The latest announcement in the proposed merger of Kroger and Albertsons is that the companies will divest 579 stores in 18 states plus the District of Columbia.
The business jargon – “divest” – has produced some scary headlines, with various news outlets reporting that communities will “lose” their local stores. In reality, no stores will close, no front line employees will be laid off, and Kroger and Albertsons are doing exactly what the government told them to do when it announced it was challenging the merger.
Kroger-Albertsons would sell the stores to C&S, a wholesale grocery company more than 100 years old. C&S has committed that no stores will close, frontline employees will remain, and all existing collective bargaining agreements will continue.
The goal of the divesture, then, is too ease fears that communities that have multiple Albertsons or Kroger locations would see closures. There is no reason, then, that Washington state taxpayers should be dishing out $1,100 an hour to fight the merger.
Instead of reducing competition, the merger of Albertsons and Kroger would actually create more competition.
Walmart/Sam’s Club makes up nearly a third – 30 percent – of the U.S. grocery market share. Costco tallies another 7 percent. Amazon is moving quickly and accounts for more than 5 percent. 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 percent 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.
Furthermore, Walmart, Costco and Amazon do not have a unionized workforce – Albertsons and Kroger do and have earned the endorsement of the merger from union leaders. The government claims workers would be harmed, but union leaders likely know better.
Unfortunately, government regulators seem to be relying on an outdated model to determine what is best for consumers and grocery stores. Does a grocery store have to be a traditional brick and mortar location? Are online supermarkets be counted? If not, why? It is clear that Amazon, Walmart and Costco directly compete with Kroger and Albertsons, so why wouldn’t they be included in any merger analysis?
Nearly 30 years ago, supermarkets accounted for 81% of retail sales. That dropped to 61% a decade later, and today, it’s near 50%. Where have all of the customers gone? Online and warehouse stores.
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."
