What a Kroger-Albertsons merger could mean for shoppers

Two of the largest supermarket chains in the U.S. are planning to merge. Kroger and Albertsons first announced their proposed merger back in 2022. The Federal Trade Commission has been reviewing the proposal for more than a year and is expected to decide soon.

Meanwhile, lawmakers, consumer advocates and others have raised concerns about the proposal. Washington Attorney General Bob Ferguson recently sued to block it, arguing that it would reduce competition and raise prices at the grocery store.

Alina Selyukh has been covering the story for NPR. She joins us with more details on what this merger could mean for shoppers.

This transcript was created by a computer and edited by a volunteer.

Dave Miller:  From the Gert Boyle Studio at OPB, this is Think Out Loud. I’m Dave Miller. The two largest supermarket chains in the US want to become one. Kroger and Albertsons first announced their proposed merger in 2022. The Federal Trade Commission has been reviewing the proposal for more than a year now. It’s expected to make a decision soon. Meanwhile, lawmakers, consumer advocates, and others have raised concerns about this merger. Washington Attorney General Bob Ferguson recently sued to block it, arguing that it would reduce competition and raise grocery prices. NPR business correspondent Alina Selyukh has been covering this story and she joins us now. It’s great to have you on the show.

Alina Selyukh:  Hello, hello.

Miller:  Can you give us a sense for just how large Kroger and Albertsons are?

Selyukh:  Sure. So Kroger is the biggest supermarket operator in the US. It has about 2,700 locations. It owns a bunch of different brands. So depending on which part of the country you’re from, you might know it as Ralph’s or Harris Teeter. Here in the DC area, it also has Fred Meyer and King Supers. It has a whole bunch of chains. And then Albertson’s is the second biggest chain. It has almost 2,300 stores and that chain owns Safeway and Vaughn’s. So put together they would have more than 5,000 locations and employ 720,000 people.

Miller:  That number, I don’t know why, but it was the employment number that hit me even more than the store number. A remarkable number of people. Almost three quarters of a million workers. That’s if there are no layoffs. What areas of the country might see the biggest impacts if the merger were to go forward?

Selyukh:  So these chains are regional, which is, I think what you’re alluding to here that in various parts of the country, the overlap differs and the parts of the country that overlap the most or have the most overlap of these two chains tend to be Western states. We’ve heard a lot about states like Arizona, Colorado, California, Wyoming, Oregon, Washington.

Miller:  I should note that according to the research company, Placer AI, Kroger and Albertsons account for about 57% of market share of grocery stores in the Northwest. And that includes Oregon, Washington, Idaho, Montana, and Wyoming, a number that probably wouldn’t come as a surprise to anyone who’s driven around so many parts of Oregon and seen just tons of Fred Meyers and Safeways and Albertsons and a few QFCs, often right next door to each other, right across the street. What are the big questions in front of the Federal Trade Commission (FTC) right now?

Selyukh:  So the FTC is a federal agency that’s tasked with making sure that companies don’t turn into monopolies and the reviews that they do tend to focus on, whether a merger or an acquisition would harm competition and potentially harm consumers in the process.The central question they are weighing is whether these two companies coming together is better for competition or worse for competition or neutral for competition. The curious and the tricky bit here is what counts as competition. I’m sure we’ll get to it in a minute.

But this kind of supermarket competition in the US has historically been measured on a very hyper-local level. Like in your neighborhood, you have these two choices. If this merger happens, how would that affect you, which is very different when you take a step back and try to look on the national level. And that is kind of a very curious thing. We’re waiting to see how the regulators approach this concept of competition in this modern world, looking at two large supermarket chains.

Miller:  So some huge questions for the FTC to consider. How do they go about answering those questions?

Selyukh:  They tend to study it. They gather tons and tons of data. They do a lot of interviews, they speak with competitors, so rival chains. They speak with workers, they speak with suppliers, farmers, and they do actually often study neighborhood-by-neighborhood maps of supermarket competition. This is how it’s traditionally been done. I obviously don’t have any insight on how they’re going about it in this particular case, but that tends to be their process.

Miller:  What have the companies themselves, Kroger and Albertsons, said about competition and pricing?

Selyukh:  So as I said, those are the two big questions the FTC tends to ask or has historically asked. This merger, does it lead to less competition? Will this merger lead to higher prices for shoppers? And the companies argue that together they do not plan to do any layoffs. They do not plan to close any stores. They do not plan to raise prices. In fact, they will say that together they will be able to lower prices for shoppers because they’ll get better deals with suppliers perhaps. Or they also say they plan to invest a billion dollars in higher wages and higher benefits for workers. So they say it’s a good deal all around.

The thing they point out - and this is sort of a big central thing to go back to that idea of what counts as competition in grocery- [is that] their biggest competitors are Amazon, Costco, and Walmart, especially Walmart. Walmart sells the most groceries in the US. It is nationwide. It sells more groceries than Kroger and Albersons combined. And the companies argue, Amazon, Costco and Walmart, they can only compete against them by coming together. The question is whether the FTC will buy that argument?

Miller:  It really sounds like the kind of monopolization arms race. Kroger and Albertsons are saying these other companies, Walmart and others, are so big that they’re muscling us out and we have no choice but to get bigger too. They did put forward a plan to preserve some version of competition in local markets that have a lot of overlap. What are they proposing?

Selyukh:  As I was saying, traditionally regulators might go neighborhood-by-neighborhood and say, “Well, here’s a Harris Teeter and here’s a Safeway and they’re right across the street from each other.” It shouldn’t be that these two stores, across the street from each other, belong to one company, which would be the case if Kroger and Albertsons merge. And so to address that specific concern, the company said they would sell hundreds of stores. I think the minimum number that they said they would sell is at least 413 stores and possibly up to 650 stores to this other third company.

The third company is called C&S Wholesale Grocers. Some people know it because it runs Piggly Wiggly in some parts of the country. But it’s generally a supplier, like a grocery supplier. And so Kroger and Albertsons are saying that they will take these hundreds of stores and they will sell them to C&S Wholesale. So in that neighborhood, if you have these two stores, those two stores would no longer belong to one bigger Kroger/Albertsons. They would actually preserve competition by having that other store be run by C&S Wholesale, theoretically preserving competition as it stands right now.

Miller:  It says something about the level of market saturation in Oregon that, according to reporting by The Oregonian, Kroger and Albersons would sell at least 49 of their combined Oregon stores to this other company, to C&S Wholesale Grocers, as part of the merger. They have not yet said which individual stores would be sold if it goes through. But it’s a high number. About 50 stores would no longer be one or the other company. How likely is this to actually preserve competition? I guess this gets to the question of what do we even mean by competition in the digital age?

Selyukh:  Specifically, this whole process has a term. It’s called divestiture. And historically, divestitures have been a very traditional way to go about preserving competition in these kinds of tricky mergers, to appease regulators. But in the last decade or so antitrust experts, including quite a number of leaders in these regulatory and antitrust jobs and the Biden administration, have been really skeptical about divestitures. They will argue [whether] this other third party is as well equipped to run a store. Are they actually going to survive as a competitor? Ironically, one of the examples that people have been giving me to show that divestitures don’t always work has to do with Albertsons itself.

Back in 2015, Albertsons bought Safeway. This was a really big merger. It did get approved. And as part of the approval regulators required Albertsons to sell off almost 200 stores as part of this divestiture. It got sold off to a number of companies and one of the companies that bought a few dozen stores actually went bankrupt just like within months. And so that this buyer went bankrupt and laid off workers and in bankruptcy, Albertsons bought back 33 of those stores, some of those stores for as little as $1. So that is why I think this question of whether divestitures will work is hugely central to this particular merger and how the FTC actually deems it going forward.

Miller:  We asked listeners what a potential Kroger/Albertsons merger would mean for them. Cory Ann Woodward wrote, “I’m concerned because I work for Safeway so that   banner might be divested.” What have you heard from workers of these heavily unionized companies about this proposal?

Selyukh:  To your point, it’s one of the very few retailers in the US that are majority unionized. And actually companies will point it out and say that’s actually a benefit. And the merger should be approved because they would be creating union jobs, unlike Walmart, Costco, and Amazon who are again, their biggest competitors, as they will say. The union representing the workers of these companies, the United Food and Commercial Workers Union, has come out in opposition to the merger. A number of workers have come to various public forums, city council kinds of meetings. They’ve just been speaking in public events about this merger.

And the workers have been worrying that this would mean lower wages or, for union purposes, whether this would be a harder company to negotiate a contract with. The companies argue that they did set aside a large amount of money for higher wages and they did commit to not laying off workers as part of the merger. And the third party company that they’d found to buy their stores, C&S Wholesale Grocers, has also said that they would preserve the union contract and they would commit to trying to protect those jobs. But the workers overall have been quite leery.

Miller:  An added wrinkle here is that the Biden administration has taken a real activist stance on antitrust matters, especially the chair of the FTC. But they don’t really have a great winning record. What has their approach been?

Selyukh:  Well, they have had a number of really high profile losses in courts. So one way that they’ve gone about trying to, if the FTC decides to block a merger, they have to take it to court. And in some of the really big deals like Microsoft trying to buy Activision, they got overruled. The FTC lost that case. They have blocked a number of mergers. I do want to point out they just recently, effectively, killed a merger of Amazon and iRobot, which is a maker of these cleaning robot things. And then there was a really large merger of publishers Penguin, Random House, and Simon and Schuster. That merger fell apart under scrutiny.

There have been a number of successes for the FTC in terms of blocking mergers if they decide to do so. But, I would say, the Biden administration has been more aggressive and less concerned with only taking on surefire wins, if that makes sense. So it is kind of interesting that this particular deal review has been going on for much longer than anticipated originally. We don’t know whether they will sue to block, or settle with conditions, such as maybe those divestitures. But we’ll see.

Miller:  Many of the recent high profile antitrust cases have been about big tech. They have to do with mergers or acquisitions of one tech company by another or affiliated sellers, like in the case with Facebook. These are issues that are really crucial to our lives because tech is embedded in so much of the way we live our lives. But it just feels to me less tangible than the price of a carton of eggs or the price of a half gallon of milk. Do you get the sense that the FTC is paying closer attention to this potential merger because average people are more aware of the potential repercussions?

Selyukh:  I mean, it’s possible. It’s hard to say because the FTC doesn’t say very much about the reviews that they’re doing when they’re underway. It’s hard to say. I do want to say that I think maybe we hear [more] about very large tech deals. They’re really sort of cutting edge technologies and they’re very high profile cases. But they have also…to add to my list of other mergers that they have blocked, there was a merger of alcohol distributors. That’s pretty tangible that the FTC went after and the deal ended up falling apart.

I don’t know. I don’t know that they are necessarily paying more attention. But I sure know that the FTC chair did go on a trip. They met with the FTC leaders and have met with lots and lots of state representatives. This is one of those mergers that really did draw lots of regular folks out to attend these meetings and lots of workers and union leaders out. So it really engaged many lawmakers on every level in federal and state and local, in a way that Facebook can’t do. So this really, really affects what happens down the street from you.

Miller:  For sure. You mentioned state officials. I noted at the beginning that Washington’s Attorney General has pursued legal action against this merger. What’s he asking for?

Selyukh:  He’s asking for what’s called a permanent nationwide injunction. But what he’s asking for is for this merger to stop. So he’s using his state and the power of his seat to say, “This is how it’s going to affect my state and therefore, it should be blocked everywhere while we are considering this case.” He mainly points out what you said earlier, which is that he says more than half of all supermarkets in his state would be affected by this merger in uncertain and unclear ways. And so he’s saying the merger would be bad for his state. And he argues that therefore, this merger should not proceed. That case has only just begun.

I just do want to also clarify that his case, the Washington State case, doesn’t really have a bearing on what the federal regulators will do. That particular review has been going on and it is unclear to me how long it will continue.

Miller:  Alina, thanks very much.

Selyukh:  Thank you.

Miller:  Alina Selyukh is business correspondent for NPR. She joined us to talk about the proposed merger of Albertsons and Kroger.

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