Market competition alone doesn’t justify Kroger-Albertsons merger

In a push to compete with Amazon and Walmart, two of the largest U.S. supermarket chains — Kroger and Albertsons — are hoping to merge, which could change the supermarket landscape. If approved, the $24.6 billion deal would transform the companies into a 5,000-store behemoth. One of the reasons given for the merger was it would allow the companies to better compete with Walmart and others who sell groceries. However, many questions remain about the possible implications of the prospective deal.

UB faculty member Christine Bartholomew calls the merger an important bellwether.

“The Federal Trade Commission under the current administration has publicly articulated a more pro-consumer, stronger oversight posture,” says Bartholomew, professor in the School of Law and an expert on corporate monopolies. “Its position on this merger will be the first real test of whether the Federal Trade Commission plans to align its words and regulatory actions.”

Kroger and Albertsons believe their increased size will help reduce prices for consumers. However, there is skepticism that prices will actually increase — which will increase profit for shareholders.

Bartholomew says it comes down to the details of the arrangement. “Most every merger includes promises of lower prices,” she says. “But merging doesn't magically reduce costs — and not all cost reductions impact our pocketbooks. While merging may allow the grocery chains to reduce redundant overhead, it's not clear that those gains will be passed on to consumers. This is a particular concern when the second- and third-largest players in an industry are planning to merge.” 

A worrisome component of the merger is the justification offered by Kroger and Albertsons. The companies contend the merger is necessary to compete against Walmart and fight inflation. Bartholomew believes these justifications, alone, should not be enough.

“Regulators should not approve the merger simply because two competitors want to compete more effectively with the prevailing dominant big box or online retailer,” Bartholomew says. “Nor is inflation enough to justify losing one of the top three market players. If regulators treat these justifications as reason enough to approve the merger, the long-term ramifications are significant. 

“It could drive further consolidation across multiple industries at a period in time already marked by significant market concentration. Long term, this would mean less consumer choice.”