Deja Vu All Over Again; Albertsons-Kroger Merger Promises Free Ponies for All
Don’t hold your breath waiting for these promises to come true.
Don’t believe the folks saying the recently announced merger between the Albertsons and Kroger grocery chains has any redeeming value.
(And no, there won’t be any ponies involved–got your attention, didn’t it?)
We’ve traveled down this road before, in case you don’t remember, when Safeway and Albertsons merged a few years back.
It was a sad time for everybody but private equity giant Cerberus Capital Management and owners of Safeway stock. Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Albertsons, Acme, Jewel-Osco, Lucky, Shaw's, Star Market, Super Saver, United Supermarkets, Market Street and Amigos were all going to be joined together, promising a better shopping experience and the right products at a compelling value.
As is often the case with big mergers, Albertsons/Safeway agreed to sell off 146 west coast stores to regional (18 locations) grocer Haggen, which didn’t have capital or expertise to handle such an expansion. Prices went up in the newly acquired stores and stayed above those offered by other chains to customers with discount cards.
It only took nine months for Haggen to go bankrupt. Albertsons bought them, along with the dozens of the stores it promised to sell off, at 80% off, turning a massive profit on the scam.
The $1 billion lawsuit filed by Haggen after the fact claimed Albertsons made “coordinated and systematic efforts to eliminate competition and Haggen as a viable competitor in over 130 local grocery markets in five states,” and “made false representations to both Haggen and the FTC about Albertsons’ commitment to a seamless transformation of the stores into viable competitors under the Haggen banner.”
The suit was later settled for $5.75 million. (Roughly 0.6 cents on the dollar), so the particulars emerging from the lawsuit’s discovery process will never be known. What we do know is that 19 stores in San Diego county closed.
The former Albertsons/Haggen store in North Park is now a Smart & Final Extra. I went shopping there once, and determined that the dollar store format with meat and produce didn’t meet my expectations.
That’s fine for some folks I guess. But the Walmartization of American food shopping is about the act of collecting money more than it is a means for feeding people.
The $26.4 billion Albertsons-Kroger merger is also being orchestrated by Cerberus Capital. The company expects to make $7 billion on the deal. Albertsons shareholders will see a $4-billion special dividend when the deal closes.
The estimated annual savings of $500 million to $1 billion created by the proposed merger, is supposedly going to lower shelf prices, remodel stores and improve worker wages and benefits.
Don’t hold your breath waiting for these promises to come true.
Here’s Cory Doctorow with some context:
Now, Albertsons is playing Lucy-with-the-football, promising to sell off 100-375 stores as a condition of the Kroger merger. Only an idiot would trust this promise. Luckily, as Dayen writes, FTC Chair Lina Khan is no idiot. She's turned antitrust into a "shooting war" by declaring that the age of rubber-stamped mergers is over.
Fittingly, that age began with manufactured outrage by the business lobby and its priesthood at the University of Chicago School of Economics over United States v. Von's Grocery Co, where a 1966 grocery store merger was thwarted.
Vons became the rallying cry of the pro-monopoly lobby and their cult of low-information voters, the "Benghazi" of its day. To hear them tell of it, the insistence that grocery consolidation was bad was a mere superstition, one that made life worse for everyone in service to an incoherent ideology.
But grocery mergers *are* bad. They produce monopolies who raise prices on the food we need to survive. Today's "inflation" isn't the result of sending out too much covid relief to ordinary people - it's the result of monopolies.
And the lack of capacity.
As Michael Hiltzik points out in the Los Angeles Times, the failed deal with Haggen is instructive when it comes to envisioning the future of a Albertsons/Kroger merger.:
When the smoke cleared, a divestiture that the FTC had ordered to preserve competition ended up eliminating all competition in some communities. One place that got a lot of media attention was Baker City, Ore. It had started out with a Safeway and a Haggen, which competed with each other. After the various ownership flips, it still had two stores, but both owned by the same company.
Baker City looks like the future for communities with Kroger and Albertsons stores. They should be prepared for fewer and smaller competitive price cuts, less choice on the shelves, fewer clerks on the floor, a worse experience for shoppers any way you cut it. That’s not to say that [Kroger Chief Executive Rodney] McMullen’s promises might not come to pass, only that experience teaches us that it’s not the way to bet.
I wish I could say the FTC will come riding to rescue in this instance, but an increasingly conservative judicial system rarely sees mergers as a problem. As Hiltzik points out, you only have to look at promises of lower prices and higher quality made in the AT&T/Time Warner and the Comcast/NBCUniversal mergers and realize that none of that has happened to see where this is going.
The food business and the prices charged to consumers are already among the most visible reminders of where the intent of antitrust laws has been abandoned.
Starting in the Reagan era, the concept of “efficiency” being the benchmark for mergers replaced the notion that a concentration of company ownership inevitably made things worse for consumers.
From another article by Doctorow, whose writings on the subject continue to be inspirational:
…40% of your grocery store dollar once went to the farmer who grew your food. Today, it's 16%.
Once, dozens of firms provided agricultural inputs and services ("fertilizer, seeds, grain buying, meatpacking"). Today, all of these functions are undertaken by just four companies, but they don't compete with each other – rather, they have divided up the nation so that farmers have only one supplier for key inputs.
There’s nothing natural or desirable about the sorts of market concentration we’re seeing these days. While the decline in union membership nationally is definitely a contributor to the growing inequality that’s at the root of so many problems we face, the ascendance of non-competitive marketplaces is undoubtedly a factor.
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