SACRAMENTO, the United States, Sep. 11 (Xinhua) -- As two U.S. grocery giants Kroger and Albertsons push forward with their proposed 24.6 billion-U.S.-dollar merger, consumer advocates and regulators are raising alarms about potential impacts on grocery prices and market competition.
The deal, combining the second- and fourth-largest grocery chains in the United States, was under scrutiny in U.S. District Court for the District of Oregon as the Federal Trade Commission (FTC) seeks to block the largest supermarket merger in U.S. history.
The hearing tentatively was scheduled to end on Friday, and closing arguments are expected in the next few days. Once closing arguments are given, it's up to U.S. District Court Judge Adrienne Nelson to decide whether to grant the preliminary injunction.
Kroger CEO Rodney McMullen testified in the Portland federal courtroom last week that the merger would allow the combined company to lower grocery prices by 1 billion dollars annually.
"The day that we merge is the day that we will begin lowering prices," McMullen stated, arguing that Albertsons' prices are currently 10 percent to 12 percent higher than Kroger's, according to an article by The Oregonian.
However, critics contended the deal could have the opposite effect, potentially leading to higher prices and reduced consumer choices. The FTC has filed a complaint seeking to block the merger, joined by attorneys general from nine states, including California, Arizona, and Illinois.
The merger debate came against rising food prices and increased market concentration in the grocery industry. Since 2018, the Consumer Price Index for all foods has increased by 20.4 percent, outpacing national wage growth.
This trend coincided with significant consolidation, with the market share of the top four grocery retailers growing by 46 percent between 1993 and 2019, according to the academic publication ProMarket.
At the heart of the debate is how the merger would reshape the retail grocery landscape. If approved, the deal would result in Kroger-Albertsons controlling about 13 percent of the national grocery market.
According to Supermarket News, in some regions, particularly the U.S. Northwest, their combined market share would be even higher -- up to 57 percent in Washington, Oregon, Idaho, Montana, and Wyoming.
Concerns about market concentration are particularly acute at the local level.
The Institute for Local Self-Reliance reported that in over 160 cities, Walmart and a merged Kroger-Albertsons would control more than 70 percent of the grocery market. This level of consolidation raise fears about potential price increases in areas lacking robust competition.
Kroger and Albertsons argued that a merger is necessary to compete with larger rivals like Walmart, Amazon, and Costco. However, some experts questioned this rationale.
Christine P. Bartholomew, a law professor at the University at Buffalo, published a law review article in ProMarket, pointing out that Kroger and Albertsons had successfully increased profits in recent years despite Walmart's growth.
She warned that accepting this argument could "open the floodgates for future mergers" across various industries facing competition from retail giants.
Another key concern was the potential "waterbed effect," where increased buying power for the merged company could lead to higher input costs for smaller competitors. This merger could ultimately result in higher prices at discount chains and dollar stores, reducing affordable options for consumers.
Kroger and Albertsons have proposed divesting 413 stores, distribution centers, and brand names to C&S Wholesale Grocers to address regulatory concerns. The companies claimed this divestiture would "extend a well-capitalized competitor into new geographies."
While the current divestiture plan involved a more extensive and experienced buyer in C&S Wholesale Grocers, questions remain about the company's ability to operate such a large number of new retail locations successfully. The deal would nearly double C&S's retail presence, requiring significant expansion in states with limited experience.
Experts are also skeptical about the effectiveness of this plan. By analyzing 14 horizontal mergers in the supermarket industry, an FTC working paper in 2012 found that prices increased in over a third of cases despite promises of lower consumer costs.
While these increases averaged just over 2 percent, even small price hikes can have significant consequences, given that 31 percent of households report skipping or reducing meal sizes due to financial concerns, the paper said.
