Nearly two years ago, Kroger and Albertsons, America’s two largest traditional brick and mortar supermarket companies, agreed to a $24.6 billion merger. Ever since, the Federal Trade Commission has argued against allowing the merger, claiming that it would “lead to higher prices for groceries and other essential items” and “lead to lower quality products and services.” 

That led to a just-completed hearing (whose results have not yet been announced) about whether to grant an injunction against the merger, until the FTC takes its case before one of its administrative law judges. There are also state level challenges. On the other hand, Kroger has sued to challenge the constitutionality of the FTC trying their case before a “home team” ALJ rather than an actual trial in federal court.

However, the picture the FTC is painting of the “biggest getting bigger,” leading to consumer harm, is so muddled it cannot support their argument.

To begin with, simply looking at the increased number of stores in a merged K-A chain–to over 5,000–is far less indicative of any increased market power than it is being presented as. The reason, seldom even mentioned, is that “the vast majority of Kroger and Albertsons stores are in markets where the other is not located.” That means that in the vast majority of areas, where their footprints do not significantly overlap, merging the chains will create no increased market power to harm consumers. In all those places, the FTC case that merger will cause consumer harm collapses. In contrast, the claims in support of the merger, that it will allow merged operations to lower costs and make them more effective competitors for shoppers’ patronage at all their stores, still makes sense. 

The magnitudes involved are instructive. Most measures put the number of overlapping stores at about 1,400 (roughly 28 percent). How believable is it that K-A would go to the great expense of integrating all their operations just to be able to raise prices in no more than 28 percent of their stores? Not very.

In addition, not every case where the chains’ stores are in proximity would cause competitive concerns. I live in one such area. My wife and I live roughly a mile from a Ralphs (Kroger) and a mile in the other direction from a Vons (Albertsons), and between us, we shop at both of them multiple times in most months. But if they merged, it would not be a competitive disaster that puts us at risk. We are even closer to a Trader Joes and a Sprouts (in what was previously an Albertsons store) which we also shop at. We are two miles from a Walmart neighborhood market and a Target with a sizeable supermarket section. We are within 5 miles of Costco (and another one is being planned even closer to us), Sam’s Club, a Walmart Super Center and an Aldi. We also use Amazon and Instacart to get groceries. There is intense competition, whether or not Vons and Ralphs merge. But if that merger made them a stronger, lower-cost competitor, we would gain as consumers. And our case is not so unusual. Supermarket News has reported that “the average family today shops at five different grocers on a regular basis.”

Even if we ignore the fact that proximity does not equate to monopoly power to abuse consumers, it would only require roughly 700 divestitures (half of the number of overlapping stores, or 14 percent percent of the over 5,000 combined stores)–to address all such market power concerns. And Kroger has from the beginning offered to make divestitures to ameliorate the FTC’s competitive concerns (which have long been satisfactorily utilized for that purpose in grocery mergers), making it all but impossible to believe that such a Kroger-Albertsons merger would harm consumers. Interestingly, the FTC argued that the company who would manage the divestitures (C&S Wholesale Grocers) might not operate as efficiently as Albertsons, which would undermine competition. But since Albertson’s costs are reportedly higher than Kroger’s, the FTC is essentially admitting the case for the K-A merger increasing their efficiency. 

We must also understand that in antitrust, the higher the market share forecast to result from a merger, the greater the presumption of greater monopoly power and harm to consumers, and the more likely the FTC could prevail in litigation (despite a recent series of court losses due to its over-reaching). That provides a FTC determined to win with a massive incentive to manipulate market definitions to make monopoly power appear even where it doesn’t exist. For instance, say you had a small store on a street corner which sold salt, among other things. If it was the only store on that corner selling salt, defining the relevant market as sellers of salt on that street corner would make you a monopolist, even though you had no market power in fact. 

That explains why the FTC has in this case reached back into their long-rejected 1960s bag of anti-consumer tricks to get their desired result, aiming to uphold Justice Potter Stewart’s famous dissent that “The sole consistency I can find is that, in [merger] litigation under Section 7 [Of the Clayton Antitrust Act] ‘the Government always wins’.” Or as I put it elsewhere, “The government’s desire to demonstrate monopoly power to justify the rejection of a merger led to a cottage industry of sorts, finding ways to distort measures…to find monopoly power where there was no power to hurt consumers.”

In recent years, the FTC has defined the relevant market for such mergers as including “traditional” brick-and-mortar supermarkets (of which Kroger and Albertsons are the largest) and food and grocery sales at hypermarkets (Walmart supercenters). Further, they have viewed the relevant market as only including stores where a consumer could purchase all or nearly all of their household’s weekly food and grocery needs at a single stop at a single retailer, within a range of between two and 10 miles (depending on circumstances).

That definition is nowhere near reasonable today, unless that the goal is to maximize the apparent monopoly power a K-A merger would create, in spite of the current grocery market being perhaps the most competitive one in history. 

Walmart stores that are not supercenters are excluded. But Walmart and Sam’s Club have more than 5,300 stores, and its grocery revenue is more than twice that of Kroger and Albertsons combined. And when it comes to local competition, it is worth noting that 90 percent of the US population lives within 10 miles of a Walmart store.

Wholesale club stores, like Costco (and Sam’s Club and BJ’s Wholesale Club) are omitted from that definition of the market, which is particularly problematic because they also have a larger catchment area than supermarkets. Further, it is hard to see how they are not part of the relevant market when roughly 40 percent of Americans are Costco members, an average Costco (the world’s second largest grocer) store sells five times the groceries of the average US supermarket, and Costco does half again as much business as Albertsons.

Online sellers like Amazon/Whole Foods are also excluded, even though it is the worlds’ fifth largest grocer, and closing in on Albertsons. Aldi (also owner of Trader Joe’s) is excluded (as a “hard discounter” or “limited assortment” store), even though a quarter of Americans now shop there. Instacart sales are excluded, as are natural and organic markets and ethnic and specialty stores.

Looking at the broader grocery market also undermines the FTC claims. Kroger might be the biggest traditional grocery retailer, but they sell fewer total groceries in the US than Walmart, Amazon, or Costco. Even after the proposed Kroger-Albertsons merger, it would only represent 9 percent of those grocery sales. And while a Kroger-Albertsons merger would appear to threaten competition based on their share of the FTC’s market definition, traditional supermarkets have been losing a great deal of market share to those excluded from that definition, showing just how effective they are as competitors. Since 1998, warehouse clubs and supercenters have seen their share of retail grocery sales double, while supermarkets’ share dropped by more than a quarter. In 2020, 98 percent of people who regularly bought “center aisle” products like paper towels, cleaning supplies and canned goods bought them at a grocery store, but by 2023, 37 percent said they bought none of those goods in a grocery store, largely shifting to online purchases. And now about one out of eight consumers buy their groceries “mostly” or “exclusively” online.

These results are summarized by the National Academies of Sciences description of the retail grocery sector as “highly competitive,” largely due to the growth of warehouse clubs, superstores and online retailers, which are overlooked by the FTC’s market definition, not threatened with monopolization by the prospect of a Kroger-Albertsons merger. And no amount of repetition of claims that consumers are being protected by the FTC’s actions makes it true.