How a grocery store mega-merger could cost workers millions
In October 2022, Kroger, the nation's largest supermarket chain, reached an agreement to purchase Albertsons, the nation's second-largest supermarket chain, in a deal valued at $25 billion. Albertsons itself acquired another major competitor, Safeway, in 2015 for $9.2 billion. The deal, which is subject to review by the Federal Trade Commission (FTC), would create a grocery behemoth that would operate over 5,000 stores in 48 states. Kroger is seeking to close the transaction in 2024.
Thus far, most of the regulatory scrutiny has focused on the possibility that reduced competition would mean higher grocery prices for shoppers. But a report released this month by the Economic Policy Institute (EPI) reveals that the deal could have a major impact on the wages of grocery store workers. According to the EPI report, the proposed merger would "reduce the number of outside employment options available to workers, lowering grocery store workers’ annual wages by a total of $334 million." That works out to about $450 less annually per worker, which is a significant reduction for a workforce already hovering at or below the poverty line.
The EPI report is based on "a recent wave of economic research [that] has called attention to potential damages to workers’ bargaining power over wages stemming from concentration in labor markets." Fundamentally, "[w]orkers’ ability to negotiate better pay and working conditions rests on their capacity to switch jobs." When you reduce the number of employers offering similar jobs, "grocery store worker earnings will fall as a result." Collectively, Kroger and Albertsons employ one-quarter of all grocery workers nationwide. The EPI report looks specifically at the impact of this reduced bargaining power. Workers could also suffer from job cuts or store closures.
According to the report, the merger would "lower wages for 746,000 grocery store workers." This impact would be felt in 55 metropolitan areas where both Kroger and Albertsons currently operate stores. Notably, it would not just be Kroger workers that are impacted. Since the merger reduces competition across the industry, it would lower wages for all grocery workers in affected areas.
EPI's analysis finds that if the merger is approved, workers from coast-to-coast will lose millions in annual earnings.
Kroger and Albertsons, facing increasing concerns about reduced wages and other concerns, have launched a campaign to highlight the benefits of the merger to the public. If the FTC moves to block the merger, Kroger and Albertsons have pledged to fight for the merger in court.
Union opposition
Earlier this month, the biggest union of grocery store workers announced its opposition to the Kroger and Albertsons merger. Delegates representing the United Food and Commercial Workers International Union (UFCW) unanimously voted to oppose the merger and other mergers that pose a “threat to essential workers, their families, and the communities they serve.” UFCW International, which represents 1.3 million members overall, represents around 350,000 Kroger and Albertsons employees, nearly half the workers that would be employed under the merger.
In a statement, UFCW President Marc Perrone said, “For months, the UFCW has called for transparency, engaged independent experts, and assessed the publicly available information on this proposed merger to determine the widespread impact it will have on our members and the communities they serve.”
“Given the lack of transparency, and the impact a merger between two of the largest supermarket companies could have on essential workers - and the communities and customers they serve - the UFCW stands united in its opposition to the proposed Kroger and Albertsons merger,” Perrone said, stating that “mergers pose a serious threat to the livelihoods of our members and we must act to confront them.”
According to the Wall Street Journal, Kroger said it would continue discussions with the UFCW about “the merger’s benefits and the divestiture plan.” Meanwhile, the UFCW “plans to discuss its concerns with legislators and the Federal Trade Commission.”
Promises, promises
About two weeks ago, Kroger CEO Rodney McMullen and Albertsons CEO Vivek Sankaran penned a joint op-ed in the Cincinnati Inquirer that purported to dispel several "myths" about the merger.
First, the CEOs claim that "Kroger committed to zero store closures as a result of the merger, and the company will invest in stores post-merger." This is a promise made in an op-ed and is not legally binding. The statement allows Kroger to complete the merger, wait a few weeks or months, and then close any number of stores, for any reason.
The CEOs note that "we anticipate divesting − or selling − some stores" to satisfy regulatory concerns about competition. Section 7 of the Clayton Antitrust Act, enforced by the FTC, prohibits acquisitions that substantially "lessen competition" in "any line of commerce."
This approach has backfired on in the past. To secure approval of its acquisition of Safeway, Albertsons agreed to divest 168 stores. Those stores were purchased by Haggen, a much smaller competitor, for $1.4 billion. But the stores that are divested are seldom top performers. Haggen was unable to successfully operate the locations and, a few months after acquiring the stores, declared bankruptcy. Ultimately, it sold 29 of the stores back to Albertsons. Others were closed entirely.
Second, the CEOs claim that "[n]o frontline workers will be laid off as a result of the merger." Again, nothing about this pledge is enforceable. It notably allows for layoffs of workers that are not considered "frontline" — a term that is undefined. The CEOs also say they are "committed to protecting and expanding opportunities for union jobs." But there is no guarantee that it will not sell unionized stores to anti-union companies as part of the planned divestment. Amazon, one of the few companies in the industries with the resources to buy hundreds of large grocery stores, is notoriously hostile to unions.
Finally, the CEOs say the merger will result in "lower prices" because lowering prices is part of Kroger's "business strategy." But there is no real explanation for why Kroger would lower prices in a less competitive environment. In June 2021, McMullen talked about his plan to exploit inflation to raise prices and increase profits. "A little bit of inflation is always good in our business," McMullen said.
Historically, grocery store mergers have resulted in higher prices. An influential 2008 study "found that in four of the five mergers they evaluated, [grocery] prices appeared to have increased between 3 and 7 percent."
The FTC just moved to block the Amgen-Horizon merger, which is the first sign of life at the agency in a while. If they're serious about preserving competition and protecting employees and consumers they'll block this one too. Fingers crossed.
This is the power of monopoly. Company X will come to town to great fanfare, take over, drive out competition, then leave wiith all the money and the people will be left holding the bag of wasted tax concessions, pretty words, broken promises and fewer options than before.