A $20 Billion Deal Depends on Whether You Think Walmart Is a Supermarket

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By Patrick Thomas and Dave Michaels, March 26, 2024


Authorities say Kroger’s planned Albertsons takeover will leave fewer traditional supermarkets to compete for Americans’ grocery dollars


Where you go to buy a loaf of bread or a bunch of bananas could help determine the fate of the biggest-ever supermarket merger deal.

In Greeley, Colo., shoppers can head to King Soopers in the center of town, owned by supermarket giant Kroger—or they can try a Safeway, owned by rival grocery-store operator Albertsons, about 2 miles away. On the northeast side is a Walmart that sells groceries, and it also has a Sprouts Farmers Market, as well as about a dozen dollar stores within 7 miles of town.

Kroger and Albertsons, which are fighting in court to defend their roughly $20 billion merger deal, argue that markets like Greeley show how intensely competitive the food-retail business has become.

Federal antitrust enforcers, who sued last month to block the Kroger-Albertsons deal, look differently at markets such as Greeley, a city of more than 100,000 about an hour north of Denver. By definition, Walmart and Target historically haven’t been classified as supermarkets. Sprouts ranks as a premium natural and organic store. Dollar stores are too limited in what they sell to be considered grocery competitors. Under the Federal Trade Commission’s view, if Kroger and Albertsons merged, they would be the only major supermarket operator left in town.

“Direct competition between Kroger and Albertsons has brought grocery prices down and the quality of grocery products and services up,” the FTC said in its lawsuit. “The proposed acquisition would destroy this.”

Kroger responded in a court filing that regulators are “willfully blind” to the reality of selling groceries in 2024: “The landscape of grocery shopping has expanded to a diverse assortment of grocery retailers beyond the ‘traditional supermarket.’”

When Kroger and Albertsons announced their deal in late 2022, company executives said that combining the country’s No. 1 and No. 2 pure-play supermarket operators was necessary to compete against retail powerhouses such as Walmart and Amazon.com, which have pushed further into the food business.

Walmart for years has been the biggest U.S. seller of groceries in terms of total sales. In Greeley, it has become the city’s top grocery seller, according to investment firm Solomon Partners, which is working with Kroger and Albertsons. Merging would give the combined company added scale to operate efficiently, maintain employment and keep prices down for consumers, executives have said.

Lawmakers, union officials and consumer advocates have warned that the deal would reduce competition, increase prices and erode bargaining power for the stores’ union employees.

Consumers typically shop for groceries at about five different stores a month and make trips to about three different stores a week, according to FMI, a food-industry trade group. As the portion of Americans’ income spent on food hits a three-decade high, shoppers say they are frequenting more discount grocery stores.

Linda Rajlevsky, a 68-year-old retiree from Kenoza Lake, N.Y., drives 30 minutes once a week to Aldi for most of her groceries. She sometimes stops at the local Walmart for produce, and goes to Pecks, a local market, for meat, because it sells chickens that her neighbor raises, and other last-minute items. Every two months, she orders frozen seafood from Wild Alaskan, an online vendor.

Rajlevsky started making more trips to Aldi a year ago when food prices were on the rise, and shops there for most of her vegetables, snacks, cheeses and their selection of German food. “I would call it a supermarket,” Rajlevsky said.

According to regulators, discount grocery chains such as Aldi and Lidl are labeled as “limited assortment stores,” not supermarkets, because they don’t have everything one-stop shoppers are looking for, including delis, bakeries and pharmacies.

To draw more shoppers and diversify their businesses, supermarket operators like Kroger and Albertsons have looked beyond produce, cereal and canned goods. The two chains together operate around 4,000 pharmacies, in addition to health clinics and delivery services.

Meanwhile, big-box retailers such as Walmart and Target have broadened their supercenters’ food offerings over the years to include deli counters, bakeries and expanded produce sections.

“You can buy everything you buy in a grocery store and it’s probably cheaper,” said James McCann, the former chief executive of European-based grocery chains Ahold USA and Carrefour France.

In its lawsuit seeking to block the Kroger-Albertsons deal, the FTC defined the market as traditional supermarkets where consumers can buy everything they need for the week in one place. When antitrust enforcers sue to block a merger, they focus on a particular market where competition would be lost.

The FTC argues in its lawsuit that many grocery sellers used by consumers aren’t one-stop-shop supermarkets. The lawsuit doesn’t list Walmart as a direct competitor to a combined Kroger and Albertsons. The FTC also alleged that Whole Foods isn’t a true competitor, because of its higher prices and focus on brands that many supermarkets don’t carry.

Walmart’s absence from the lawsuit is hard to square with the retail giant’s footprint in the grocery market, said Stephen Calkins, an antitrust law professor at Wayne State University.

“I don’t think they will succeed in excluding Walmart, Aldi and Lidl,” Calkins said. “They will not be able to define the market as narrowly as they would like.”

Rather than argue that Walmart doesn’t compete against Kroger and Albertsons for grocery sales, the FTC said that in markets where there is a Walmart, more competition is still needed if the two supermarket companies combine.

A federal judge in Oregon will decide whether Kroger has solved the FTC’s competition concerns by agreeing to sell over 400 stores that Albertsons currently owns in states such as Washington and California. A hearing over the FTC’s claims is scheduled for Aug. 26.

The FTC said that even if it included other stores where people shop for groceries in its one-stop-shop category, the merger would still be illegal in most areas because Kroger’s and Albertsons’s combined market share would be too high.

McCann said discount stores, including Trader Joe’s and Aldi, sell mostly private-label products and are too limited in their product offerings to be considered real competitors to larger supermarkets. Whole Foods also doesn’t carry many national brands and can be more expensive than a traditional supermarket, he said.

“It’s not quite the same shopping trip,” McCann said.



By Patrick Thomas and Dave Michaels, link to story: