CINCINNATI — Norwood resident Sandy Drews can see the benefit of Kroger’s $24.6 billion acquisition of the Albertsons grocery chain.
“I think it’ll be a good thing,” Drews said after shopping at Kroger’s Surrey Square store Friday. “Maybe they could work together to keep prices lower.”
Xavier University Marketing Professor Scott Beck sees it the same way.
“I think for Kroger this is an opportunity to improve its supply chain and get better pricing,” said Beck, who worked for Kroger before joining Xavier in 2015. “Hopefully, one of the things you’ll see is a more dependable supply chain. Like a lot of retailers, Kroger suffers from supply chain woes. As consumers, we see out of stocks sometimes. Hopefully, by bringing these entities together, they’ll be able to fix some of that.”
Kroger spelled out the potential benefits for consumers and employees when it briefed investors on its blockbuster deal Friday. Those benefits include $500 million in new investments to lower prices and $1 billion to increase wages.
So, why did grocery workers unions in four states call on federal officials to block the deal?
“The proposed merger of these two grocery giants is devastating for workers and customers alike and must be stopped,” said Kathy Finn, acting president of UFCW770, in a joint press release by five union locals.
Kroger CEO Rodney McMullen told investors he is confident the deal will be approved by the Federal Trade Commission.
“Albertsons and Kroger both have been advised by attorneys around the FTC issues and feel very confident that we’ll be able to find something that works for all,” McMullen said. “We’ll sit down with the FTC as soon as we can.”
Beck said public opposition could cause the FTC to bring more scrutiny to the deal.
“We’re getting very weary from food inflation right now,” he said. “There’s certainly a lot of emotion around that. I’m not immune to it either. And there’s always concern that especially when you see competition diminish that pricing will go up.”
That’s how Morgan Harper sees it.
“We don’t anticipate this deal will go through without scrutiny and it should be blocked,” said Harper, a Columbus attorney who ran as a Democrat for the U.S. Senate this year. She lost in the May primary to Tim Ryan and now works as policy director for a Washington, D.C. think tank, American Economic Liberties Project.
“Right now, 60% of the grocery market is controlled by just 5 or 6 companies,” Harper said. “And Kroger and Albertsons are two of those companies. So, once they start combining, well, that’s when you start to see things that are approximating monopoly-like power.”
Harper doesn’t buy Kroger’s pledge to invest in lower prices and higher wages.
“A few years ago, there was a merger between Safeway and Albertsons where a lot of promises were made about how this wasn’t going to harm competition and it was going to benefit consumers and workers,” she said. “And those promises were proven to be wrong.”
Beck doesn’t think regulators will buy the argument that two companies with a combined market share of about 16% has monopoly power.
“If people look strictly from a grocery channel standpoint, yeah, I think it raises a couple eyebrows,” he said. “But the reality is that most people now have multiple channels that they shop in, whether it’s e-commerce through Amazon or they’re going to places like Walmart or Walmart.com. Or going to discounters such as Aldi’s. So, there are a lot of options.”
Kroger told investors it will address regulators’ concerns by spinning off as many as 600 stores into a new company. That will reduce Kroger’s market share in cities where the two companies have the most overlap. If they’re right about that approach, the deal will close in early 2024. If they’re wrong, Kroger could face a merger termination fee of $600 million.
“I think if Kroger agreed to a $600M breakup fee, they feel very confident about the path forward,” said Beck. “So, I’m not really concerned too much about the risk.”