Feds are right to block Kroger-Albertsons merger, but there’s a bigger problem here | Opinion
It’s welcome news that the Federal Trade Commission has joined several state attorneys general to sue to block the proposed merger of Albertsons and Kroger.
The merger risks a host of negative consequences for, basically, everyone, the FTC noted in a news release. Consumers would have fewer choices, and less competition usually means higher prices. Workers would find it more difficult to bargain for wages and working conditions because it would be harder to leave for an outside competitor.
The main plan to prevent undue harm from the loss of competition between Kroger and Albertsons is called a divestiture plan, where the two companies agree to spin off many of their locations into a new competitor.
But if you were in charge of building your competitor, would you build a thriving giant or a hobbled mess? The results are predictable.
Albertsons and Kroger’s divestiture plan calls for hundreds of stores to be spun off to C&S Wholesale Grocers, a subsidiary that currently “operates just 23 supermarkets and a single retail pharmacy,” the FTC noted, and that this new company would be composed of “a hodgepodge of unconnected stores, banners, brands and other assets.” It would not be a viable competitor, in short.
This is part of a pattern. As Food and Power noted: “in 2014 the FTC required Albertsons to sell over 140 stores to the Washington chain Haggen in order to buy rival Safeway. But the much smaller Haggen couldn’t manage this sudden expansion and accused Albertsons of sabotaging the stores it sold off. One year after buying the stores, Haggen filed for bankruptcy and Albertsons bought back 33 of the stores it sold, plus the whole Haggen chain for a steep discount while dozens of unsold stores closed.”
Divestiture as a means of mitigating monopoly power should almost always be seen as suspect, since the merging companies propose what they’ll divest — generally the least profitable stores they think they can get away with.
In Kroger and Albertsons’ ideal scenario — the one that would be best for their bottom line — the spun-off businesses would quickly go under, removing even more competition from the market.
So the FTC is right to fight this merger, as are attorneys general interested in protecting consumers and workers in their states. (Notably, Idaho Attorney General Raúl Labrador is not among them).
But all this isn’t to say Albertsons and Kroger don’t have a good point. They have a very good point, in fact.
As they point out in an infographic, Walmart has a powerful and increasing dominance in the grocery market — somewhere around a quarter by several estimates, closer to a third by Kroger and Albertsons’.
Even post-merger, Albertsons and Kroger — the two largest supermarket companies in the country — would have only half the market share of Walmart.
It does seem very strange that a company with 16% of the market would be too big to exist, but a company with 29% of the market is just fine.
But instead of cobbling together a rival titan in the hope that competition can be restored that way, why not go with the tried and true method, the one that worked for Ma Bell? If Walmart is too big, and there’s plenty of indication that it is, maybe the FTC should face the problem head-on and break it up.
More competition would be better for consumers, workers, suppliers — pretty much everyone other than shareholders. And Walmart shareholders are doing just fine.
Bryan Clark is an opinion writer with the Idaho Statesman.
