Grocery Prices Could Increase for Millions Under Proposed Store Merger

A proposed merger between the nation's two largest grocery store chains has drawn bipartisan scrutiny from Congress amid concerns the consolidation of the two companies and their subsidiaries could potentially lead to increased prices and store closures.

Appearing before a Senate Judiciary subcommittee Tuesday, CEOs for Kroger—the nation's largest grocery store conglomerate—and Albertsons, the nation's second-largest, sought to assure lawmakers their companies' pending merger would result in no layoffs for frontline workers.

They said a potential merger would lead to reduced prices and increased competition as they seek to maintain pace with larger retailers like Walmart.

"Our merger is a win for customers, a win for associates and a win for American competition," Kroger CEO Rodney McMullen told lawmakers. "It will benefit associates and customers, preserve good union jobs and enhance the competitive landscape."

Others, however, adamantly disagreed—particularly given the increasingly rapid market consolidation of the industry and both firms' promise of sizable returns for their shareholders once the merger is completed.

Combined, the two companies and their subsidiaries like Safeway and Harris-Teeter would make up nearly one-sixth of all grocery sales nationwide.

And historically, such mergers have had negative implications on consumers.

Numerous studies, including a 2012 study from the Federal Trade Commission that examined mergers like this one, found that while prices did go down in rural and underserved grocery markets, mergers in highly concentrated markets were most frequently associated with price increases greater than 2 percent.

Earlier studies conducted in concert with FTC analysts found price increases of anywhere between 3 percent and 7 percent following grocery store chain mergers, allowing firms with otherwise razor-thin profit margins to remain profitable as they seek to fulfill the terms of their business agreements.

While the merger could create conditions leading to lower bulk prices, the CEOs argued, others say the rise of the "power buyers"—i.e. firms so large, they command the brunt of the supply chain and starve out their competition—is likely to only exacerbate declining levels of competition amid persistent inflation and the aftermath of a pandemic that tested the limits of the industry's ability to get food to market.

"Independent grocers like me struggled throughout the pandemic to stock must-have products—such as essentials like paper towels and toilet paper, cleaning supplies, and critical packaged foods like canned soup," Michael Needler, CEO of small grocery chain Fresh Encounter, said in testimony Tuesday.

"Meanwhile, large national chains have exercised their buyer power to demand on-time, complete orders, and in some cases to secure excess supply," Needler added. "As a result, many independent retailers are forced to compete in an unfair playing field."

Critics of the proposed deal argued that competition will eventually be snuffed out in the shadow of the new conglomerate that is able to buy more goods, and at cheaper prices, removing the need for major grocers to lower prices in response to a lower price point at a rival store.

Lawmakers have already accused both companies of price-gouging as grocery prices have increased amid growing corporate profits. And some, like Massachusetts Democrat Elizabeth Warren, have already called on the FTC to oppose the deal.

Congress has no ability to regulate corporate mergers. That responsibility belongs to the Federal Trade Commission, which has been relatively laissez-faire in its dealings with corporate mergers in recent years.

However, some observers believe the tide is beginning to shift.

Earlier this month, the FTC implemented a policy expanding the agency's oversight over "unfair competition," particularly corporate conduct that undermines "competitive conditions" in the marketplace.

Meanwhile, Republicans have shown an increasing political imperative to enforce anti-trust laws amid concerns over the reach of major tech firms like Google, Meta and Ticketmaster as well as recent mergers between major meatpackers like JBS, whom they feared would undermine the integrity of the nation's food supply.

"Every time this issue has come up, there's been kind of this pendulum of enforcement and non-enforcement," Christine Bartholomew, a professor of law at the University of Buffalo who specializes in antitrust law, told Newsweek.

"You see a bunch of mergers happen. Then you see the reaction where we realize when you have lots of mergers, you have this massive concentration of wealth, and then you have all the woes antitrust law was intended to avoid. And so we're right now back at the swing," Bartholomew said.

While the FTC has the initial say over mergers, ultimately the courts have the final say.

Notably, the recent FTC policy change comes on the heels of several court losses for federal agencies challenging a handful of major corporate mergers around the country, including a recent marriage of a pair of sugar producers that resulted in the consolidation of 75 percent of the industry in the southeastern U.S.

"The FTC will have to consider whether grocery stores that are not supermarkets are a strong competitive force that push prices down," Eleanor Fox, an expert in antitrust law at New York University, told Newsweek.

"The FTC will probably also claim that the merger will significantly increase the buying power of the firms, causing them to squeeze the suppliers and not inducing them to pass on the gains to consumers. The firms are likely to be willing to sell stores that are important competitors to one another, to try to get FTC approval," Fox said.

If they don't, the case will then likely go to court—a tricky proposition under President Joe Biden's administration. In addition to a more aggressive FTC, the U.S. Department of Justice has also announced a renewed interest in providing oversight over major corporate mergers following a recent spate of Big Tech acquisitions.

"This transaction will not close quickly and easily," George A. Hay, a professor of law and economics at Cornell Law School, told Newsweek in an email.

"[FTC Chairwoman] Lina Khan will not want to see such a large merger get by on her watch given how public she has been about wanting to be a more aggressive enforcer. I expect they will not be able to settle and that the FTC will sue," Hay said.

Regulators would have to make the case the merger would have detrimental implications for consumers by either raising prices or outright eliminating competition.

Fox also suggested the FTC could argue the closure or divestiture of stores could lead to the creation of new "food deserts" in some markets, though McMullen and Albertsons CEO Vivek Sankaran both committed Tuesday to closing no stores and laying off no frontline workers as a result of the merger.

History suggests otherwise, however.

In the past, Albertsons has "spun off" some of the stores it acquired but, unable to find a viable buyer, the proposals ultimately resulted in the stores' subsequent closure.

Currently, the companies are considering "divesting" several hundred stores as part of the deal.

And while the companies have claimed that the efficiencies they will achieve from the merger will allow them better to compete with Walmart and Amazon, both federal agencies and the courts have been very skeptical of efficiencies claims in the past, leaving Kroger and Albertsons to seek other means of defending the deal—if they choose to do so.

"Will the parties walk away or choose to litigate?" Hay said.

"The argument for the latter is that in the few cases that are litigated the agencies' track record is not good. But parties don't litigate unless they think they have a good chance of success, and the companies will have far more resources and far more knowledge of the industry than the FTC," he added.