If the Biden administration doesn't step in to block the $25 billion Kroger-Albertsons merger, it will be devastating for shoppers and grocery-store workers — while the rich shareholders will get richer
- Paul Constant is a writer at Civic Ventures and the cohost of the "Pitchfork Economics" podcast.
- Last month, Kroger announced a $25 billion deal to merge with grocery chain Albertsons.
Grocery chain Kroger hasn't exactly been burnishing its reputation as a great place to work and shop.
During the pandemic last year, local city councils in Long Beach and Seattle passed "hero pay" laws requiring grocery stores to pay their public-facing workers $4 extra per hour. Kroger, which did offer $2-per-hour pandemic pay and a one-time bonus for the first two months of the pandemic, responded to the "hero pay" laws by closing "underperforming," stores and arguing that the pay increases make it "impossible to operate a financially sustainable business."
Just a few months later, the chain announced a $1 billion stock buyback, taking a huge portion of what the think tank Brookings Institution called "eye-popping" pandemic profits — which could have been devoted to keeping prices low for customers and improving worker wages — and instead handing it over to the shareholder class.
But Kroger's latest move makes last year's actions look like charity work in comparison.
Last month, Kroger announced a $25 billion deal to merge with Albertsons, another major national grocery chain. By pulling both chain's brands — including Shaw's, QFC, Vons, Safeway, and Fred Meyer, among many others — under a single umbrella, the proposed behemoth of a grocery retailer would control 13% of the nation's grocery sales, and its 4,900 stores would serve an estimated 85 million American households, a share that's second only to Walmart.
In the press release announcing the merger, Kroger promised that the consolidation would result in lower prices for customers and better compensation and benefits for workers. But Stacy Mitchell, the coexecutive director for the Institute for Local Self-Reliance, said on the latest episode of "Pitchfork Economics" that this doesn't check out historically.
A 2012 study from the Federal Trade Commission examined grocery-chain mergers and found that while prices did go down in rural and underserved grocery markets, mergers in highly concentrated markets were most frequently associated with price increases greater than 2%. "It's hard to see any upside to this merger for anybody other than the top executives at these two companies and their investors," Mitchell said.
And because Kroger and Albertsons stores overlap in many parts of the country, including Washington state, California, and Virginia, the megagrocer would be likely to lay off workers and close some stores, while selling others to smaller grocery chains, as it consolidates. This is exactly what happened when Albertsons bought Safeway in 2014, and at least one small chain that bought dozens of the 168 stores that were spun off from that merger went bankrupt and sold those stores back to Albertsons within a year.
Meanwhile, as workers and customers deal with the possible negative ramifications of the merger, the elite investor class will rake in billions in profits. Private-equity firm Cerberus, which owns roughly a third of Albertsons, could pull in more than $7 billion from its sale to Kroger. And when the merger was announced, Albertsons committed $4 billion to a "special dividend" paid out to shareholders as part of its mandate to maximize shareholder value, which Eileen Appelbaum at the Center for Economic and Policy Research said in a recent column "could bankrupt the debt-ridden supermarket chain." Mitchell added the special dividends are akin to "looting" the company and leaving it "so weakened that it will be very hard for antitrust regulators to say no to this merger because it's unclear that Albertsons could stand on its own two feet."
A number of state attorneys general, including Washington State's Bob Ferguson and others from California, Illinois, and Washington, DC, have filed to stop Albertson's $4 billion buyback. King County Superior Court granted Ferguson's motion for a temporary restraining order, and the buyback is currently on pause. But the larger Kroger-Albertsons merger is still on track to conclude in 2024, unless the Biden administration steps in to stop it.
Mitchell cited the Biden Administration's recent successful attempt to block the merger between two of the largest publishing houses in America, Penguin Random House and Simon & Schuster, as a sign that times are changing in favor of workers and customers. The antitrust division of the Department of Justice is also set to release a draft proposal for its new merger guidelines, and it could be the biggest change to the rules since the Reagan Administration significantly relaxed regulations in 1982. The change, Mitchell said, is bound to bring more stringent guidelines that will help judges better understand the implications of mergers and how merger law should be interpreted.
"I feel like we are very much on a cusp of a major shift in how we think about and govern the economy, and how we think about concentrated power," Mitchell said. An unwinding of the Kroger-Albertsons merger, she added, would be a meaningful early step down that path.
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