When grocery giants Kroger and Albertsons announced their blockbuster $24.6 billion merger proposal last year, the companies listed about a dozen potential benefits for customers, workers, shareholders and others.
But most of these possibly positive elements have been lost in the debate as critics focus instead on what they think could go wrong − including store closures, job losses and rising food prices.
For most people, supermarkets and groceries hit close to home, so it's no surprise that anxiety and worry have dominated the discussion.
Many of the roughly 60 people attending a recent "listening session" merger forum hosted by Arizona Attorney General Kris Mayes at a church east of downtown Phoenix said they’re concerned about prices, food availability and jobs, along with other issues such as neighborhood blight and food deserts worsening.
Tom McCoid worries that his Safeway in north-central Phoenix will close and that prices at other markets in the area will rise if competition is reduced.
Safeway locations are owned by Albertsons, while Kroger's main business in Arizona is Fry's Food Stores.
Abril Gallardo said she’s concerned that any store closures in her Glendale neighborhood could create a food desert and make it harder for residents, especially seniors, to visit stores.
Jorge Picos, who owns a taco food-truck business and shops at another Safeway, echoed those concerns.
“If they start closing stores, what impact will that have on our community?” he asked, drawing parallels to blight in places like south-central Los Angeles.
Joe Fonseca, who works at a Safeway store in Scottsdale, said he worries about potential job losses and food prices rising after the merger, assuming it goes through. “The companies aren’t as concerned about consumers as they say,” he said.
Those are valid concerns, but a merger could bring potential benefits and perhaps even competitive necessities. The two traditional supermarkets are battling it out with many rivals on a wide-open retail playing field.
Counterbalancing arguments were mostly absent during the Aug. 1 central Phoenix listening session and some others held recently around the state.
"Nobody has spoken out in favor of this merger," Mayes said, referring to the half-dozen or so prior public forums that her office hosted. “Arizonans have spoken pretty loudly about this merger."
But most of the gatherings so far have involved only a few dozen or fewer participants including, in some cases, union members or others with special interests, as well as current or former elected officials and members of the media covering the discussions.
Much still isn't known about how the merger might play out, but here's a look at some of the key questions surrounding it.
In Prescott:Grocery merger could devastate rural communities, residents warn AG Kris Mayes
Which stores — and how many — might close?
Those details aren’t yet known, as the merger remains under review by the Federal Trade Commission and the U.S. Department of Justice. The companies say their proposal remains on track for the deal to be completed sometime in early 2024.
No stores have been targeted publicly. In fact, Kroger and Albertsons executives have said no supermarkets would be closed. However, at least a couple hundred might be sold to a separate corporation or possibly to a new spin-off company, if divestiture is needed to allay anticompetitive concerns, which seems likely.
In their initial announcement in October, the companies estimated 100 to 375 stores would be sold or divested nationally. Reuters reported earlier this year that the number could be closer to 250 to 300. Either way, those estimates are a small slice of the nearly 5,000 combined outlets for Kroger and Albertsons, which implies the post-merger entity would retain at least 90% of the existing locations.
But certain areas of the country have more overlap, and metro Phoenix is one of them, with both Kroger and Albertsons/Safeway each operating about 130 stores here. On the other hand, Arizona also is gaining population faster than most other states, creating the need for more outlets here.
The issue of divesting stores could emerge as a key negotiation point in any legal settlement or agreement with regulators, and this could be a relatively easy issue to resolve, according to a recent analysis of the merger by the nonpartisan International Center for Law & Economics.
Would a Kroger-Albertsons combination create a monopoly?
It’s easy to imagine that happening in areas like metro Phoenix, where both companies have a big presence. But that ignores the new reality in the grocery business: Nontraditional rivals have been gaining the upper hand.
In 2012, Kroger and Albertsons held a combined 40% share of the Arizona market, but that had shrunk to 31% by 2022, according to an estimate by researcher Chain Store Guide, which pegged Walmart as the grocery leader in Arizona with 32% of the market.
Nationally, Walmart’s dominance in groceries is even greater. In a new report, trade journal Progressive Grocer listed Walmart as the nation’s top seller of groceries with a 16.9% market share, followed by Amazon (which owns Whole Foods) and Costco. Kroger placed fourth at 6% and Albertsons ninth at 3.1%, behind Target, Sam’s Club (listed separately from Walmart) and others.
A merged Kroger-Albertson entity still would be smaller than either Walmart or Amazon, according to Progressive Grocer's estimate of grocery sales.
Still, critics often use the word "monopoly" to describe the pending merger.
Mayes, who formerly regulated the state’s power utilities as a member of the Arizona Corporation Commission, drew a connection during the central Phoenix forum. “There’s no regulator of grocery stores,” she said. “If a grocery store becomes essentially a monopoly, there’s no Arizona Corporation Commission to regulate it" in terms of prices, service and other operations, she said.
Critics of the merger also tend to overlook Target’s formidable grocery business (No. 6 on the Progressive Grocer list) and that of myriad smaller chains such as Bashas’, Sprouts and Trader Joe’s, not to mention the hundreds of dollar stores, convenience stores like Circle K and even pharmacy-oriented businesses such as CVS and Walgreens — both of which outrank Albertsons in national grocery sales, according to Progressive Grocer.
“The upshot is the food and grocery industry is arguably as competitive as it has ever been,” said the report on the merger, written by Brian Albrecht and three other analysts at the International Center for Law and Economics.
Rodney McMullen, Kroger’s chairman and CEO, also downplayed concerns over local monopolies, telling the Denver Post in a late July interview that he thinks people view the overlap of Kroger and Albertsons/Safeway locations as greater than it actually is.
Would employees be hurt by a merger?
That’s an important question, especially in Arizona, where Kroger employs about 20,200 people while Albertsons, including Safeway, has about 14,500. Some of the people attending the central-Phoenix merger forum identified themselves as employees of Kroger or Albertsons/Safeway, and several criticized the proposed combination.
Delegates of the United Food and Commercial Workers International Union, which represents most Kroger and Albertsons employees, voted against the merger, though a union statement at the time mostly complained about a "lack of transparency."
Concerns about layoffs, pay cuts or benefit reductions are conjecture at this point. The companies have said they expect to invest $1 billion in wages and benefits once the merger closes, assuming it does. In the Denver Post interview, which also included Albertsons CEO Vivek Sankaran, the two executives pledged not to lay off any “front line” workers and to respect union contracts if the deal goes through.
Another angle to consider is job growth and career-expansion possibilities. Kroger and Albertson do rank among Arizona’s largest nongovernment employers, but they have been eclipsed by Walmart and Amazon. In the original merger announcement, Kroger and Albertson described their potential combination as a “more compelling alternative to larger and non-union competitors.”
The combined Arizona employee count for Walmart and Amazon is now double that of Kroger and Albertsons, including Safeway, even though the traditional grocers generally have longer and deeper historic roots in Arizona.
Some commentators at the central Phoenix merger meeting cited problems with Albertsons’ purchase of Safeway stores in 2008 — a transaction that, among other problems, resulted in the closing of some divested stores when their third-party acquirer, Haggen, faced troubles operating them.
If the merger is given the green light and some stores need to be spun off, regulators likely first will examine the divestiture part of the transaction.
In southern Arizona:Residents tell attorney general that grocery merger could increase food deserts, prices, job loss
Will food prices rise because of the merger?
This is another widespread concern, especially for those who fear their local stores might shut down or be spun off to another company. Kroger and Albertsons have countered that they expect to cut prices and that “synergies” resulting from the merger will help make that happen. Those synergies, they say, would result from more efficient, lower-cost processing and distribution of food, better supply-chain channels and increased use of technology
Kroger and Albertsons also said they will be able to drive down prices by expanding their lineup of lower-cost, private label brands, and they have vowed to expand pharmacy services.
If anything, raising prices would make Kroger and Albertsons stores less appealing against low-cost rivals. The proliferation of wholesale clubs, e-commerce options and other competition "significantly constrains" the supermarkets' ability to raise prices, argued the report from the International Center for Law & Economics.
Many consumers are highly sensitive to grocery prices, especially after the lofty inflation period of the past couple of years. Though inflation pressures appear to be easing, prices for food consumed at home were up 4.7% nationally over the past 12 months through June and slightly higher, 4.9%, in metro Phoenix.
Connected to the issue of rising grocery prices is the potential for more food deserts to emerge. These are places with few if any sizable stores, where residents must drive many miles to buy groceries, often at high prices.
This already is an issue in many parts of Arizona, especially rural locations, and it helps to explain the rise of so many dollar stores. The transportation and access concerns expressed by Glendale resident Gallardo and others are valid.
One partial solution is grocery deliveries by truck or courier, through Amazon.com, Instacart and other online-shopping services. This trend already is in full swing and underscores the reality, established by many studies, that most consumers shop not just at one store but use various options.
The managements of Kroger and Albertsons have cited their own plans to enhance pickup and delivery services as another possible benefit of the merger. Kroger also has pledged $1.3 billion in upgrades at Albertsons and Safeway locations to "enhance the customer experience" there.
Will the merger ultimately go through?
Kroger and Albertsons executives remain upbeat and say the planned closing for early 2024 is still on schedule, though a likely showdown is looming with regulators.
The ball here is in the court of the Federal Trade Commission and the Department of Justice, which are expected to take a hard stance on the merger and adopt tougher, merger-enforcement guidelines.
Some attorney generals like Mayes in Arizona and Colorado's Philip Weiser, another Democrat, have been getting involved, primarily through public forums or “listening sessions.” At one point at the central Phoenix meeting, Mayes declared that the merger was bad for consumers and needed to be stopped.
State attorneys general can enforce many federal antitrust laws, and they often sign onto federal lawsuits filed by the the FTC or Justice Department, said Brian Albrecht, one of the authors of the International Center for Law & Economics report.
He predicts the FTC will bring a case and some state AGs will get behind it.
“The FTC will do the heavy lifting on everything, but the AGs can go back to their voters and say they are doing something,” Albrecht said in an email to the Arizona Republic.
Historically, though, the FTC has allowed most grocery-chain mergers to proceed (with some stores needing to be divested), according to the center's report. Merger case law hasn't changed much in recent years, the group added.
Authors of the report view a protracted legal battle as a strong possibility. However, they predict success for Kroger and Albertsons, largely because of the new retail landscape and the likelihood that the companies will be able to allay anticompetitive concerns by divesting stores in various areas.
“The market overlaps between the merging parties are few and can be resolved by relatively straightforward divestiture remedies — which, even if disfavored by the (FTC), are routinely accepted by courts,” the authors said.
Reach the reporter at russ.wiles@arizonarepublic.com.
