Don't Buy the Kroger-Albertsons Propaganda Push

Beware fancy PR from big grocers that want to merge.

Photo credit: VCU Capital News Service

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One of the most reliable ways to tell that a corporation is worried about something in the public policy world is it starts buying ads in the Washington, D.C., political tipsheets. These newsletters include a lot of D.C. gossip, the occasional useful bit of policy or political information, and almost always carry paid advertisements aimed at their large readership of federal government insiders.

So it was notable recently when Kroger and Albertsons — two corporations that have proposed the largest grocery merger in U.S. history — ran an ad in Politico’s “Inside Congress” newsletter claiming “Kroger joining together with Albertsons Cos. will allow us to do even more for customers."

The two grocery corporations, in fact, have been on quite the push recently to promote a merger they proposed last year, saying that only if they join together will they be able to lower prices, benefit workers, and even encourage unionization. There’s a whole fancy website extolling the virtues of the merger, which has been breathlessly covered in the grocery industry press. The leadership at Kroger and Albertsons are clearly worried their merger is on the rocks, and are attempting to use public relations to juice support for it amongst the political class.

The message we should take away from all this, though, is the opposite: Shopper beware.

Already, two states, Washington and Colorado, have sued to block the merger under their respective antitrust laws. The Federal Trade Commission, alongside additional states, is reportedly going to file its own case next week.

Kroger and Albertsons are focusing so much on price effects in their promotional materials because that’s the grounds on which merger trials are largely fought, due to what’s known as the “consumer welfare standard,” which constrains antitrust cases to the effect mergers will have on consumer prices. (For a longer discussion of the problems of that standard, read here, starting on page 14.)

But even on those narrow grounds, it doesn’t look good for Kroger and Albertsons. In the Washington State attorney general’s case, for example, an Albertsons executive is quoted saying the obvious: “It’s all about pricing and competition and we all know prices will not go down.”

Indeed, one of the major problems with this merger — among many — is the significant overlap between Kroger and Albertsons. About half of Albertsons 2,270 stores are within three miles of a Krogers store, which would give the merged entity considerable power to close stores, monopolize local markets, and ultimately raise prices.

For example, the Colorado attorney general’s complaint notes that, should the merger go through, shoppers in Gunnison, Colorado, would have to drive more than 60 miles to reach a store owned by another corporation. In Grand County, Colorado, the only two grocery stores in the entire county would have the same owner if the merger is approved.

Grocery shopping is an incredibly local industry, so these sort of stats matter when trying to take into account the sort of power the merged entity will have. And as the Washington State attorney general’s complaint notes, these corporations aren’t content to close stores and let other competitors move in: When they sell off the land on which their closed stores were located, they often include restrictions that prevent new grocers from opening.

The result: Fewer options and likely monopoly prices.

But there’s much more to be concerned about beyond prices. I previously wrote about the negative effect the merger would have on workers, driving down wages not just at the merged corporations as they close stores and reduce their workforce, but across the grocery industry, as workers writ large have fewer options from which to choose.

The Colorado complaint also alleges that Kroger and Albertsons have been illegally agreeing not to poach each other’s workers, and wants the corporations fined for that collusion, separate from the question over whether their merger goes through. Reducing the number of players in the industry will make that sort of collusion easier, especially in very concentrated markets.

More details will certainly emerge both with the potential FTC case and when the various trials over the merger begin. But suffice to say, we should be taking everything Kroger and Albertsons are currently saying with much larger grains of salt than we could find on their shelves.

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UPDATE: In what is still the most popular edition of this newsletter to date, I explained how car rental corporations are benefitting, all across the country, from a scam that lets them elude sales taxes. I testified this week in support of a bill in Maine that would repeal that state’s sales tax exemption for car rental corporations. You can read the testimony here. And any Mainers on this list, tell your state leaders you support LD 2198.

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— Pat Garofalo