🛒 Kroger-Albertsons Merger: National Impact

[storewanderer]

I wonder if we see this deal called off by the end of the week...

Ready for a crazy conspiracy theory?

Kroger-Albertsons merger is called off. We go back to Plan A and one of them acquires or merges with Ahold Delhaize's US division.

Now hear me out.

It's obvious that Stop & Shop is struggling, and while it looks like the other banners seem to be doing really well, I see signs that the company overall is struggling. We have the closure of home-delivery fulfillment warehouses in NJ and throughout Giant-MD, some as new as just three months old. They've sold Fresh Direct, and most recently, they've sold two meat-processing plants to Cargill. Is that what a company that has long-term intentions of doing business here in the US would do? It feels suspiciously like Ahold Delhaize is winding down here in the US.

Okay, I don't really believe that there will be some shocking twist with Kroger-Ahold Delhaize or Albertsons-Ahold Delhaize becoming the next big thing. But weirder things have happened.

More seriously, yes, I suspect that Kroger and Albertsons are all bark and no bite on their promise to litigate the merger to its end. I think it's likely they give up in the near future, but it's also very possible they don't -- and if they continue to fight the FTC, there's a solid chance they actually win.

The problem I see is the "mess" of overlaps that Kroger-Albertsons causes out west... Ahold-Albertsons causes a similar mess of overlaps and divests back east. I think there are a lot more qualified buyers back east to take divested stores over though, so that changes the dynamic of that.

And it will not be so cut and dry back east what to do. Divest Safeway East and divest Acme/Kings etc. 100%? Okay- maybe that will alleviate some issues. But that also leaves some Stop N Shops... and what to do about Shaw's or Hannaford (or Stop N Shop in some cases)?

Also I just cannot see Food Lion falling under Albertsons. Or can I? Could they take those and expand the offer, add staffing, add fresh items, substantially increase prices (to pay for all the new frills), and make those stores more alive? Maybe they could... But I'm not sure how interested those markets are in additional fresh items and substantially increased prices.

I think Kroger can successfully litigate and win against FTC but I think they should not go forward on that path or with the merger at all for various reasons.

[storewanderer]

While Stop & Shop's decline is something to notice, I don't think that meat processing or fulfillment center closures are a thing to worry about. Kroger, for instance, has benefitted from the merger to distract from other issues like the Ocado thing losing steam again (Austin's delivery center quietly closed). And meat processing is unusual for a grocery store to do. (Is it true that most Ahold Delhaize stores don't have meat counters and just pre-pack everything like Walmart does?)

For a while I was thinking that pre-merger Royal Ahold was the last frontier for Kroger to move into and buy, but since the merger it would present a difficulty for both chains. Food Lion is heavily in Kroger territory but most of its stores are quite small (almost all under 50,000 square feet) and not really "full line" like Kroger or Albertsons stores are. I imagine that in an Ahold Delhaize merger situation, those stores get spun off (they are, after all, a 1000+ store chain, not an easy feat). The other chains would pose a difficulty for Albertsons, as Giant-MD dominates the Philadelphia/Baltimore/Washington DC markets where ACME and Safeway play second banana, Hannaford overlaps with Shaw's/Star Market, and of course Stop & Shop stretches along the East Coast.

Either way, excepting Food Lion, the whole of Ahold Delhaize's operations are more easy for Kroger to swoop in and take over. Albertsons would be far more complicated. Frankly, I'm not even sure if it's a good deal to "trade up" to Giant. American Stores spun off Alpha Beta to buy Lucky, but the whole ordeal with the courts damaged the company severely and we'll never know what the long range plan for American Stores because it was less than a decade between settling with John Van de Kamp and accepting Albertsons' $11.7 billion buyout, and during that time they purged themselves a lot of their underperforming and non-core assets.

Until Ahold Delhaize does something with its divisions—spins off Food Lion or puts Stop & Shop on the sales block, I think it's too early to link Ahold Delhaize with Albertsons or Kroger.

You are right that Ahold (NOT the Delhaize parts - Hannaford and Food Lion) would have been the correct "buy" for Kroger. Those two Giant chains are assets that Kroger could run and continue to enjoy high volume and high share and I expect they'd fix Stop & Shop up in the same manner they fixed Pick N Save. But I do not think Hannaford or Food Lion are good fits for Kroger at all. Especially Food Lion.

It has been common for grocers over the years to have meat processing plants. Kroger has had meat processing plants (Ralphs had one pre-merger in Vernon). They still have one in Denver to do all the case ready beef, it sits next to a bread plant and a dairy. Safeway had meat processing plants in the 70s 80s etc. in various of its divisions.

[pseudo3d]

The problem I see is the "mess" of overlaps that Kroger-Albertsons causes out west... Ahold-Albertsons causes a similar mess of overlaps and divests back east. I think there are a lot more qualified buyers back east to take divested stores over though, so that changes the dynamic of that.

And it will not be so cut and dry back east what to do. Divest Safeway East and divest Acme/Kings etc. 100%? Okay- maybe that will alleviate some issues. But that also leaves some Stop N Shops... and what to do about Shaw's or Hannaford (or Stop N Shop in some cases)?

Also I just cannot see Food Lion falling under Albertsons. Or can I? Could they take those and expand the offer, add staffing, add fresh items, substantially increase prices (to pay for all the new frills), and make those stores more alive? Maybe they could... But I'm not sure how interested those markets are in additional fresh items and substantially increased prices.

I think Kroger can successfully litigate and win against FTC but I think they should not go forward on that path or with the merger at all for various reasons.

Before the troubles of Stop & Shop, I was expecting that if an Ahold Delhaize/Albertsons merger was done (before the Kroger mess), the Mid-Atlantic Division and the Shaw's/Star Market division would be divested in its entirety save for a few conversions. You know...like Lucky/Alpha Beta. Before they sold off Alpha Beta to Yucaipa, they did convert a handful of stores to Lucky (no idea where those stores are today). Under a potential Northeastern spin-off, the new chain would probably have some limited-time use of Safeway before being forced to rebrand.

The reason I don't think Food Lion would work is it's too many stores to do anything big with. If they were substantially smaller, or kept BI-LO together...maybe not.

As for Kroger, I think they COULD litigate and COULD win but at this point it's just diminishing returns and I don't think that it's going to be one of those one-in-ten cases where FTC's blocking has no major effect.

It has been common for grocers over the years to have meat processing plants. Kroger has had meat processing plants (Ralphs had one pre-merger in Vernon). They still have one in Denver to do all the case ready beef, it sits next to a bread plant and a dairy. Safeway had meat processing plants in the 70s 80s etc. in various of its divisions.

Grocers have definitely had meat processing plants over the years. I know Vons used to have meat processing and they did contracts with other businesses like Foodmaker (Jack in the Box), that's when that E. coli business happened. But the idea of them still having a few seems like a bit of antiquated thing.

[ClownLoach]

I don't see litigation working for Kroger here. They could win but it would take a long time, several years, and basically require a whole series of legal victories that in effect rewrite all of the current antitrust laws in regard to retail mergers. The two largest issues being that they would need all of the practices around defining an industry or category changed, and they would also need to get an entirely new remedy invented to replace divestitures or at least reinvent the methods and qualifications for them.

They may have some merit to the first argument around exactly what is a supermarket and what are really it's competitors, but the counterargument is what I have poised: that due to already excessive consolidation the customer has already experienced damage as the offerings have deteriorated to the extent that shoppers are forced to use multiple stores today. They are not cross shopping Walmart and whoever else because they want to, rather because due to poor selection, quality, pricing, service, or experience they have to. Thus the government definition of a supermarket (basically a unique store where one could complete all their household shopping under one roof) is only broken because of the neglect and incompetence of Kroger and others, not because of a true desire by the customer to move towards shopping in a more complicated manner.

As for the second part of the equation, I have no clue what kind of remedy could replace divestiture as a cure for monopoly. I do have plenty of evidence that the divestiture model used by the FTC and Justice Dept is completely broken as it depends primarily on zip codes. Zip codes are obsolete due to changing demographics and residential growth, thus leaving some massive areas by both land mass and population with a single zip code (thus requiring unnecessary divestitures that hurt the consumer) while other tiny areas with limited population may have multiple zip codes (allowing monopolies to be created since they're technically different zip codes). This has created scenarios where mergers have created two supermarkets across the street from one another (with no competition in the immediate vicinity) being considered acceptable while elsewhere stores many miles apart from each other required divestiture. The entire "local market" definition used by the FTC is completely broken, however that doesn't mean the remedy itself isn't a valid tool. What do you do instead of divestiture to correct the real overlaps? And is it fair to expect that the buyers of said divested overlaps will actually be qualified and able to operate them and be committed to doing so in a competitive manner? I think the FTC has a fair argument that divestiture is the only acceptable remedy, that has stood up to court challenges for decades, and they have a fair argument to make that the industry has already consolidated so much that there are no qualified buyers for these stores. I think the FTC wins the argument that if there isn't a qualified buyer then a divestiture is no longer a valid remedy, nor is there an adequate replacement remedy, and thus the merger cannot be allowed.

[veteran+]

I don't see litigation working for Kroger here. They could win but it would take a long time, several years, and basically require a whole series of legal victories that in effect rewrite all of the current antitrust laws in regard to retail mergers. The two largest issues being that they would need all of the practices around defining an industry or category changed, and they would also need to get an entirely new remedy invented to replace divestitures or at least reinvent the methods and qualifications for them.

They may have some merit to the first argument around exactly what is a supermarket and what are really it's competitors, but the counterargument is what I have poised: that due to already excessive consolidation the customer has already experienced damage as the offerings have deteriorated to the extent that shoppers are forced to use multiple stores today. They are not cross shopping Walmart and whoever else because they want to, rather because due to poor selection, quality, pricing, service, or experience they have to. Thus the government definition of a supermarket (basically a unique store where one could complete all their household shopping under one roof) is only broken because of the neglect and incompetence of Kroger and others, not because of a true desire by the customer to move towards shopping in a more complicated manner.

As for the second part of the equation, I have no clue what kind of remedy could replace divestiture as a cure for monopoly. I do have plenty of evidence that the divestiture model used by the FTC and Justice Dept is completely broken as it depends primarily on zip codes. Zip codes are obsolete due to changing demographics and residential growth, thus leaving some massive areas by both land mass and population with a single zip code (thus requiring unnecessary divestitures that hurt the consumer) while other tiny areas with limited population may have multiple zip codes (allowing monopolies to be created since they're technically different zip codes). This has created scenarios where mergers have created two supermarkets across the street from one another (with no competition in the immediate vicinity) being considered acceptable while elsewhere stores many miles apart from each other required divestiture. The entire "local market" definition used by the FTC is completely broken, however that doesn't mean the remedy itself isn't a valid tool. What do you do instead of divestiture to correct the real overlaps? And is it fair to expect that the buyers of said divested overlaps will actually be qualified and able to operate them and be committed to doing so in a competitive manner? I think the FTC has a fair argument that divestiture is the only acceptable remedy, that has stood up to court challenges for decades, and they have a fair argument to make that the industry has already consolidated so much that there are no qualified buyers for these stores. I think the FTC wins the argument that if there isn't a qualified buyer then a divestiture is no longer a valid remedy, nor is there an adequate replacement remedy, and thus the merger cannot be allowed.

Eruditely expressed!

And............................................."They may have some merit to the first argument around exactly what is a supermarket and what are really it's competitors, but the counterargument is what I have poised: that due to already excessive consolidation the customer has already experienced damage as the offerings have deteriorated to the extent that shoppers are forced to use multiple stores today. They are not cross shopping Walmart and whoever else because they want to, rather because due to poor selection, quality, pricing, service, or experience they have to. Thus the government definition of a supermarket (basically a unique store where one could complete all their household shopping under one roof) is only broken because of the neglect and incompetence of Kroger and others, not because of a true desire by the customer to move towards shopping in a more complicated manner."

Awesome critical analysis whether or not shoppers realize it.

[ClownLoach]

I don't see litigation working for Kroger here. They could win but it would take a long time, several years, and basically require a whole series of legal victories that in effect rewrite all of the current antitrust laws in regard to retail mergers. The two largest issues being that they would need all of the practices around defining an industry or category changed, and they would also need to get an entirely new remedy invented to replace divestitures or at least reinvent the methods and qualifications for them.

They may have some merit to the first argument around exactly what is a supermarket and what are really it's competitors, but the counterargument is what I have poised: that due to already excessive consolidation the customer has already experienced damage as the offerings have deteriorated to the extent that shoppers are forced to use multiple stores today. They are not cross shopping Walmart and whoever else because they want to, rather because due to poor selection, quality, pricing, service, or experience they have to. Thus the government definition of a supermarket (basically a unique store where one could complete all their household shopping under one roof) is only broken because of the neglect and incompetence of Kroger and others, not because of a true desire by the customer to move towards shopping in a more complicated manner.

As for the second part of the equation, I have no clue what kind of remedy could replace divestiture as a cure for monopoly. I do have plenty of evidence that the divestiture model used by the FTC and Justice Dept is completely broken as it depends primarily on zip codes. Zip codes are obsolete due to changing demographics and residential growth, thus leaving some massive areas by both land mass and population with a single zip code (thus requiring unnecessary divestitures that hurt the consumer) while other tiny areas with limited population may have multiple zip codes (allowing monopolies to be created since they're technically different zip codes). This has created scenarios where mergers have created two supermarkets across the street from one another (with no competition in the immediate vicinity) being considered acceptable while elsewhere stores many miles apart from each other required divestiture. The entire "local market" definition used by the FTC is completely broken, however that doesn't mean the remedy itself isn't a valid tool. What do you do instead of divestiture to correct the real overlaps? And is it fair to expect that the buyers of said divested overlaps will actually be qualified and able to operate them and be committed to doing so in a competitive manner? I think the FTC has a fair argument that divestiture is the only acceptable remedy, that has stood up to court challenges for decades, and they have a fair argument to make that the industry has already consolidated so much that there are no qualified buyers for these stores. I think the FTC wins the argument that if there isn't a qualified buyer then a divestiture is no longer a valid remedy, nor is there an adequate replacement remedy, and thus the merger cannot be allowed.

Eruditely expressed!

And............................................."They may have some merit to the first argument around exactly what is a supermarket and what are really it's competitors, but the counterargument is what I have poised: that due to already excessive consolidation the customer has already experienced damage as the offerings have deteriorated to the extent that shoppers are forced to use multiple stores today. They are not cross shopping Walmart and whoever else because they want to, rather because due to poor selection, quality, pricing, service, or experience they have to. Thus the government definition of a supermarket (basically a unique store where one could complete all their household shopping under one roof) is only broken because of the neglect and incompetence of Kroger and others, not because of a true desire by the customer to move towards shopping in a more complicated manner."

Awesome critical analysis whether or not shoppers realize it.

I just remember the short-lived Smiths slogan before they pulled out of California...

"The one place that takes the place of going place to place."

That is what a grocery store should be, and the definition should not be changed because of the poor performance of Kroger, Albertsons and their ilk. I know plenty of people who do have supermarkets that truly deliver on that promise... ShopRite in NJ (at least the franchises near my family there)... Wegmans... I'll even give Kroger credit for Fred Meyer only.

Kroger's only legal argument here is to effectively "lower the bar" for themselves and try to say that their own business model is obsolete. The existence of brands like some I mentioned and others I've heard of but haven't experienced like HyVee and Meijer proves otherwise.

[storewanderer]

I just remember the short-lived Smiths slogan before they pulled out of California...

"The one place that takes the place of going place to place."

That is what a grocery store should be, and the definition should not be changed because of the poor performance of Kroger, Albertsons and their ilk. I know plenty of people who do have supermarkets that truly deliver on that promise... ShopRite in NJ (at least the franchises near my family there)... Wegmans... I'll even give Kroger credit for Fred Meyer only.

Kroger's only legal argument here is to effectively "lower the bar" for themselves and try to say that their own business model is obsolete. The existence of brands like some I mentioned and others I've heard of but haven't experienced like HyVee and Meijer proves otherwise.

With that slogan Smiths was also referring to itself rather briefly (saw it on bags, ads, etc.) as a "grocery mall" as opposed to "food and drug centers." That didn't last long.

Kroger still runs the true format in a lot of markets. Ample drug mix, reasonable pricing storewide, proper balance of Organics, where they fail is with execution in fresh departments. And that is completely fixable if they'd just take things seriously. But Kroger can't seem to take things seriously. I've been watching lately in one Smiths where some of the people working in bakery/deli are dressed worse than any of the customers are dressed (way way oversized t-shirts and baggy jeans, wrinkled and unkempt). I see them doing things like sitting on the counters, working while very sick and talking about how sick they are, coughing all over without covering their mouths (no masks in sight), and other completely disgusting behaviors, when they even show up to work at all that is. Frankly it may be better if the departments are empty and they don't show up. As a result I won't buy any bakery/deli items from one particular Smiths location anymore which is a real shame. I have more confidence in hygiene and cleanliness at any other store.

[pseudo3d]

Kroger's only legal argument here is to effectively "lower the bar" for themselves and try to say that their own business model is obsolete. The existence of brands like some I mentioned and others I've heard of but haven't experienced like HyVee and Meijer proves otherwise.

I thought I responded to this post, but I guess I didn't. Basically it echoed the sentiment of its only because mergers have diminished the number of grocery competitors and its only generally high barrier of entry that prevents quality independents from filling the void (and no, not created from the unwanted scraps, a genuinely high-quality, competitive chain), and that the grocery stores of old had roughly comparable amenities (in terms of perishables, price, etc.) that shopping around wasn't really necessary. (Plus, the fact that 15-20 years ago most markets still had three competitors, even in the wake of Albertsons' retractions).

However, I will have to say that bringing up Meijer is both a bad example and a good example at the same time. Bad example being that Meijer is closer to Walmart in terms of the market it services (Kroger would love to point that Walmart is just as much a valid competitor to them, despite not being a supermarket), and a good example in that they opened up a new sub-brand, Meijer Grocery as a pure supermarket format, showing the traditional supermarket still has legs.

The real danger of course is that when there's no more real competition, they basically quit trying. This is my biggest complaint with H-E-B: it's not a great supermarket as-is because it looks and acts like one of those no-frills grocery warehouses from the 1980s and 1990s, and areas where it commands market share (like along the I-35 corridor) are noticeably worse than areas where they still have to compete against Kroger. (Similarly, Walmart was much better prior to the early 2000s when Kmart was still active). So not only would Kroger be the only "real" supermarket left in town, they won't even run it properly. (Meanwhile, it's practically a foregone conclusion that C&S will absolutely not run the stores competitively with Kroger, and everyone knows this). The "marriage from hell" scenario that involves all the bad policies of Kroger (perishables, mostly) and all the bad policies of Albertsons/Safeway (pricing and selection) seems increasingly likely if the merger goes through.

[Romr123]

A small example from SE Michigan. In various local FB groups near where we live in SE Oakland County, people will throw out requests to find slightly esoteric groceries (produce, meat, dry groceries---think starfruit/dragonfruit/walnut oil/Mr. Pibb/...) or slightly ethnic groceries (Middle Eastern, primarily for Michigan---kinds of things you can find anywhere in ethnic neighborhoods but that aren't in a "standard selection"....).

About 50% of the time the answer about "where to find" is Meijer, and about 50% it's "local independent grocer/local independent produce market". It's NEVER Kroger (and they have a reasonable penetration in the neighborhoods north of 8 mile).

[retailfanmitchell019]

This merger I do think Kroger can legally defend successfully their claim they will "lower prices" as they have some proof of that with Roundys but past actions in no way guarantee future performance and to say I am skeptical of what they will do with pricing in the future is a nice way to put my feelings.

The Roundy's acquisition was small potatoes compared to this proposed Albertsons merger. Roundy's only had 150 stores.

If Kroger wants to bring up that claim, the Feds can mention that Albertsons exec saying "Prices won't actually come down".