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Are Kroger Co. and Albertsons Companies Inc. titans of the grocery business or actually not so big? A court’s answer to that question will be pivotal to whether a merger of the two supermarket chains is allowed to go through.
The Federal Trade Commission, which sued on Monday to block Kroger’s acquisition of Albertsons, says they are indeed huge. “The proposed acquisition is by far the largest supermarket merger in U.S. history,” one that would unite “the No. 1 and No. 2 traditional supermarket chains in the United States,” it says in its complaint. It’s seeking a federal court’s preliminary injunction and temporary restraining order against the merger.
The F.T.C. is correct on the numbers, but the key word is “traditional.” Traditional supermarket chains no longer dominate the grocery business. Who does? Walmart, which, including its Sam’s Club division, had $318 billion in grocery sales last year, for a 29 percent share of the market, according to data compiled by Solomon Partners, a financial advisory firm hired by Albertsons.
Kroger is a distant second to Walmart, with a 10 percent market share, and Albertsons is fourth (behind Costco Wholesale), with 6 percent. So even if Kroger and Albertsons merged, they would be only a little more than half of Walmart’s size.
This is where things get interesting. The F.T.C. obviously can’t argue that Kroger and Albertsons together would tower over all competitors, so it’s making a subtler case. It says that the market that’s relevant for assessing competition isn’t all sellers of groceries in general but supermarkets in particular.
“Supermarkets recognize other supermarkets as a distinct type of food and grocery retailer,” the complaint says. “For example, supermarkets track and respond to other supermarkets’ promotions and customer-service options. When determining their pricing, supermarkets primarily consider the pricing of other supermarkets.” In other words, the F.T.C. argues, extinguishing the rivalry between Kroger and Albertsons would be bad, even though customers can still shop at club stores, limited-assortment stores (such as Aldi and Trader Joe’s), premium and organic stores, dollar stores and online purveyors.
I kind of see the F.T.C.’s case here, but I wouldn’t call it open-and-shut.
The F.T.C. is also trying out a new legal strategy that it and the Justice Department’s antitrust division settled on in their ambitious revision of their merger guidelines, which were issued in December after two years of study and consultation. The agencies say the new guidelines — which make mergers harder — “reflect modern market realities, advances in economics and law and the lived experiences of a diverse array of market participants.”
Since 1982, antitrust authorities have evaluated mergers by whether a hypothetical monopolist formed by the merger could get away with raising prices without losing business. To be specific, whether the new company could, as the guidelines put it, profitably impose at least a “small but significant and nontransitory increase in price” (or SSNIP) for one of the merging companies’ products. If not, there’s not much to worry about.
The revised guidelines give trustbusters an additional trip wire. Now a merger also can’t result in “other worsening of terms” (or SSNIPT). Those terms that could be worsened include “quality, service, capacity investment, choice of product variety or features or innovative effort.”
The F.T.C. is right, of course, that price isn’t the only thing that matters. One challenge for the agency, though, is to demonstrate that other measures such as quality, service and product variety can be measured as objectively as price. If SSNIPT becomes a pivotal issue in this case and the F.T.C. wins on it, it will set the agency up to challenge other mergers on similar grounds.
The proposed Kroger-Albertsons merger will also be a big test for labor protections built into the new merger guidelines. Kroger and Albertsons have largely unionized work forces. If a merger means they stop competing for workers, wages could be suppressed, the F.T.C. argues. I wrote a blog post last week about an accusation by the State of Colorado that the companies curbed their competition for workers even before agreeing to merge. (The Colorado complaint says that Albertsons agreed it would not hire any workers who were on strike at Kroger’s King Soopers stores.)
I think the trustbusters’ concern for the effect of mergers on employees is valuable and overdue. “The Department of Justice and the Federal Trade Commission have launched countless investigations into product market mischief and have historically ignored labor market abuse,” Eric Posner, a professor at the University of Chicago Law School, wrote in 2018, well before the new guidelines were issued.
It’s not clear, though, whether judges who have handled antitrust cases the old way will be open to the new one. There’s already pushback from Kroger and Albertsons. “Fundamentally, the market for labor in the retail sector is highly competitive, with workers having a wide range of alternative employment options,” four experts from the International Center for Law and Economics wrote in an article posted on a pro-merger website with material from the two companies.
If a federal judge grants the preliminary injunction, the case goes to an administrative law judge at the F.T.C. That decision can be appealed to the F.T.C. commissioners and from there to a federal appellate court and ultimately to the U.S. Supreme Court. That process is so slow and convoluted that Kroger and Albertsons may well abandon the merger if they lose on the preliminary injunction.
There are a lot of issues I haven’t even touched on, such as whether the chains could adequately preserve competition in towns where they directly compete by spinning off stores there to a third company, C&S Wholesale Grocers. Also, whether Kroger’s merger-related commitments can be trusted. (It says it wouldn’t close stores, wouldn’t eliminate frontline jobs and would invest in Albertsons stores, increase wages and benefits and put $500 million into price investment, which is lingo for taking a hit on profit margins by lowering prices.)
This is the biggest action taken by either the F.T.C. or the Justice Department since the new merger guidelines came out, so it will be watched closely, even by people who don’t get their cereal at Kroger or their milk at Albertsons.
Elsewhere: More Research Is Being Retracted
This chart shows a surge in retractions by journals of research articles, to the highest level since at least 1990. The biggest reason for the surge is the emergence of paper mills — for-profit organizations that generate bogus research for sale to people who want to be able to claim they are published scientists. “Among large research-producing nations, Saudi Arabia, Pakistan, Russia and China have the highest retraction rates over the past two decades,” the journal Nature wrote in December.
The tabulation of retractions is done by Retraction Watch, a nonprofit. The database is maintained by another nonprofit, Crossref. (The database doesn’t yet reflect this high total for 2023 because cases are still being entered.)
I asked Dr. Ivan Oransky, a physician and journalist who is a co-founder of Retraction Watch, whether the surge could be temporary because the profession might be weeding out years of bad work all at once. He wrote: “I don’t expect retraction rates to drop but instead to continue to rise. We’re not at peak retraction yet.”
Quote of the Day
“Nothing to fear but the lack of fear itself.”
— David Rosenberg, president of Rosenberg Research, on the Federal Reserve’s concern that investors are overly optimistic, client note (Feb. 27)
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