US moves to block Kroger’s mega-merger with Albertsons amid market dominance and price rise concerns
27 Feb 2024 --- The US federal government, backed by several states, is taking legal action to stop the merger between grocery giants Kroger and Albertsons, with aims to prevent what it labels a threat to consumer welfare and market competition.
The Federal Trade Commission (FTC) and concerned states are warning that Kroger’s proposed US$24.6 billion acquisition of its rival Albertsons could result in higher prices for consumers.
“This supermarket mega-merger comes as American consumers have seen the cost of groceries rise steadily over the past few years. Kroger’s acquisition of Albertsons would lead to additional grocery price hikes for everyday goods, further exacerbating the financial strain consumers across the country face today,” says Henry Liu, director of the FTC’s Bureau of Competition.
The most recent data released by the United States Department of Agriculture (USDA) reveals that in 2022, American consumers allocated over 11% of their disposable income toward food expenses, the highest percentage since 1991.
“Essential grocery store workers would also suffer under this deal, facing the threat of their wages dwindling, benefits diminishing and their working conditions deteriorating.”
Retailers defend merger
In response to the legal challenge, both Kroger and Albertsons have vowed to defend the deal.
Kroger had proposed the acquisition of Albertsons in a strategic move to bolster its competitive position against formidable rivals like Walmart and Amazon. The merger would create a retail powerhouse boasting approximately 5,000 stores across 48 states and serving millions of households.
Following the filing of the lawsuit by the FTC, Kroger asserted in a statement that the legal action would “actually harm” US consumers.
“The FTC’s decision makes it more likely that America’s consumers will see higher food prices and fewer grocery stores at a time when communities across the country are already facing high inflation and food deserts,” says the company.
“This decision only strengthens larger, non-unionized retailers like Walmart, Costco and Amazon by allowing them to further increase their overwhelming and growing dominance of the grocery industry.”
The reason for inflation's stubborn hold on fresh fruit and vegetable prices in the US are linked to multiple issues.The company also shares it will invest US$500 million to begin lowering prices Day One post-close and an additional US$1.3 billion to improve Albertsons stores.
Scrutiny amid rising food prices
If the merger were completed, Kroger and Albertsons would employ nearly 700,000 employees, according to the FTC.
Nevertheless, despite Kroger’s efforts to alleviate monopoly concerns by suggesting the sale of more than 400 of its stores, the FTC found these measures insufficient, describing them as a “hodgepodge” solution that fails to adequately address competition-related issues.
The legal battle over the merger comes amid heightened inflationary pressures. US food prices have increased by 25% over the past four years. The USDA attributed overall inflation rate increases to rises in many product prices.
Last year, the United Nations Conference on Trade and Development highlighted the ongoing global food crisis, emphasizing the impact on consumers grappling with the high cost of living.
Market analysts and scholars contend that extensive mergers and acquisitions have amplified firms’ influence along the supply chain, raising concerns over the lack of regulatory oversight of commodity trading.
By Sichong Wang
