Don't Make Workers Eat the Kroger-Albertsons Merger

How mergers push wages down, and what to do about it.

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Back in October, Kroger and Albertsons, two of the biggest supermarket chain corporations in the U.S., announced they intend to merge. If allowed, the merger would bring a host of brands, including Safeway, Shaws, and Harris-Teeter, under the umbrella of one grocery behemoth. It would be the largest merger in retail grocer history, and so has rightfully drawn antitrust scrutiny from Congress, the Federal Trade Commission, and several state attorneys general, as well as a private antitrust action on behalf of grocery buyers.

One of the concerns raised, of course, is that the merger will result in higher prices, as the new grocery giant monopolizes local markets, which has particular salience in a moment of higher than normal food inflation. But another concern is that the merger will specifically harm workers, as the newly-merged entity will have significant power over labor markets too, giving it the ability to push down wages, not just for those who work at Kroger or Albertson’s owned stores, but across the industry.

Justifying those concerns, a recently released study from the Economic Policy Institute shows that workers across the grocery sector would lose more than $330 million annually should the merger be allowed to proceed. Here are the specifics:

• The merger will lower wages for 746,000 grocery store workers in over 50 metropolitan areas of the U.S. […]

• The total annual earnings of grocery store workers will fall by $334 million in affected metropolitan areas;

• Because Kroger and Albertsons employ about one quarter of all grocery store employees, most of the wage losses caused by the merger will be a negative externality that falls on grocery store workers employed by other firms. On average, all grocery workers in affected markets will lose about $450 per year in wage income;

This drop in wages is a result of labor market power (or monopsony or buyer power, if you want to get fancy). When there are fewer employers, those that remain have more leverage to keep wages low because workers can’t credibly threaten to leave for a competitor, or actually leave, in order to raise their pay or improve their working conditions.

And this power would clearly be exacerbated by a Kroger-Albertsons merger, since the two corporations have significant overlap in their store footprints. To be exact, about half of Albertsons 2,270 stores are within three miles of a Krogers store, which would give the merged entity a lot of incentive to shut stores down and consolidate both consumer and labor markets.

The overlap is magnified especially in some localities, since grocery buying is typically an intensely local activity. For instance, in Chicago, 55 Kroger stores and 102 Albertsons stores are within three miles of each other. A similar situation exists in a host of other cities, including Los Angeles, Phoenix, and Seattle.

It seems pretty clear, then, both anecdotally and quantitatively, that workers would get left picking up crumbs should the merger go through.

The analysis being done around how a Kroger-Albertsons merger would push down pay fits into a broader investigation of employer power and a search for affirmative solutions, including the Treasury Department report I’ve pointed to a few times, which found that “a careful review of credible academic studies places the decrease in wages at roughly 20 percent relative to the level in a fully competitive market.”

Other work has looked at the effects large corporations such as Amazon or Walmart have had on labor markets, and they consistently find wages going one direction: Down. And labor markets with higher levels of concentration see more wage cuts and labor law violations. It’s all bad news.

Antitrust would be the traditional remedy for this sort of corporate power, but in recent decades enforcers have largely let buyer-side antitrust cases fall completely by the wayside. The only recent notable case in the space was the successful effort to stop two large book publishers from merging, on the grounds that it would drive down compensation paid to authors.

Instead, enforcers have resorted to janky agreements in which the merging entities sell off some of their facilities to competitors, in theory fostering an overall more competitive environment, despite the merger. Kroger claims it is cooking up just such a deal now to appease enforcers. But there’s a history of such deals resulting in complete failure.

In fact, in 2015, Albertsons sold off 168 stores across eight western states to grease the skids for its acquisition of Safeway. But the buyer of the bulk of those stores couldn’t handle such a rapid expansion, and ended up filing for bankruptcy and selling off 100 of its stores, 33 of which were bought back by Albertsons at fire-sale prices. So a bunch of small towns and cities that were supposed to avoid winding up with a monopolized grocery market received exactly that.

Legislation was introduced this legislative session in several states, including New York, New Jersey, Minnesota, and Pennsylvania, that would bolster the ability of state antitrust enforcers to bring cases on behalf of workers, explicitly, by inserting into law that protecting wages and working conditions is a clear-cut goal of antitrust law. A separate Minnesota bill that has already passed the state House also includes such language around hospital mergers, with explicit protections for health care workers, who are especially susceptible to monopoly power as large health care systems consolidate.

But that’s the legislative long game. In the short-term, enforcers should block the Kroger-Albertsons merger so workers don’t have to eat it on another consolidation play that helps no one but the folks in suits sitting in corners offices.

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SHAMELESS SELF-PROMOTION: I was on Capitol Pressroom over the weekend talking about a bill in New York to ban noncompete agreements. You can give it a listen here.

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— Pat Garofalo