Today, the AAI sent a letter to FTC Chair Lina Khan with new analysis and perspective on the likely anticompetitive effects of the proposed merger of retail grocery chains Kroger and Albertsons. The letter explains that the Kroger-Albertsons merger raises seller market power concerns for consumers. But it could also change the terms of trade with input suppliers by enhancing Kroger-Albertsons buyer power, including both monopsony and bargaining power. The effects of the merger could be felt in every part of the supply chain. Consumers could face higher food prices, less choice, and lower quality; input suppliers could see lower input prices from the exercise of buyer power; and smaller, independent grocery rivals that already struggle with higher input prices could be further disadvantaged.
The letter proceeds with an overview of the proposed merger, followed by analysis of how the public rationale for the merger conceals its real economic motivation. That is, to garner significantly more monopsony and bargaining power over input suppliers. The letter then turns to why the efficiencies claimed by Kroger-Albertsons are unlikely to pass muster under the Horizontal Merger Guidelines (“Guidelines”), or be passed through to consumers. The analysis concludes with arguments for why the FTC should seek to enjoin the merger rather than accept a remedy, if the FTC finds the merger to be illegal. This approach stands in contrast to repeating the mistake in Safeway-Albertsons of settling an illegal merger with an ineffective remedy. The costs of such failed remedies are borne by consumers and facilitate rising concentration in a critical sector.
Major conclusions and recommendations include:
- A Kroger-Albertsons merger would significantly increase concentration in already highly concentrated markets. Past grocery mergers indicate that local markets for the retail sale of food and other grocery products in supermarkets are highly concentrated. This will inevitably be the case in Kroger-Albertsons as well. The merging parties’ up-front fix is, therefore, an admission of the merger’s presumptive illegality. The merger is also likely to lead to large increases in the merged company’s buyer power in input supply markets, where adverse effects could be felt both regionally and nationally.
- If the genuine rationale for the Kroger-Albertsons merger is to expand distribution, then the merging parties would be acquiring other players, not each other. A brief review of consolidation in the retail grocery sector, including supermarkets and supercenters, indicates that combining Kroger and Albertsons will do little to advance “omnichannel” distribution, including making inroads into E-commerce and delivery, for the benefit of consumers. If this were the genuine motivation for the deal, as they attest, Kroger and Albertsons would be better off making different types of acquisitions, not merging with each other.
- The merger will significantly enhance Kroger-Albertsons’ buyer power in input supply markets. A close look at the efficiencies projected by the merging parties reveals the not-so-hidden motivation for the merger. That is, namely, to amass monopsony and bargaining power vis-à-vis input suppliers with which Kroger and Albertsons do business. The merger would enhance the ability and incentive for a larger and more powerful Kroger-Albertsons to exercise enhanced buyer power, to the detriment of input suppliers, with adverse knock-on effects on smaller, independent rival grocers.
- Projected merger-related efficiencies are unlikely to meet the rigorous standards in the Horizontal Merger Guidelines, or be passed on to consumers. The cost efficiencies claimed by the merging parties are unlikely to pass muster under rigorous Guidelines standards, for a variety of reasons. That includes claimed cost savings that are likely to result not from genuine efficiencies but from anticompetitive reductions in output in input supply markets. Moreover, in a litigated merger challenge the parties would for basic economic reasons be unable to demonstrate the pass-through of cost savings consumers to a court’s satisfaction.
- The burden on a remedy to restore competition sacrificed by a Kroger-Albertsons merger is unacceptably high. Given the concentrative nature of the Kroger-Albertsons merger, the risk of a failed remedy is commensurately high. An attempt to create a new rival out of stores spun-off from Albertsons pits a tiny, unproven competitor against a tighter oligopoly of large grocers. Evidence of previous failed remedies proves that the costs of failure are borne by consumers. Moreover, the parties’ divestiture proposal does nothing to address buyer power concerns. A Commission move to enjoin the merger is, therefore, likely to be the only effective remedy for preserving competition.
You can read the letter and analysis here: Kroger-Albertsons_Ltr to FTC_2.7.23