ProMarket - The Kroger-Albertsons Merger Will Not Help Grocery Competition

Food systems program manager Claire Kelloway argues that the main reason Kroger and Albertsons want to merge is to achieve Walmart’s monopsony power, and permitting mergers on these grounds will only harm suppliers, workers, and consumers.

As grocers Kroger and Albertsons wait for the Federal Trade Commission (FTC) to approve or challenge their proposed merger, company executives and grocery industry commentators have doubled down on the merging parties’ defense that this deal is necessary for them to compete with retail giants Walmart, Amazon, and even Costco.

While Walmart and Amazon are domineering retail competitors, permitting more massive mergers is not the best way to level the playing field. The merger of Kroger and Albertsons won’t help them to compete with giant retailers in the increasingly important online market, at least not in isolation. The companies also overstate the merger’s potential efficiencies. The unstated truth is that most of Kroger-Albertsons’ cost savings will come from its elevated monopsony power, or the market power to demand lower prices from suppliers and labor. Rather than promise more competitive prices for consumers, this merger will only lead to lower prices for farmers and grocery workers, more grocery consolidation, and diminished choice and food access for consumers. Antitrust enforcers should block the proposed merger and use existing laws and authorities, namely the Robinson-Patman Act, to help grocers compete with Walmart and Amazon instead. 

Kroger and Albertsons face two primary disadvantages relative to Walmart or Amazon. The first is market share. Walmart sells 25% of all groceries in the United States to Kroger’s 8% and Albertsons 5% (Amazon only has 1%). A larger market share can give firms monopsony power to demand lower prices from suppliers, because suppliers become more reliant on accessing their larger customer base. In addition to having smaller market shares compared to Walmart, both Kroger and Albertsons are growing slower than Walmart, especially when it comes to online sales. This brings us to the second disadvantage.

The online grocery industry is expected to grow at over three times the rate of overall grocery sales. Kroger and Albertsons say they need to combine resources to compete with Walmart and e-commerce giant Amazon. Though Amazon sells just 1% of all groceries and its Whole Foods and Amazon Fresh ventures have been lackluster at best, it sells nearly 21% of online groceries.

Relatedly, Kroger and Albertsons also want to compete with Walmart and Amazon for advertising dollars. This year, brands will give retailers an estimated $45 billion to use their troves of customer data to place targeted ads in online stores and beyond. So-called “retail media” advertising is only expected to grow. Last year, Amazon captured 37% of this lucrative retail ad spending.

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