The state of Washington is suing to stop the merger of Kroger and Albertsons.
Bob Ferguson – who serves as Washington’s Attorney General and is also running to become Washington’s next governor – claims the “merger is bad for Washington shoppers and workers.”
Ferguson says “free enterprise is built on companies competing, and that competition benefits consumers. Shoppers will have fewer choices and less competition, and without a competitive marketplace, they will pay higher prices at the grocery store. That’s not right, and this lawsuit seeks to stop this harmful merger.”
Let’s take a closer look at some of the claims Ferguson is making.
“Free enterprise is built on companies competing, and that competition benefits consumers. Shoppers will have fewer choices and less competition.”
Indeed, free enterprise is all about competition. Walmart, Amazon and Costco are now the major players in the grocery marketplace. Chances are, you’ve purchased an item at one of the three over the past 30 days.
In fact, Walmart/Sam’s Club make up nearly a third – 30% – of the U.S. grocery market share. Costco tallies another 7%. Amazon is moving quickly and accounts for more than 5%. And consider this: Amazon Prime, Walmart+ and Costco have more than 250 million subscriptions.
Even if the Albertsons-Kroger merger proceeds, it would account for just 9% of nationwide sales, according to the International Center for Law and Economics. But what it would do is get the attention of the big three – increasing competition with their 42% of the current market share.
“They will pay higher prices at the grocery store.”
The truth is the merger of the chains will likely lower costs because they will be directly competing against each other. An economist with the Strategic Resource Group recently told Yahoo Finance “Kroger’s acquisition of Albertsons is the last, best, and final chance to level the playing field.”
Why now?
The timing of the lawsuit is curious. The Federal Trade Commission (FTC) is reviewing the sale to make sure it complies with antitrust laws. This is exactly what they should be doing. A decision is expected in the next month. Filing a lawsuit before the FTC issues a decision is a bit like a coach demanding instant replay while the play is still running.
In a statement, Kroger says, “We believe our merger with Albertsons and the comprehensive divestiture to C&S will result in the best outcomes for customers, associates and our communities.”
Store closures?
Kroger and Albertsons are cognizant of criticisms of the deal. The chains say they will sell 413 stores and eight distribution centers to address any questions about a monopoly in certain communities.
In fact, a review of all of the Albertsons and Kroger locations throughout the country shows very few places where the two stores both have locations.
Albertsons and Kroger have announced plans to sell off stores to another company to ensure there are fewer concerns about competition. The recent announcement ensures no stores will close as a result.
Previous suit not successful
This isn’t the first time Bob Ferguson has filed suit against Albertsons and Kroger. The Washington AG tried to stop a dividend paid to Albertsons shareholders following the announcement of the merger. That suit was not successful.
Bottom line
In a union-heavy state like Washington, there is no doubt concern about the impact the merger would have on unions. Ironically, the blocking of the merger would only help retailers like Walmart and Amazon – which are non-union. Washington state has been hostile to the idea of a merger for several months. Some legislators have even filed legislation requiring workers must be kept on the job for at least 180 days.
As with any proposal, there is fear of the unknown. But we shouldn’t let fear destroy an opportunity to increase competition and improve the outlook for the consumer.
