Commissioner Ben West’s recent piece (2/14/24, “Proposed Kroger-Albertsons merger is an opportunity for Clackamas County”) does a disservice to his constituents. He completely ignores the problems that have beset this proposal from the start.
Kroger and Albertsons have stated that following their $25 billion merger, “No frontline workers will be laid off … We are committed to protecting and expanding opportunities for union jobs.” Yet after 17 months of review, the Federal Trade Commission remains troubled by the proposal. This merger would give just two grocers, Walmart and Kroger/Albertsons, more than 70% of the grocery market in over 160 cities.
The Attorneys General of Colorado and Washington have filed suit to block the proposed merger in their states. The United Food & Commercial Workers union has stated that “the proposed merger of these two grocery giants is devastating for workers and consumers alike and must be stopped.” Their opposition is well founded.
K and A own dozens of grocery brands and operate competing stores in close proximity in hundreds of local geographic areas. Currently about 48% of Albertsons stores are within three miles from a Kroger store. Given the huge number of market overlaps, a simple merger of the two firms would likely result in a dramatic loss of head-to-head retail competition. Knowing the FTC would never approve this, the firms announced plans to divest a large number of stores to a third party.
Last year they entered into an agreement with C&S Wholesale Grocers, a privately owned company based in New Hampshire. Under its terms C&S will acquire 413 stores, eight distribution centers, and other office and intellectual property currently owned by K or A. To reduce the threat to competition that a simple merger poses, divestiture is the proposed remedy.
Some of K’s assets and some of A’s assets will be transferred to C&S in a “mix & match” package. Antitrust experts have reservations about this type of remedy. It involves assembling assets that have not been operated together by a single owner in the past, and this creates a greater risk of failure.
The failure of grocery store divestitures over the past decade offers a clear lesson about the many things that can go wrong. In order to buy Safeway in 2014, Albertsons had to sell 146 of its stores to Haggen. Disaster ensued when the much smaller Haggen could not manage the sudden expansion and declared bankruptcy in 2015.
In a legal complaint Haggen accused Albertsons of sabotaging the stores it sold off. At my local Haggen store, along with a demoralized workforce, I noticed the disappearance of familiar goods, sizes, brands and private labels. What I did NOT see were lower prices.
Customer experience and foot traffic are crucial to grocery stores’ success. C&S has very little experience in retail grocery; their specialty has been wholesale and distribution. Antitrust enforcers are right to doubt that C&S can enter this new retail market and successfully compete with a beefed-up Kroger. They’ve cited concerns about C&S’s inferior IT systems, limited private label offerings and lack of grocery and pharmacy experience.
The proposed divestiture looks much like the failed Albertsons scheme from 2015. Kroger claims that C&S is in a better financial position than Haggen and that the new plan will enable C&S to successfully operate the stores. But as economist Matt Stoller recently put it, “If you have a bunch of stores and you’re selling those stores to someone else who will compete with you, you have a strong incentive to make those stores unsuccessful.”
So it’s very hard to see how this company could grow into a successful retail competitor. “Hoping for the best” here is not a strategy; it is an abdication of responsibility by those who make public policy.
C&S is also unacceptable because it is anything but union-friendly. Dating back over 20 years, C&S has a history of acquiring unionized distribution centers, closing them down and moving the work to non-union facilities. It has done so in Maine, Massachusetts, Rhode Island, Maryland, Pennsylvania, New Jersey and New York. The firm has also sought to arrange buyouts that avoid any obligation to pay into their employees’ pension plan.
Kroger and Albertsons certainly could have found a more union-friendly buyer. Their choice of C&S instead undermines every press release declaring their pro-union stance and their unwillingness to sacrifice jobs. Despite their lip service about protecting union jobs, a recent study found that 75% of West Coast Kroger workers were food insecure, 44% could not afford their rent and 14% experienced homelessness. Kroger already has too much market power; we should not give it even more.
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