On Wednesday, the attorneys general of Ohio, Alabama, Georgia, and Iowa all appeared in court to support the Kroger-Albertsons merger.
The Federal Trade Commission and eight state attorneys general are among those who are opposed to the merger, arguing that it will lead to price increases and pay cuts as a result of the massive consolidation in the market.
However, Yost and his colleagues contend that the merging of the supermarket titans will enhance competition. They say that this is because the newly formed business will be able to take on industry heavyweights like Costco, Walmart, and Amazon. Although dollar stores and pharmacies are not typically thought of as viable substitutes for a full-service grocery, their friend-of-the-court brief identifies them as participants in that market.
Inflation in food prices is a major issue in this election year, and the attempted merger is taking place against this backdrop.
Despite a staggering 20% increase in costs over the previous four years, the New York Times noted on Tuesday that inflation in the industry had moderated, increasing 1.1% this year through June. According to the polls referenced in the article, 64 percent of Americans see inflation as a major problem, with food price rise being the most worrisome form of inflation.
While shoppers may be seeing a slowdown in food price inflation, they may reasonably wonder why, when the supply issues caused by the coronavirus ended, prices hadn’t reduced.
When the FTC released its report on the pandemic in March, it may have provided some insight into this. The article claimed that large retailers such as Kroger, Walmart, and Amazon took advantage of their size to negotiate lower rates and early access to limited supplies with their suppliers.
This pattern appears to be here to stay. Profits skyrocketed alongside prices, and they remained elevated until 2024, according to the analysis.
Even more influence with suppliers would go to Kroger and Albertsons post-merger. According to the FTC, these companies employ roughly 700,000 people across 48 states, run 5,000 storefronts and around 4,000 retail pharmacies.
Kroger, headquartered in Cincinnati, has a wider reach across the country than Albertsons, situated in Boise, Idaho, which is primarily limited to the Western United States. Both businesses claim to be willing to sell stores to other grocery stores in the states of Arkansas, Louisiana, and Texas, where they are present.
How have people been hurt?
The proposed merger “will eliminate fierce competition between Kroger and Albertsons, leading to higher prices for groceries and other essential household items for millions of Americans,” the FTC said in a news statement announcing the attempt to halt the merger. Products and services will suffer in quality as a result of less competition, and consumers will have fewer grocery store options.
The statement continued by claiming that the companies’ plans to sell off assets were insufficient and threatened the rights of grocery store employees to better wages, benefits, and working conditions, as well as the elimination of aggressive competition for workers.
In response, Yost and the merger proponents claim that a more competitive market would result from the merger.
“Consumers would likely benefit from increased competition in the market for grocery sales, as the acquisition would likely increase rather than restrain it,” their friend-of-the-court brief stated. There is no factual or legal basis for the (FTC) to argue otherwise; it promises to increase Kroger’s capacity to compete successfully for consumer spending in an already crowded field of retailers.
Who are the other stores that Yost and his coworkers claim are oversaturating the market?
“…shops like Costco and Sam’s Club, as well as limited assortment stores like Aldi and Lidl, premium natural and organic stores like Whole Foods, dollar stores like Dollar General and Family Dollar, and online retailers…” read the amicus brief.
I don’t think all those establishments would be able to help low-income neighborhoods. Some in Austin, Texas, where Whole Foods is based, joke about the store’s name being “Whole Paycheck” because to the high prices and the fact that dollar stores do not have a reputation for selling healthy food.
This past Thursday, Yost stated in an interview that he “hasn’t been the biggest fan of dollar stores.” He levied claims that Dollar General, a business based in Tennessee, was overcharging customers at the register in February, and the two parties reached a million-dollar settlement.
Yost countered that dollar stores pose a threat to grocery stores because they offer food.
The fundamental issue
Some have argued that smaller competitors are being forced out of the market because they are unable to obtain supplies at the same low prices as the larger players, like as dollar stores, which is in line with the findings of the FTC’s pandemic-pricing report. That can lead to the development of food deserts in low-income areas, where people already face challenges obtaining healthy food, exacerbating their health problems.
People are losing their lives as a result of the phenomenon. For instance, a study published last year in JAMA Oncology indicated that food deserts had an increased risk of death from breast and colorectal cancers.
An inquiry into the plight of government-supported retailers in food deserts was released last week by ProPublica and Capitol News Illinois. In 2020 and 2021, 24 shops across 18 states were examined for government funding. Five had already closed by June, and six had never even opened.
Some of their problems stem from dishonest rivalry.
A Dollar General shop was located in Cairo, which is in the southeastern part of Illinois. They have a reputation for setting up shops in economically depressed areas, promoting unhealthy food selections, and even drawing criminals.
One of the dollar stores in Cairo added a produce section after a government-supported store started selling fresh produce. Now the grocery store in the downtown area is fighting for survival.
According to the news, Dollar General was reportedly uninterested in stocking produce at one of its Cairo locations in 2018, despite an appeal from U.S. Sen. Tammy Duckworth, D-Ill.
The study uncovered a more fundamental issue beyond such rough-and-tumble methods. Bigger companies were able to negotiate better prices with their suppliers than mom-and-pop stores like the Cairo grocery.
In 2022, the most recent FTC member Alvaro Bedoya stated that a chain of twenty-one businesses in the South Dakota Indian region has the same issue, despite purchasing through a cooperative that includes hundreds of similar stores.
“They often don’t get access to the same products,” Bedoya said in an interview with the Capital-Journal.
Bedoya researched congressional discussions and did other research into the origins of antitrust legislation passed in the late 19th and early 20th centuries as he awaited confirmation by the Senate. The legislation, he noted, was passed to ensure consumer and small company justice, especially in rural areas and towns.
A statute that appears to address the core issue confronting small grocery stores was passed by Congress in 1936—the Robinson-Patman Act. The FTC stated its purpose in 1998.
The agency stated that Congress held the belief that large firms could exploit their market power to gain price concessions from manufacturers and other sellers that smaller competitors could not match. It was also believed that large retailers, known as “power buyers,” could dominate markets through economic warfare against smaller firms. The Commission has stated that the Robinson-Patman Act was primarily passed to shield small businesses and their suppliers from what was perceived as unfair competition from large chain stores with multiple locations.
In its attempt to halt the merger between Kroger and Albertsons, however, the FTC does not seem to be using legal means. The name “Robinson-Patman” is deliberately absent from the FTC complaint.
According to Yost, that’s because it’s legally very hard to establish a causal relationship between ostensibly unfair actions and the results it aims to prevent.
Yost stated that consumers sometimes benefit from scale, arguing that he does not adhere to the “big-is-always-bad” school of antitrust enforcement.
“How are we going to get our hands on some eating?” he inquired. There will be other companies with the same level of size if Kroger and Albertsons combine to form a bigger business. For instance, many Americans buy their groceries at Walmart because of its massive size.
The same fate will befall local grocers if companies like Kroger and Albertsons are not allowed to reach the magnitude they are accomplishing, Yost continued. Kroger and Albertsons will now be on par with Walmart if you approve this combination.
In February, when the FTC filed a lawsuit to halt the merger, the National Grocers Association—an organization that represents independent grocers—took a different approach. The agency was encouraged to take additional action as the suit was lauded.
“NGA respects the FTC’s dedication to a competitive grocery industry. We anticipate that the FTC will continue to work toward fair competition by, for example, implementing antitrust laws such as the Robinson-Patman Act, which forbids economic discrimination against independent grocers and their consumers,” stated Chris Jones, chief government relations officer and counsel for the NGA.
It’s understandable if Yost’s position on the Kroger deal is unclear.
He has been going after massive pharmaceutical middlemen who are part of much bigger health conglomerates since he was the state auditor. These companies are also under scrutiny from the FTC.
A sibling firm and one of the intermediaries, Express Scripts, were sued by Yost under Ohio’s antitrust legislation while he was attorney general. According to him, pharmacy benefit managers are “modern gangsters” who are conspiring to set prescription costs with Express Scripts and its sister organizations.
Ironically, the Cincinnati-based retailer Kroger dropped out of what it thought was a terrible arrangement for employee perks, so the lawsuit argues the corporations retaliated improperly—an against Kroger.
In contrast to Yost’s measures against the pharmacy middlemen, the FTC’s actions against the Kroger merger were very different. Additionally, the planned grocery merger is five years after Yost took action against the pharmacy middlemen.
Is Ohio’s attorney general trying to win favor with the state’s second-largest corporation by interfering in the merger case? Yost is preparing to run for governor in 2026. According to Yost, that is not true.
It would appear from a cursory review of federal and state databases tracking campaign contributions that Kroger isn’t particularly involved in politics.
Nonetheless, according to the records of the secretary of state, Yost’s main opponent for the Republican nomination for governor, Jon Husted, and Gov. Mike DeWine each received $7,000 from Kroger’s political action committee in 2022. Also in February of 2023, Kroger gave $10,000 to the Mike DeWine Jon Husted Transition Fund.
The combination would be a violation of antitrust laws, according to Yost, who is fighting to prevent the FTC from rejecting it.
In American law and economics, scale has long been acknowledged. Would I be furious if I were a little competitor taking on Amazon? Yes,” he said, describing a shoe store in his hometown of Delaware that was driven out of business by Walmart. “Whether that should be is a fine policy argument to have. That is not an antitrust argument.”
