Kroger, Albertsons merger: Good for Colorado consumers or cause for concern?

The proposed $25 billion merger between Kroger — the parent company of Colorado’s largest retail grocery chain, King Soopers — and Albertsons, which operates Safeway, is raising questions about whether the state’s shoppers will ultimately benefit.

Government officials, academics and union representatives fear a future with climbing costs, more food deserts throughout the state and farmers receiving unfair prices. But others aren’t worried yet about the impact of the deal approved by the boards of both companies, which is expected to close in early 2024.

It comes at a time when consumers are balancing holiday shopping with inflation, while American businesses are struggling to fill worker vacancies — all while a recession looms. The “food at home” consumer price index – grocery prices – rose 12.4% in October compared to the same period in 2021, the Bureau of Labor Statistics reported.

A “deeply concerned” Colorado Attorney General Phil Weiser is in the process of launching an investigation into the merger. His office is putting together a team to evaluate whether it will hurt consumers, workers and industry competition.

With no set time frame in place, the team plans to interview experts and industry observers, reach out to consumers and more. “All that will help us come to a conclusion: Is this merger illegal?” Weiser said.

Count Rick Edwards among those casting a wary eye toward the proposed merger. The Denver resident was loading groceries into his SUV at a Safeway store Thursday when asked if he has concerns about the two big chains teaming up.

“Absolutely. I think corporate concentration is not a good thing. It doesn’t help the consumer,” Edwards said.

Higher prices for consumers as a result of consolidation is one of the concerns Weiser will explore. He will also consider potential threats to the food entrepreneurial ecosystem, fewer job opportunities for workers and the proliferation of food deserts. If the negatives outweigh the benefits, Weiser said he will challenge the merger, which means going to court, or pursue a legal settlement to protect competition.

Washington Attorney General Bob Ferguson filed a Nov. 1 lawsuit to block Albertsons from paying its shareholders with a $4 billion dividend before regulators review the merger. His subsequent nationwide temporary restraining order was granted.

The move “protects Colorado consumers,” Weiser said. With that relief in place, he doesn’t need to take similar action, but will consider his options if it’s lifted, he added.

A food desert is a low-income area where a substantial share of residents lacks easy access to a large grocery store. In 2021, the Agriculture Department’s Economic Research Service’s “Food Desert Locator” identified about 10% of approximately 65,000 census tracts in the U.S. as areas where residents have low access to healthful food sources.

“If this merger results in closing stores, that’s going to hurt,” Weiser said. Kroger operates 148 stores — including King Soopers and City Market locations — with around 22,000 employees in Colorado. Safeway manages 103 locations in the state.

Albertsons spokesperson Rachael Collins referred to the Oct. 14 merger announcement, highlighting Kroger’s “plans to invest in lowering prices for customers and expects to reinvest approximately half a billion dollars of cost savings from synergies to reduce prices for customers.”

The merger with Albertsons “advances our commitment to build a more equitable and sustainable food system by expanding our footprint into new geographies to serve more of America with fresh and affordable food and accelerates our position as a more compelling alternative to larger and non-union competitors.”

Concerns about food deserts, rising prices

Law and economics experts are also skeptical that the public benefits cited by Kroger and Albertsons will actually materialize. Kroger said combining the companies would help shoppers because it would streamline supply-chain logistics and allow for more targeted promotions to regular customers, said Sanjai Bhagat, finance professor at the University of Colorado-Boulder’s Leeds School of Business.

“It’s easy to talk about supply-chain logistics. It’s much harder to integrate these supply chains,” he said. “Many companies in other industries have not had success in doing it.”

Bhagat, who previously worked at the Securities and Exchange Commission, said operations improvements from mergers in industries such as airlines and pharmaceuticals have ranged from modest to negligible. Most of the economists at the Department of Justice and the Federal Trade Commission who are looking at the merger will be concerned that some customers will pay higher prices for groceries if they live in neighborhoods that don’t have other chains, he said.

“In some cases, the higher prices would be very, very high if they are in a food desert,” Bhagat said.

He added companies decide against opening stores in certain areas because of concerns about crime and the expense of higher security and insurance. Elected officials aren’t upholding law and order, he said.

Christine Bartholomew, a University of Buffalo Law School professor, believes food deserts result from “multiple, compounding factors.” She hopes the FTC will require more information from the grocery store chains about the problem. Bartholomew, who practiced consumer protection and antitrust law, said she also has “grave concerns” about grocery prices rising if the two chains become one.

A 2012 FTC study found, overall, results supported “the hypothesis that increases in market concentration resulting from mergers cause prices to increase when mergers take place in already concentrated markets.”

Bartholomew criticized Kroger and Albertsons for citing the ability to better compete against the country’s No. 1 food retailer, Walmart, as a reason for joining forces.

“That can’t be the test,” she said. “There’s got to be a little more analysis as to what would really happen to consumers beyond questions of whether these two together are actually going to have more success or not combating Walmart.”

While declining to speculate whether federal officials will approve or oppose the merger, Bartholomew said she expects the decision to take a while. “This is not going to be an easy one.”

Colorado Democrat Sen. Michael Bennet supports a rigorous examination of the deal by the government.

“(He) believes it is critical that the Federal Trade Commission and the Department of Justice carefully review the proposed merger between Albertsons and Kroger,” press secretary Rachel Skaar said.

Bennet also backs the hearing announced for this month about the proposed merger by the Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights.

“Consolidation doesn’t always mean higher prices”

Others want to wait and see how the merger plays out.

Jose Tamez, managing partner at grocery retail and wholesale talent search firm Austin-Michael LP, in Golden, predicts its short-term impact will be “zero.” He said inflation, supply-chain issues and the rising cost of labor are the biggest influencers of price increases — not the merger.

Tamez pointed to Kroger’s “very successful track record with its past acquisitions and integrations.” He credits that to the company’s respect for its acquired brands, its inherited workforces and new customer bases.

“It’s in both their principles, and in their best interests, to keep pricing as affordable and competitive as possible for the customers in Colorado, and I expect them to do that,” Tamez said.

Jon Caldara, president of Denver-based libertarian think tank Independence Institute, said “consolidation doesn’t always mean higher prices” — but, often, the opposite, because of economies of scale. He referred to Walmart’s pricing as an example.

“We don’t yet know if Albertson’s locations will become King Soopers or if they will be vacated,” Caldara said, with the latter option opening up space for competitors.

“As long as the merger doesn’t block other companies from opening a store, there isn’t a long-term market issue,” he added.

Union opposition

Kim Cordova, president of the United Food & Commercial Workers Local 7 union, fears that stores will be divested, closed or spun off because of the brands’ “big footprint” in the region. An immediate result of Cerberus Capital Management’s $8 billion purchase of Safeway in 2015 was the shuttering of roughly 33 local stores, Cordova said.

Employees aren’t only worried about job losses, but also impacts on health and pension plans. “If they close a lot of stores out here, then we can’t sustain benefits,” Cordova said, adding that unionized stores may become targets for closures.

She highlighted farmers’ individual contracts with Kroger and Albertsons. “They can really set the price on what they’re going to pay for the product, and then turn around and raise those prices for consumers,” Cordova said.

The Rocky Mountain Farmers Union opposes the merger, as “this market concentration would hurt our farmers and ranchers by eliminating any form of competition that would allow them to receive a fair price for their goods,”  Executive Director Ben Rainbolt said.

Members also voiced concerns that the merger would cause small grocers to go out of business.

The Colorado Farm Bureau doesn’t have a position on the merger yet, said spokesperson Taylor Szilagyi.

But while questions remain about whether Kroger’s acquisition of Albertsons would worsen problems with food deserts, the only way for Denver’s Montbello neighborhood is up.

Denver Human Services mapped what kind of food access neighborhoods have by looking at where people live outside a 10-minute walk to a full-service grocery store. For Montbello, the closest stores are 4 to 6 miles from its main residential area, said Donna Garnett, CEO of the Montbello Organizing Committee.

“We’ve been working on food-access issues since 2017,” Garnett said. “A year or so before that was when the last grocery store in our community closed up shop and left, leaving us with no grocery store.” The shuttering occurred around the time Albertsons bought out Safeway.

On Thursday, vehicles lined up on 53rd Avenue, waiting to turn into the Montbello Recreation Center parking lot where the MOC and the Food Bank of the Rockies run a bimonthly food pantry for community members. Green Valley Ranch resident Monica Villela has volunteered for years and used the food pantry herself.

“The pandemic has affected us and now all the prices went up. Everything is so ridiculously expensive,” Villela said, adding that she’s trying to sustain a family of six. The pantry “has really been helping us a lot.”

No matter what happens with the merger, MOC’s Garnett doesn’t expect neighborhoods like hers to gain new supermarkets. The Montbello community talked to national chains and local operators. “In the end, the answer was always ‘no,’ ” Garnett said.

So, they stopped asking. Instead, the organizing committee worked with foundations, investment banks, the city and others to raise most of the $75 million for a development that will include a nonprofit-run grocery store. The groundbreaking could occur as early as January.

The Rev. Vernon Jones of Denver’s Kinship Church noted that Kroger provided resources and food during the pandemic for families in need.

“I hope they will keep that disposition, and understand that it’s not just about being a grocery store, but it’s about being a community partner.”

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