Felix B. Chang, a Professor at the University of Cincinnati College of Law and Visiting Professor at Ohio State University Mortiz College of Law who specializes in antitrust, has a piece in the Yale Journal on Regulation in which he makes an argument that Kroger should not be allowed to complete its proposed $24.6 billion acquisition of Albertsons.
Some main points from his essay:
• "The Kroger–Albertsons merger implicates some of the most pernicious threats from consolidation. According to scholars and industry watchdogs, concentration in nearly every segment of our food supply has already raised prices, reduced quality, hampered innovation, and forced out independent grocers. There is ample evidence to support a straightforward proposition in antitrust: with fewer direct competitors, large firms wield outsized power—power to squeeze consumers and underprice smaller competitors."
• "As employers, grocery stores are also buyers in the labor market. Consolidation reduces the number of buyers. When fewer employers compete for workers, wages fall. FTC Chair Khan recently held a listening session in Denver about the merger and heard uniformly negative views from workers. Fortuitously, the FTC’s final review is coming at a time of renewed awareness about the relationship between industry concentration and labor markets. In fact, worker welfare plays a prominent role in the Draft Merger Guidelines issued by the Department of Justice and FTC earlier this year."
• "To be sure, Kroger and Albertsons defend the merger as an investment in consumers and workers. Here, the track record of consolidation among grocery retailers is not on their side.
"Supporters also say that the merger is necessary for Kroger to compete against Walmart, now the industry’s dominant producer. But that depends on how you define the market. As a grocery retailer at the national level, Kroger’s market share does trail Walmart’s (though Kroger is the largest grocery supermarket chain). Yet grocery stores are local phenomena. For instance, Albertsons may be the country’s fourth largest chain, but nonetheless, an individual Albertsons store might be the only grocer within driving distance from several rural communities. If the store shutters after the merger, the chain’s national market share will mean nothing to local consumers.
"The FTC must therefore scrutinize market shares at a much more granular level, accounting for the risk of food deserts. In many communities, this risk is exacerbated by the practice of “scorched earth” covenants, whereby a grocer vacating a locale imposes an obligation on the buyer or subsequent tenant not to operate another grocery business. These restrictive covenants have left numerous communities bereft of grocery stores."
- KC's View:
Proponents of the deal say that Kroger has promised that a merger will allow it to lower prices across the entire chain, and that its past behavior after acquisitions supports that guarantee. And, they note that Kroger has promised that no front line employees will be laid off.
Chang's essay, however, makes a point that I suspect the Federal Trade Commission may adopt - that past behavior is no guarantee of future performance, and that less competition for employees in the long term could put a natural ceiling on wages.
I've said it before - I have no doubt that a merger will allow Kroger/Albertsons to better compete upstream with Walmart, Amazon and Costco. But the question is the degree to which the FTC should consider downstream competitive impacts, and how the marketplace and, indeed, the nature of competition should be defined.
I'm all for a nuanced public policy discussion of these issues. And I still think the likelihood is that the FTC will try to stop the merger, and that the courts eventually will allow it.