What a Kroger-Albertsons Merger Could Mean for Grocery Shoppers

You stop by your local supermarket on Sunday. It’s more crowded than usual, which makes finding a parking spot a little tough. You usually pick up a favorite brand’s organic, free-range chicken breasts, but you haven’t seen them stocked in a while. Instead, all that’s available are factory-farm brands — and they seem more expensive than they should be.

And those dog biscuits from the mom-and-pop bakery across town? They’re usually here, but you can’t find them, either. You’d ask an associate for help finding them, but you don’t see any employees who aren’t busy at the registers or behind the counter.

A version of this lackluster shopping experience is what antitrust experts fear everyday shoppers may encounter if The Kroger Company’s $24.6 billion acquisition of Albertsons Companies Inc. — which would be the largest grocery merger in the nation's history — is permitted to close. On Feb. 26, the Federal Trade Commission filed a motion to block the acquisition, which was announced in 2022. Attorneys general from eight states and Washington, D.C., joined the FTC in its suit, and the attorneys general in two other states — Colorado and Washington — filed suits of their own against the move to combine the companies.

Several antitrust experts, including academics, public policy researchers and financial analysts, told NerdWallet that a merged Kroger and Albertsons could lead to less product variety, lower product quality, higher grocery prices and an overall worse shopping experience, with stores having fewer employees available for customer service. For workers, many of whom are part of the United Food and Commercial Workers International Union (UFCW), the proposed acquisition may threaten the competitive benefits and retirement packages that the union secured, UFCW representatives told NerdWallet.

One crux of the FTC’s case against the deal is the idea that a combined Kroger-Albertsons would create a monopoly in the supermarket sector, which it considers distinct from other kinds of food retail sectors, such as club stores (Sam’s Club, Costco), premium and organic stores (Whole Foods, Sprouts), superstores (Target, Walmart), dollar stores and e-commerce sellers.

“The FTC is saying that, among and within the entire constellation of companies that sell groceries at retail, there are niches within that larger constellation that matter, and one of them consists entirely of traditional grocery stores,” says James B. Speta, a professor of law at Northwestern University’s Pritzker School of Law. “The company is going to argue, ‘Oh, no, you've got to include all these others.’ When you do, composition in that larger market is less significant.”

And that is exactly what proponents of the acquisition say: that the real competition in retail grocery comes from Walmart and other non-traditional outlets.

Scott Moses, partner and head of the grocery, pharmacy and restaurants investment banking practice at Solomon Partners, a financial advisory firm, is representing Albertsons in the deal. Moses says it doesn’t make sense to consider the supermarket sector as distinct from the broader food retail market, which now includes companies like Walmart, Amazon, Costco, Target and several others. All of these companies have invested heavily in their grocery retail businesses over the past decade, competing with supermarkets and fundamentally altering the American grocery landscape.

Walmart owns a 30% market share of broader food retail, based on February 2024 earnings reports, Moses said, and traditional supermarket grocers make up 36% of the food retailers market when supercenters, dollar chains, specialty grocers and online sellers are included. The deal is essential for Kroger and Albertsons to survive the existential threat posed by those retailers, he says.

“The amount of capital that these folks are spending to drive their subscribed members and retain customers is radically more than any supermarket can remotely fathom competing with,” Moses says. “They simply cannot do it.”

Proponents and opponents of the acquisition slice the retail food market differently and tend to cite numbers that bolster their case. According to data from Food & Water Watch, a nongovernmental organization focused on corporate accountability, a combined Kroger and Albertsons would, alongside Walmart, control 55% of the food retail market, excluding convenience stores.

Based on a broader definition of food retailers that Kroger and Albertsons prefer, the new combined company would be the second-largest food retailer in the U.S., with an 11.8% market share, second to Walmart’s 17.1% share, based on widely reported rankings from the research firm GlobalData.

Less ‘urgency’ to innovate for customers, skeptics say

Kroger and Albertsons collectively own and operate nearly 5,000 stores in 48 states. Combined, they employ nearly 700,000 workers. The companies own more than 40 standalone grocery brands, including Safeway, Fred Meyer, Jewel-Osco, Ralphs, Dillons, Tom Thumb and Vons. Their brands are in all regions of the continental U.S. but are concentrated in the West, Midwest and New England. You’ve almost certainly visited one of their stores, and there’s a solid chance that a supermarket owned by either Kroger or Albertsons is your regular grocery store of choice.

Because Kroger and Albertsons are currently competitors, they’re naturally motivated to experiment with product offerings, promotions and prices, says William E. Kovacic, director of the Competition Law Center at George Washington University. These experiments can include stocking well-liked, locally made products that cost more to buy from suppliers than mass-produced alternatives, running sales during peak shopping seasons, or offering ready-to-eat meals and hot bar options.

“The FTC argues that the transaction will reduce the urgency that companies feel to do those kinds of things,” Kovacic says.

From the companies’ perspective, there’s no shortage of urgency to continue innovating and investing in product variety and promotions, Moses says, due to increased competition from Walmart, Costco and other non-supermarket food retailers. He says he first noticed similarities around 15 years ago between competition in the grocery space and the kinds of disruptions that eventually leveled the department store space, which led to hundreds of store closures, bankruptcies and job losses. Those department store disruptions came from some of the same retailing giants currently competing in the grocery space, like Amazon, Walmart and Target.

The continued existence of supermarkets is not guaranteed, Moses says. “If supermarket grocers aren't allowed to level the playing field, it will not be long before grocery looks like department stores, with thousands of supermarkets closed and millions of union jobs lost.”

Conversely, antitrust experts worry that under a combined Kroger-Albertsons company, consumers would wind up paying the same or higher prices for food products of equal or lower quality. Eleanor Fox, an antitrust expert and professor at New York University School of Law, pointed to the $26 billion merger of Sprint and T-Mobile in 2020 as an illustration of how two companies that already command significant market share — just as Kroger and Albertsons do in the supermarket sector — can often behave after a merger.

In 2023, a federal judge in Chicago ruled that the merger led consumers to “pay higher prices” via “taxes and fees that were previously included in the plan prices, paying new fees and surcharges, or paying more for device protection plans or accessories.”

Of course, telecommunications and grocery are two starkly different industries. Still, Fox says the case is an example of how companies will often raise prices when facing less competition, simply because they can.

“When the competitor goes away, they can manipulate, they can do various things, they can decrease quality, they can decrease service,” Fox says. “They can simply not lower prices when their costs go down.”

Kroger, for its part, has publicly committed to lowering prices following the acquisition.

Workers fear losing hard-fought union benefits

Workers advocates are concerned about the potential acquisition’s impacts and fear workers may lose significant retirement packages, benefits and work shifts if Kroger and Albertsons combine.

Kroger and Albertsons are the two largest employers of unionized grocery workers in the U.S., and the majority of their employees are represented by the UFCW. That’s a powerful negotiating tool for the union, specifically when one company is more open to an agreement or proposal than the other company, says John Marshall, capital strategies director for UFCW Local 300, which represents members across Washington state, northeast Oregon, and northern Idaho.

“Currently, we can go to Albertsons, get a tentative agreement on that particular proposal, and then go to Kroger and say, ‘Look, this is what Albertsons has agreed to. If you don't also agree to this, we may end up going on strike at the Kroger stores,’” Marshall says. “Yeah, Kroger understands that's a very effective tool.”

If Kroger’s acquisition goes through, Marshall says the union’s negotiating power would be weakened, and benefits once guaranteed by the union — like its competitive pension plan — may be in flux, Marshall says.

Moses disagrees.

“Stronger company unions get better wages and benefits for their members than weaker company unions, because the weaker company unions can’t afford better benefits,” Moses says. “Teammates will actually be better off.”

Most union members receive a defined benefit pension plan, says Bertha Rodríguez, a representative of UFCW 770, which represents workers in California. Under that plan, a union employee can expect retirement payouts comparable to their Social Security benefits, Marshall says, and the pension pays employees for life.

Defined benefit plans are almost always better for employees than defined contribution plans, as individuals can outlive the funds available in a 401(k) retirement account. Plus, having a defined benefit plan makes it easier to plan for retirement, because workers know exactly what their retirement savings will be worth when they retire. Also, defined benefit plans are guaranteed to pay the worker for as long as they live, unlike defined contribution plans, which can run out.

“The retirement and health care that our union has negotiated are generally far superior to nonunion benefits,” Marshall says.

Because individuals can withdraw from their 401(k) accounts before retirement, many employees wind up doing just that to cover unexpected emergency costs, such as car repairs or hospital bills, Marshall says. But most pension plans won’t allow employees to withdraw until they reach retirement age. This makes pensions a safer bet for grocery workers’ retirement savings, Marshall says. Many of those workers earn hourly wages and may therefore be more vulnerable when facing an emergency expense and have few options aside from pulling money from their retirement savings.

It’s worth noting that the FTC’s prioritization of workers’ rights is a unique hallmark of the Biden administration’s focus on worker protections, Kovacic says. In past antitrust complaints, worker protections typically aren’t cited as prominently as they are in the FTC’s allegations against Kroger and Albertsons.

“An unmistakable theme of the Biden administration's antitrust program has been to give greater emphasis to the effect that business behavior has on worker welfare,” Kovacic says.

It also reflects the recent growth of unions in the private sector. In 2023, the unionization level in the private sector rose from 6.8% to 6.9% — an increase of more than 261,000 unionized workers, according to the Economic Policy Institute.

Fear of store closures in small towns, despite assurances

Although Kroger has explicitly stated that there will be no store closures as a result of the acquisition, both workers and antitrust experts are concerned about the possibility of closures in smaller cities and towns with fewer grocery retailers.

“Kroger and Albertsons are two of the largest supermarket chains in thousands of local communities throughout the country,” the FTC states in its suit against the deal. “In hundreds of those communities, the proposed acquisition would create a single supermarket with market shares so high as to be presumptively unlawful under the antitrust laws.”

In Gunnison, Colorado, a city south of Boulder with a population of less than 7,000, there are three traditional supermarkets: a Safeway, which is owned by Albertsons; a Kroger supermarket and a City Market, which Kroger owns. (There’s also a Walmart.) If the deal were to close, residents would have to drive 65 miles to a supermarket that’s not owned by Kroger.

“Combined, Kroger, Albertsons — were this merger to go through — and Walmart would control 55% of the food retail market,” says Karen Gardner, a senior policy associate at the Center for Science in the Public Interest, a food-focused consumer advocacy group based in Washington, D.C. “That means that there's two CEOs who would be in control of the majority of food sold in America, and that doesn't seem like a good idea to me.”

When asked about potential store closures, Moses rejected the notion that it would ever make financial sense for a combined Kroger-Albertsons to close any supermarkets.

I don't know how much more explicit they can be,” Moses says, referring to Kroger’s assurances that no stores would close due to the acquisition. “What you need, frankly, is to be larger, so you have more of an ability to invest more in lower prices, more in better stores, more in better wages, more in marketing, so that you can retain more customers.”

A hearing to evaluate the FTC’s block is scheduled for Aug. 26 in the U.S. District Court in Oregon. In January, before the FTC filed its suit, The Kroger Company issued a statement saying its acquisition of Albertsons would likely close before the end of the company’s second fiscal quarter on Aug. 17.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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