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New Biden Merger Guidelines Set Up Showdown With Grocery Titan
"Unchecked consolidation threatens the free and fair markets upon which our economy is based," says the FTC.
By Eric Gardner, More Perfect Union
The Federal Trade Commission has unveiled new merger guidelines to curtail corporate power and consolidation in the American economy, immediately teeing up a potential legal showdown over Kroger's bid to acquire Albertsons in a mega-merger of the two grocery giants.
The guidelines, first revealed in July, create a new analytical framework for the agency to use when reviewing the legality of potential mergers. Moving forward, the FTC will analyze transactions across 13 high-level criteria, including market concentration, anti-competitive effects, and the impact on workers and suppliers.
The FTC and the Department of Justice plan to use competition to create a more dynamic and equal American economy, which has seen 75 percent of industries get more concentrated in the last 25 years. “Unchecked consolidation threatens the free and fair markets upon which our economy is based,” said Attorney General Merrick Garland.
In the last twenty-five years, the grocery industry has been defined by acquisitions and consolidation, with Kroger being a major catalyst. Since 1998, the Cincinnati-based company has spent nearly $17 billion acquiring other grocers, helping the company expand from 1,200 stores in the Midwest and South to over 2,700 locations across 35 states. The $25 billion proposed Albertsons deal would nearly double the firm’s footprint to about 5,000 stores.
Currently, around 50 percent of the U.S. grocery market is controlled by just five companies (Walmart, Kroger, Costco, Ahold Delhaize, and Amazon). If the Kroger-Albertson deal is approved, the combined company would capture 16 percent of all grocery sales in America, according to data from Numerator.
For decades, until President Biden came into office in January 2021, the FTC’s merger oversight had been essentially a formality. Most grocery industry transactions were approved with few questions, assuming the acquiring grocer sold off stores in egregiously concentrated markets. “It’s somewhat formulaic,” a partner at an antitrust law firm told Law.com. “It’s negotiating around the edges.”
Critics, including current FTC chair Lina Khan, could point to the many shortcomings of that approach. In 2014, for instance, Albertsons received the regulatory go-ahead to purchase Safeway for $9 billion by selling 146 stores to regional grocer Haggen. But just months later, burdened by debt from the transaction, Haggen declared bankruptcy. Albertsons then bought back some of the stores.
This month, Kroger announced that it will sell 413 stores and eight distribution centers to C&S Wholesale Grocers in an attempt to satisfy regulators. “We think we've addressed all the things and questions the FTC would have,” CEO Rodney McMullen said in a recent investor call.
Kroger management is increasingly committed to the merger, leading to a likely legal showdown. In May, McMullen told Bloomberg that the company would fight the FTC in court if necessary, saying: ”We committed to that in advance.”
Kroger has an incentive to go as far as it can to ensure the merger’s success; its stores are selling around 1 percent more than last year, while Walmart’s are selling 6.5% more, leaving analysts to believe that the company should acquire its way to growth. “Kroger badly needs this deal to close,” the Wall Street Journal wrote, “and investors are starting to realize that too.”
The deal may have gained approval under the old guidelines, but the FTC has cast a wide review net since the merger announcement. The commission has contacted small grocers and farmers to better understand the potential impact on American small businesses. In May, the Center for Science in the Public Interest, a consumer watchdog group, briefed the agency on the effects of the food retail landscape on access to healthy foods. This week, Khan conducted a series of listening sessions in Nevada.
And there’s a growing appetite from politicians, small business activists, and labor unions to fight the proposed merger. Last fall, the state of Washington sued to stop a suspiciously timed $4 billion dividend payment to Albertsons’ shareholders, though the company eventually won. In November, the Senate held a hearing on the competitive impacts of the proposal.
The 1.3 million members of the United Food and Commercial Workers International Union (UFCW) voted against the merger citing concerns about its impact on workers. Research from the Economic Policy Institute found the newfound bargaining power for the company could push wages down $300 million. Last month, seven Democratic secretaries of state wrote a letter asking the FTC to stop the deal, and even Republican Sen. Lisa Murkowski recently came out against the deal, saying it would potentially endanger “Alaska’s food security.”
California lawmakers just passed legislation intended to protect workers and consumers from the negative consequences of the merger, should it succeed.
“If there’s a merger that is presenting a lot of risk of reducing competition, it may even create a monopoly, ” FTC chair Khan said after a listening session this week. “We need to weigh those risks, especially given that the remedies in the past have failed.”
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