Axios reports that “Kroger and Albertsons are confident they will have strong strategic grocery buyers for the assets they divest as part of their merger, a source familiar with the deal says.”
According to the story, “Local markets where Kroger and Albertsons have the largest presence are where we will most likely see divestitures, sources familiar with the situation say … those markets include the Denver metropolitan area; Portland and Eugene in Oregon; Seattle; Roanoke, Virginia; Anchorage, Alaska; Boise, Idaho; and Southern California … Stores in the area around Cincinnati, Ohio, and Louisville, Kentucky are not likely to be sold, says one source, due to lack of Albertsons stores in the area.”
Axios writes that there are two previous deals that are serving as guideposts for Kroger and Albertsons. One is the Haggen deal in 2014, when Albertsons sold 146 units to Haggen – which to that point only operated 18 stores – in order to get its purchase of Safeway approved. It was a classic case of biting off more than it could chew, and Haggen filed for bankruptcy less than a year later, and Albertsons was able to re-acquire some of the stores it had sold, which essentially vitiated the goals of the Federal Trade Commission (FTC).
The other deal being modeled the merger of Ahold and Delhaize in 2016, which was approved after a number of divestitures.
Axios writes that experts think that the FTC will challenge the Kroger-Albertsons deal, but that it will be approved after a court fight. The debate, the story says, will focus on how to define competition:
“In court, it’s likely to be a ‘bread-and-butter’ argument over market definition, market share nationally and in local markets, and which companies are considered competitors, says Brian Albrecht, chief economist at the International Center for Law & Economics.
Some context from Axios:
“Competitors based on precedence will include traditional grocery and hypermarkets, namely Walmart.
“But there’s a good argument that wholesale clubs like Costco, which have been excluded in the past, and Amazon, which operates both online and increasingly physical stores, should also be included as rivals, says Albrecht.
“He says that stores located farther away that can now deliver via online-delivery platforms such as Instacart could be added to the list.
“Whether Dollar Stores should be included is debatable, Albrecht says.
“By the numbers: The top food retailers by grocery sales include Walmart, which sells $308 billion worth of groceries per year in the U.S.; Kroger, which sells $110 billion; Costco, which sells $91 billion; and Albertsons, which sells $65 billion.
“Amazon and Whole Foods also sell $65 billion in groceries, but that’s for all of North America, not just the U.S.
“Behind Amazon is Target, which sells $54 billion, and Ahold Delhaize, which sells $52 billion.
“That’s according to data compiled by investment bank Solomon Partners from a combination of publicly available data and the Mercatus Grocery Insights Report.”
KC’s View:
Axios has another story that really frames the issue, talking about how the FTC really doesn’t want to make the debate about just the top competitors, but rather “wants to return antitrust enforcement to a time when it was about protecting small businesses from large ones.”
Kroger and Albertsons, of course, will argue – they have to argue – that the merger would be good for shoppers and will result in lower prices. But “the FTC wants to argue that using economic modeling to judge mergers’ impact on consumers has failed to preserve competition,” and that new guidelines should be observed that would take into account the impact on small businesses. If these smaller entities’ ability to compete is preserved, the reasoning goes, that will do more to drive down prices.
It is going to be a fascinating debate, at least partly focused on the fact that the FTC’s approach represents a stretch from existing law. Whether or not it is a legitimate stretch remains to be seen.
And there’s another question I would raise. The phrase “return antitrust enforcement to a time” is one that bothers me. While this isn’t a phrase that the FTC has officially used, if it is an accurate characterization of its mindset, that could be a problem. Shouldn’t antitrust enforcement be focused on how competition will be conducted in the future, not how things used to be?
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