Kroger, which operates around 2,700 stores, plans to acquire Albertsons, which has around 2,200 stores. Announcing the planned merger, Kroger CEO Rodney McMullen hinted that it would lead to lower prices for customers-- so says the man whose previous wisdom includes that “a little bit of inflation is always good in our business.”
Many people aren’t so sure that cost savings will materialize—and some are warning that the merger could increase prices. There’s damn good reason for suspicion. Grocery prices were up 13% in September over the previous year, while Kroger profits have risen, pointing to the retailer raising prices more than was necessary to account for its costs. Add that to the manufacturers of products being sold in supermarkets also having increased prices more than necessary to juice their own profits, and you start understanding why grocery prices are high right now.
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.
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 justified with the likelihood of lower prices that didn’t exactly materialize.
“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.”
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 how Kroger cruelly cut off their employee's hazard pay just weeks into the COVID-19 pandemic. “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.”
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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