ICLE White Paper Finds Divestitures Should Resolve Antitrust Concerns in Kroger-Albertsons Merger
PORTLAND, Ore. (Oct. 17, 2023) – The proposed $24.6 billion merger between supermarkets Kroger Co. and Albertsons Cos. Inc. has reportedly drawn regulatory scrutiny, including from the Federal Trade Commission (FTC) and California Attorney General Rob Bonta.
But according to a new International Center for Law & Economics (ICLE) white paper, attempts to block the transaction would go against the analytical framework historically used to evaluate similar mergers, as well as historical precedent of accepting divestures as a remedy to address localized problems where they arise.
The paper finds that only one supermarket merger has been challenged in court since American Store’s acquisition of Lucky Stores in 1988: the Whole Foods/Wild Oats merger in 2007. Over the last 35 years, authors Brian C. Albrecht, Dirk Auer, Eric Fruits and Geoffrey A. Manne note, the FTC has allowed every other supermarket merger and most retail-store transactions to proceed with divestitures.
Moreover, the authors argue, critics of the deal fail to consider the significant changes over the past quarter-century in how consumers shop for food and groceries, including the growth of wholesale clubs, delivery services, e-commerce, and other retail formats. Supermarkets’ share of retail sales have fallen from 81% in 1994 to 56% in 2021, while warehouse clubs and supercenters grew from 14% to 42% over that same period, they note.
“The product-market definition that the FTC has employed in its consent orders over the past 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.
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 will move into third place in market share, but would still account for just 9% of nationwide sales, the authors note.
In September 2023, Kroger and Albertsons announced a $1.9 billion divestiture plan that would see the firms sell 413 stores, eight distribution centers, and three store brands to C&S Wholesale Grocers, who would retain the right to purchase up to 237 additional stores if needed to resolve antitrust concerns.
“With the FTC’s knowledge of the industry and of its own past successes and failures, divestitures remain an appropriate and adequate remedy for this merger,” the authors write. “The parties appear committed to working cooperatively with regulators to craft divestitures that fully resolve competitive concerns. Rather than blocking the deal outright, the FTC can allow the merger to proceed, conditioned on acceptable divestitures that protect consumers, while permitting efficiency gains across the majority of stores.”
The full white paper can be downloaded here. To schedule an interview with one of the authors, contact Elizabeth Lincicome at [email protected] or (919) 744-8087.