Ohio Attorney General Dave Yost and his counterparts in Alabama, Georgia and Iowa went to court Wednesday to urge that the merger between Kroger and Albertsons go through.
Opponents of the merger — including the Federal Trade Commission and eight state attorneys general — say that such a huge merger in a consolidating marketplace will drive up prices and drive down the wages of people who work there.
But Yost and his colleagues argue the opposite — that the merger of the grocery giants will actually increase competition by allowing the resulting company to compete with giants like Walmart, Amazon and Costco in what is a highly competitive marketplace. But as part of that marketplace, their friend-of-the-court brief cites players such as dollar stores and pharmacies, which are not generally considered to be good alternatives to a full-service grocery.
Blockbuster deal
The attempted merger is playing out against a backdrop in which the inflating price of groceries is a top election-year issue.
The New York Times on Tuesday reported that inflation in the sector has eased, rising 1.1% this year through June, but prices are up a whopping 20% over the past four years. The story cited polls showing that 64% of Americans believe inflation is a very serious problem and that grocery prices were the type of inflation that most concerned them.
While the rate of inflation in the grocery aisle might be dropping, consumers could be forgiven for asking: If the coronavirus was to blame for price spikes, why haven’t prices dropped with the end of the supply problems caused by the pandemic?
The FTC might have shed some light on that in March when it issued a report that looked at what happened during the pandemic. It said players like Kroger, Walmart and Amazon used their huge size to gain unfair advantage with suppliers, securing better prices and getting first dibs on scarce items.
The dynamic seems to persist. Profits spiked with prices, and they both stayed high into 2024, the report said.
With the merger, Kroger and Albertsons would have even more clout with suppliers. They operate a combined 5,000 stores and approximately 4,000 retail pharmacies and employ nearly 700,000 employees across 48 states, the FTC said.
Cincinnati-based Kroger has a larger national footprint, while Boise, Idaho-based Albertsons is mostly confined to the West. Arkansas, Louisiana and Texas are home to both chains and they say they’ll sell stores to other grocers in markets where both chains are present.
Who’s harmed and how?
In a press release announcing the effort to block the merger, the FTC said the proposed deal “will eliminate fierce competition between Kroger and Albertsons, leading to higher prices for groceries and other essential household items for millions of Americans. The loss of competition will also lead to lower quality products and services, while also narrowing consumers’ choices for where to shop for groceries.”
Saying that the companies’ divestiture plans were inadequate, it added, “For thousands of grocery store workers, Kroger’s proposed acquisition of Albertsons would immediately erase aggressive competition for workers, threatening the ability of employees to secure higher wages, better benefits, and improved working conditions.”
In response, Yost and the merger supporters argue that the marketplace would become more competitive after a merger.
“The acquisition would likely increase, not restrain, competition in the market for grocery sales, benefiting consumers,” their friend-of-the-court brief said. “It promises to strengthen Kroger’s ability to compete effectively for consumer dollars in an already crowded field of retailers, and there is no factual or legal basis for the (FTC) to claim otherwise.”
Who are the other retailers Yost and his colleagues say are crowding the field?
“… club stores (Costco, Sam’s Club); limited assortment stores (Aldi, Lidl); premium natural and organic stores (Whole Foods); dollar stores (Dollar General, Family Dollar); and online retailers…” the amicus brief said.
Whether all those stores would meet the needs of distressed communities is questionable. In Austin, where Whole Foods is headquartered, some mockingly call it “Whole Paycheck” because of its cost, and dollar stores are not known for their healthful offerings.
In an interview Thursday, Yost said he “hasn’t been the biggest fan of dollar stores.” In February, he announced a million-dollar settlement with Tennessee-based Dollar General over allegations that the chain was overcharging at the cash register.
However, Yost said, dollar stores sell food, so they count as competition to grocers.
The core of the problem
Along with the findings in the FTC’s pandemic-pricing report, others have said smaller competitors are squeezed out because they just can’t get supplies at the cheap rates the big boys — including dollar stores — do. That can create food deserts in distressed communities, where existing health conditions are made worse by limited access to proper nutrition.
The phenomenon is literally killing people. JAMA Oncology last year published a study finding that mortality from breast cancer and colorectal cancer is elevated in food deserts, for example.
Last week ProPublica and Capitol News Illinois published an investigation into the fate of government-supported stores in food deserts. It looked at 24 stores in 18 states that received government funds in 2020 and 2021. As of June, five had closed and six never opened.
Some of their struggles have to do with cynical competition.
Cairo, at the southern tip of Illinois, had Dollar General stores. They’re known to locate in struggling communities, push out healthier food options and have been accused of being magnets for crime.
When a government-supported store opened offering fresh produce, one of the Cairo dollar stores put in a produce aisle of its own. Now the downtown grocery is struggling to hang on.
But back in 2018, when U.S. Sen. Tammy Duckworth, D-Ill., asked Dollar General to add produce at one of its Cairo stores, the company wasn’t interested, the story said.
Beyond such bare-knuckled practices, the investigation found, is a deeper problem. Stores like the Cairo grocery just couldn’t get the same deals from suppliers that bigger businesses could.
Alvaro Bedoya, the newest member of the FTC, in 2022 said a 21-store chain that operates in and around South Dakota Indian suffers from the same problem — even though it buys through a cooperative comprising hundreds of such stores.
“They often don’t get access to the same products,” Bedoya said in an interview with the Capital Journal.
Seeking solutions
As he awaited Senate confirmation, Bedoya spent his time reading congressional debates and otherwise digging at the roots of antitrust laws passed in the late 19th and the first half of the 20th century. He said the goal of the laws was fairness for consumers and small businesses — particularly in small towns and on farms.
In 1936, Congress passed a law — the Robinson-Patman Act — that seems to go to the heart of the issue facing small grocers. In 1998, the FTC described its intent.
“Congress believed that large firms could dominate markets through predation and other forms of economic warfare directed against smaller firms, and felt that ‘power buyers’ such as large retailers could use their market power to extract price concessions from manufacturers and other sellers that were unavailable to their smaller competitors,” the agency said. “As the Commission has stated, ‘[t]he major legislative purpose behind the Robinson-Patman Act was to provide some measure of protection to small independent retailers and their independent suppliers from what was thought to be unfair competition from vertically integrated, multi-location chain stores.’”
However, the FTC doesn’t appear to be deploying the law in its quest to stop the Kroger-Albertsons merger. “Robinson-Patman” doesn’t even appear in the FTC complaint.
Yost said that’s because it’s too difficult under the law to prove that seemingly unfair practices caused the outcomes it seeks to stop.
Saying he doesn’t subscribe to the “big-is-always-bad” school of antitrust enforcement, Yost said scale can help consumers.
“How do we get our food?” he asked. “If Kroger and Albertsons merge and become a larger entity, they are not going to be the only ones with that kind of scale. Walmart, for example, has a big, big scale, and huge numbers of Americans shop for their food at Walmart.”
Yost added, “If places like Kroger and Albertsons are not permitted to achieve scale for what they’re doing… you’re going to have the same effect we had with local grocers going out of business. By allowing this merger, you’re putting Kroger and Albertsons (on par) with places like Walmart.”
However, the National Grocers Association — which represents independent grocers — took a different stance in February, when the FTC sued to stop the merger. It praised the suit and urged the agency to go further.
“NGA appreciates the FTC’s commitment to a competitive grocery industry, and we look forward to the FTC taking further action to level the playing field, including enforcing antitrust laws like the Robinson-Patman Act that prohibit economic discrimination against independent grocers and their customers,” Chris Jones, NGA’s chief government relations officer and counsel said in a statement.
Antitrust positions
Yost’s stance on allowing the Kroger merger might seem perplexing.
Since he was state auditor, he’s taken on huge pharmacy middlemen that are part of even larger health conglomerates. The FTC is going after the same businesses.
As attorney general, Yost sued one of the middlemen, Express Scripts, and a sister company under Ohio’s antitrust law. He called pharmacy benefit managers “modern gangsters” and said Express Scripts, its sister organization and others were colluding to fix drug prices.
The suit also says the companies improperly retaliated — against Kroger, ironically — because the Cincinnati-based grocer pulled out of what it believed was a bad deal for employee benefits.
There are big differences between the FTC action against the Kroger merger and Yost’s actions against the pharmacy middlemen. Also, Yost’s actions against the pharmacy middlemen predate the proposed grocery merger by five years.
But Yost is planning a run for governor in 2026, and his intervention in the merger case begs a question: Is the attorney general currying political favor with Ohio’s second-largest corporation? Yost said that’s not the case.
A quick perusal of state and federal campaign-finance databases seemed to indicate that Kroger isn’t very active politically.
However, secretary of state’s records show that Kroger’s political action committee gave $7,000 in 2022 to Gov. Mike DeWine and Lt. Gov. Jon Husted — Yost’s biggest rival for the GOP gubernatorial nomination. Kroger also contributed $10,000 to the Mike DeWine Jon Husted Transition Fund in February 2023.
For his part, Yost said he wants to keep the FTC from blocking the merger because it’s a misuse of antitrust law.
“Scale has long been recognized in American economics and American law. If I was a small guy competing against Amazon, would I be angry? Yes,” he said, describing a shoe store in his hometown of Delaware that was driven out of business by Walmart. “Whether that should be is a fine policy argument to have. That is not an antitrust argument.”
