic present a dangerous roadmap for how a larger and more powerful company would act if this acquisition were allowed to proceed,” they wrote.
They also highlighted concerns for workers at the merged company, noting not just Kroger’s notorious cut-off of hazard pay just weeks into the COVID-19 pandemic, but that, “Kroger and Albertsons have both faced allegations of unfair labor practices and unsustainable
conditions for their employees, concerns that could be compounded by this merger. A 2021
survey by the Economic Roundtable of more than 10,000 Kroger workers found that 75 percent
of Kroger workers reported being food insecure, and more than 60 percent did not earn “enough
money to pay for basic expenses every month.”
Sanders, Warren, and Schakowsky aren’t the only public officials with concerns. Rep. Kim Schrier, a Democrat from Washington, wrote her own letter to Khan, noting, “Last year, Kroger openly stated it was passing on higher costs to consumers while posting some of the largest profits in decades.”
A group of state attorneys general is raising a specific short-term concern about the terms of the deal: a planned payout of nearly $4 billion to Albertsons investors set to happen on Nov. 7. The group, led by Washington, D.C., Attorney General Karl Racine and including the attorneys general of Arizona, California, Idaho, Illinois, and Washington, called for that payout to be delayed. It will take time for the merger to go through (if it does go through) and in the meantime, they argued, that payout—representing more than two years of profits for Albertsons—“will hamper its ability to meaningfully compete with Kroger,” as it is required to do in the interim.
Will this merger go through? The FTC’s Khan has started out with a much more aggressive approach to anti-trust enforcement than her recent predecessors, and Democratic lawmakers are obviously mobilizing to put pressure on the deal. But whatever happens with this merger, a close look at Kroger and Albertsons is a reminder of just why grocery prices and corporate profits are so high at the same time.
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