ICLE Issue Brief Highlights Problems with Any FTC Challenge to the Kroger/Albertsons Merger
PORTLAND, Ore. (July 27, 2023) – While it remains unclear whether the Federal Trade Commission (FTC) will move to block the $24.6 billion merger that supermarkets Kroger Co. and Albertsons Cos. Inc. announced in October 2022, a new issue brief from the International Center for Law & Economics (ICLE) argues that any such challenge is unlikely to prevail in court, and would likely fail to account for the dramatic changes in the retail food and grocery landscape since the last litigated supermarket merger.
Authored by ICLE’s Brian C. Albrecht, Dirk Auer, Eric Fruits and Geoffrey A. Manne, “Five Problems with a Potential FTC Challenge to the Kroger/Albertsons Merger” anticipates that the merger will likely be challenged, given the FTC’s increasingly aggressive enforcement stance against mergers and acquisitions, and that the merging parties’ apparent willingness to litigate the case makes the likelihood of a protracted legal battle high.
Such a challenge would, however, quickly find itself “on a collision course with the law as it is currently enforced by U.S. courts,” the authors write. They note that the few market overlaps between the merging parties could be resolved by straightforward divestitures, which are routinely accepted by courts, and that the FTC’s likely market definition and potential theories of harm pertaining to labor monopsony and purchasing power are speculative, at best.
Kroger is currently the fourth-largest food and grocery retailer in the United States, behind Walmart, Amazon, and Costco. If the merger goes through, the combined firm would move into third place in market share, but would still account for just 9% of nationwide sales, the authors note.
“The upshot is that the food and grocery industry is arguably as competitive as it has ever been,” the authors write. “Unfortunately, recent developments suggest the FTC may well ignore or dismiss the economic realities of this rapid transformation of the food and grocery industry, substituting instead the outdated approach to market definition and industry concentration signaled by the draft merger guidelines.”
The FTC has in similar cases defined the relevant market as “supermarkets”—that is, retail stores that allow consumers to purchase all their weekly food and grocery needs in a single visit. This excludes warehouse clubs like Costco, organic markets like Whole Foods, online-delivery platforms like Instacart, limited-assortment stores like Aldi, and a range of e-commerce and ethnic-specialty options.
But in the years since merger of Ahold and Giant a quarter-century ago, the authors note, warehouse clubs and supercenters like Walmart have doubled their share of retail sales, while supermarkets’ share has dropped by more than 25%. Over the same period, online shopping and home delivery have grown from niche services serving only 10,000 households nationwide to a landscape where approximately one-in-eight consumers purchase groceries exclusively or mostly online.
“Based on these observations, the product-market definition that the FTC has employed in its consent orders over more than two decades is likely to be—and should be—challenged to include warehouse clubs, in addition to accounting for online retail and delivery,” the authors write.