Yves here. This post describes a development that does not seem to have gotten the attention it warrants, that of how the planned merger of Kroger and Albertsons will increase grocery store consolidation in the US to 22%. If anything, the impact would be worse because the grocery business, at least in the US, is more regional than national. Witness the success of Hannaford in the Northeast and Publix in the South. And while Hannaford does face Albertsons as a competitor, via Shaws, which it acquired in 2013, I don’t recall seeing any Kroger or Albertsons stores in Birmingham, Alabama, which suggests their representation in the South is not so hot. That in turn would imply that their market share would be higher than 22% in quite a few parts of the US.
A wee bit of good news is the FTC is opposing this merger.
In Australia, admittedly a much smaller country where 85% of the population lives in urban areas, two grocery chains, Coles and Woolworth (called “Wollies” by locals) control over 80% of the market. Does the Australian government take any steps to prevent abuse of pricing power?
By Bill Haskell. Originally published at Angry Bear
It is getting serious now. Kroger is willing to sell off more stores in order to consolidate with Albertsons. The one thing we keep on seeing is the manipulation of supply chain due to circumstance to achieve manufacturing shortfall, and influence, to maximize profits. Much of what we have and are experiencing was avoidable. The tools exist to give better perspectives of what is going on from start to finish of product. As you read through my telling of what I see, you will get near the end and run into a link to a Vox article. It supports what I am saying and have seen over the decades.
A quarter of a century ago, Eric Schlosser’s book Fast Food Nation called attention to the acceleration of corporate, quasi-monopolistic control of America’s food system. The fallout of which has led to harmful consequences for workers, consumers, livestock, and the land. Those forces identified then are even more powerful today.
AB: Truth be and a disclosure, I have not read the book. However, it is called out in Eric’s Schlosser’s (author) article in the April 9th “The Atlantic.” This I do read and it travels with me on long plane trips as no reading material exists in the seat pouches anymore. And they no longer pass out newspapers.
Fast Food Nation takes on fast food and the evils of it. Nutritional value is certainly missing, And then there is the salt content and fat issues to be dealt with. But, fast-fooding-it can satisfy the taste buds while destroying the body. Beats Soylent Green.
A quarter of a century ago is not 2008. During the almost economic collapse of the nation, we did experience similar and not so catastrophic shortages. If you do not recall what they were or were too young to know of it, semiconductors were in demand then. While many of these were sourced in the US, we were still pulling them from other places such as Malaysia and some were being packaged closer to US shores. Onsemi was stilling growing wafers in the US.
During that brief period, the companies shut down because automotive did not maintain their orders. With no OEM orders, we could would not order from the semiconductor companies. Automotive OEMs had a reputation of stiffing their supply base. No smaller company would take on the risk of being stuck with an OEM’s designated supplier order. When the OEMs came back to life again, it was not a gradual turn on. It was an all-out demand turn-on. The middleman got stuck with the issues and also could not reject the price increases which came as take it or leave it and find another supplier. Qualification requirements would have killed the supply base (us).
Major suppliers learned from this event. Come the next time in 2020, they applied the same methodology used in 2008. Greater globalization of the US supply base added to the issues we were experiencing during 2020-2022. Components come by containers which are three weeks on the ocean (alone) when no conflicts exist. Air freight is far more expensive. And the OEM part supplier to the middleman just pass the costs along. Ford and GM typically will push back on pricing increases. Marquardt told Chrysler one time to pay them otherwise it will shut down the US plant and go back to Germany. Chrysler paid.
Except with food we are seeing a consolidation of the grocery suppliers in the US. Kroger and Albertsons announced a planned merger that would create a single entity that could control 22 percent of the US grocery market. In size this is second only to Walmart’s 25 percent share of US grocery purchases. Two giants controlling almost 50% of the groceries in the US.
The consolidation of the two giants includes Krogers’ Ralphs, Dillons, Smith’s, King Soopers, Fry’s, QFC, City Market, Owen’s, Jay C, Pay Less, Baker’s, Gerbes, Harris Teeter, Pick N’ Save, Metro Market, Mariano’s, Fred Meyer, Food 4 Less and Foods Co. Albertson’s would bring with it Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci’s Food Lovers Market. Kroger expected revenue in 2023 $150.03 billion. Alberson in 2023 was $79.163 billion.
To make the consolidation palatable, both corporations are selling off companies within their portfolios. Their intent is to show there will be greater competition in the end and they are less of a threat. The FTC is not buying it and has filed suit to stop the consolidation.
Krogers will off of the Albertson’s in Arizona. It would not do it unless it would make it up in other gains. If the consolidation is that good, FTC should hold out of more or just say no to the consolidation.
The likelihood of the consolidation of Krogers and Albertsons being less of an economic threat by selling off a few hundred stores will not result in control of the grocery economic supply chain. Similar to what was experienced in 2008 with companies making pricing decisions based upon supply chain control of manufacturing and inventory, we have experienced similar in 2020-2022. Indeed, in 2023, Vox reported on how effective the excuse of a pandemic worked in justifying price increases.
Chris Becker, senior economist at the Groundwork Collaborative, a progressive economic advocacy organization. “Corporate profits have hit their highest level ever, and corporate profit margins — how much they’re making on each unit that they’re selling — have hit the highest level in 70 years.”
As Vox points out, the narrative is: “The typical explanation of Covid-19-related inflation goes like this:
The pandemic disrupted the flow of the global supply chain. How much it costs companies to make a good or provide a service went up. Other crises piled on; the Russia-Ukraine war, for example, drove up the price of key commodities like oil and wheat. In response to all of this, companies raised prices to offset their higher costs.”
Sound familiar? Costs of semiconductors went up under similar situations other than stopping mfg. altogether. Neither had to be. Circumstance opened a door for companies to manipulate the market, control manufacturing output, and raise pricing.
What Biden and the administration has done is pushback of corporate economic influence with such things as challenging the merger between Albertson and Kroger. Biden pushing Long Beach and Los Angeles longshore workers to go to overtime to clear the docks of containers sould not have been needed. Corporations could have pushed for this.
This is one part of the story. I spent a lifetime in manufacturing and supply chain. I know what I would have done when I had control.
Thanks for this. Anyone who does their own shopping for groceries has seen the effects. Because I lived most of my life in Chicago, I saw how the merger of local favorite Dominick’s destroyed it. Safeway took over Dominick’s, and suddenly, many of the local favorite foods and brands disappeared, to be replaced by Safeway’s in-house brand. Chicagoans being a peculiar bunch when it comes to food and ingredients, this management screwup led to failure.
Kroger is the master of crapification. When I was a kid in Chicago, there were Kroger’s stores. And I believe that they even used to give out S&H Green Stamps, which my mother dutifully glued into the booklets. But Kroger, too, was run out of Chicago for some time because of pricing and quality issues.
Kroger bought the moderate/high-end Mariano’s chain a few years back. I shopped at Mariano’s on Ravenswood and Lawrence now and again. (I mainly shopped at an independent, Edgewater Produce and its flagship store, the cult favorite HarvesTime.)
Mariano’s was noticeably ruined by Kroger in a matter of a year or so.
Here in the Chocolate City, in the Undisclosed Region, where food distribution is the way of life (a major difference from the U S of A, where food is considered inconvenient freight), I live within walking distance of two major outdoor markets, including the largest outdoor market in Europe. I have a choice, within five / ten minutes, of four large grocery stories. That doesn’t count the little independents and speciality food shops.
The U. S. of A. has food “deserts” because of economic inequality, which is as political issue. It has food “deserts” because growing and distributing food have not produced a “food culture” (okay, the obsession among Italians).
And just as there is war profiteering, detailed in so many posts here at Naked Capitalism, we read in this article about food profiteering.
Chicago’s and NYC’s independent grocers exist because both cities retain (from >100 years ago) a solid base of produce and meat wholesalers who help distribute the costs/risks of produce-meat-packaged grocery distribution.
https://www.producebusiness.com/americas-produce-market-hub/
https://www.youtube.com/watch?v=7fERrpT_P24&
Kroger-Albertsons want to merge to be able to cut their distribution costs and have more negotiating power with everyone from Kellogg’s to the kiwi importers. (big box grocers are essentially retailer and wholesaler in one).
If you want your local metro area to have more independent grocers, your region needs a wholesale market for farmers and buyers. In the old days, every decent-sized US city had one.
Wholesale distribution is where the rubber meets the road. My family was in the wholesale grocery business in the East Bay (NorCal) from 1946 to 1989. I was able to watch the consolidation and squeezing of supply chains from a front-row seat. When the time came for me to take over the business, the family decided to wind it down rather than try to compete with Costco and the Waltons. I became a civil servant.
I’ve now retired in a rural community that has banned outside chains. However, our tiny local markets still depend on wholesale grocery distribution controlled by Albertsons/Safeway. We’re stuck with the same limited and crappified choices that they give their retail customers.
I’d like to see stats on the wholesale market share that this proposed merger will tie-up. I’ll bet it goes beyond the 22-percent of retail being touted here.
And to throw in re. the wholesale business….”in the good ol’ days,” restaurants and independent grocers used to share the same wholesale network.
But w/the rise of mega-distributors like Sysco and chain restaurants, local restaurants have abandoned the local wholesale markets.
If you eat at a restaurant, overwhelming odds that your food was handled by Sysco or its smaller competitor, US Foods
So you have this weird hidden market where companies like Sysco or Walmart are both monopsies* (duo-opsy, tri-opsy, quad-opsy) and duopolies-triopolies-quadopolies.
* https://en.wikipedia.org/wiki/Monopsony a monopsony is a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers.
I hope these operators never wrap their claws around Wegmans Food Markets. It would be catastrophic for our area.
Identifying anti-competitive acts in the food industry is notoriously difficult, because you really have to look at the fine grain of every local market to see if consumers really have a choice, and whether the biggest local retailer is abusing this situation. They keep a close eye on each other – as a student in the 1980’s my favourite summer job was for a retail consultancy who paid me to cycle around north London, taking photos of queue lengths in their competitors shops. Ironically, the only shop that threw me out was the company I was working for.
Just as one anecdotal example, I lived in an inner suburb in a major city in the English midlands in the 1990’s, as a time when the ‘big 4’ retailers had most of the market tied up. Two retailers – Tesco and Sainsburys, had close to 50%. My local shop was a Sainsburys. In the small High Street a now defunct discount foodstore opened (I can’t recall the name, but it was fast growing at the time). Immediately, Sainsburys started selling their ‘basic’ food line at ridiculously low prices. Nice for locals at the time, but the result was inevitable – the discount store shut after around 6 months and the chain went bust around 2000.
In Ireland, at the time, a much smaller (but interestingly, more diverse market for various historical reasons), they attempted to stop this through price orders – essentially, government orders restricting below cost selling of basic items. Needless to say, the media was full of interviews with academic economist arguing that this was contrary to free market principles and hurt poor people only by making bread and potatoes and beans more expensive. It was so touching to hear all about their concerns for the poor. The government backed down partially, but fortunately maintained other measures to restrict the range of goods that could be sold (one major tactic of retailers was to provide cheap non-food items in order to undermine local shopping streets), resulting in a relatively healthy retail environment. EU competition rules undoubtedly helped in opening up the fairly staid local market to a wider range of operators. Notably, the smaller local Irish companies have been very successful at using their local knowledge to keep Tesco and the German retailers from dominating (you can see how this works by observing how local Irish chains are very good at altering their product mix to the specific locality, while foreign chains are till very much identikit designs and models). Its interesting that for all their market research, the UK/German chains still haven’t worked out that Irish customers (especially older women) love to chat to staff, and will happily pay a premium for this.
In the UK, the intervention of German food discounters, Aldi and Lidl had a significant impact – to some extent it broke the monopoly of the ‘Big 4’. But the building of oversized foodstores still created numerous local monopolies, with high prices guaranteed.
To a large extent, in both Ireland and the UK policies to prevent monopolies have flowed down from company regulators to local land use regulations – the focus being on trying to restrict the size of shops, their range of products, and carparking (which creates larger catchments and undermines traditional shopping areas). These are often applied somewhat haphazardly, with very mixed results.
Across Europe, there are very different policies – France has suffered from its fairly laissez-faire approach to big box retailing, and has learned belatedly that these are not the consumers friend. Huge Carrefour and LeClercs dominate outside many small and mid-sized towns, devastating local markets – although the strong cultural attachment of the French to local food still remains, albeit needing a lot of support from local governments (i.e. taxpayers). Germany has generally benefited from stronger rules on the size of local shops, plus the notoriously penny pinching hausfrau who keep the supermarkets on their toes.
If there is a lesson, you need to look far beyond competition law – retailers just don’t like competition and will do everything they can to create local monopolies. To keep retailers on their toes you need a full cascade of regulation on ownership, retail location (stopping the monopolisation of key local road junctions), scale, range of goods (preventing big boxes from systematically destroying Main Street shops), and price controls on basic goods. In particular, restrictions on carparking are vital to keep catchments smaller and more diverse.
Very interesting, thank you.
Hannaford is an example of another merger that shouldn’t have gone through. It was owned by Delhaize, which about 10 years ago wanted to merged with Ahold, owners of Stop & Shop, the largest chain in New England. The merger went through with only a few minor divestitures, and one of the divested stores was forced to close within a few years when the landlord wouldn’t renew the lease. The result is the largest supermarket in New England.
Canada is an oligopolists paradise, and big grocery is no exception. There are 3 major Canadian chains (Loblaws, Metro and Empire) with a couple of American entrants bringing up the rear in Walmart and Costco. Among the ongoing scandals was a notorious bread price-fixing incident which went on for years.
Can confirm that locally Kroger already dominates the market. In my town 5 out of 9 grocery stores are Kroger and Harris Teether. Then there is Wallmart, Costco and Target, and that’s it.
But it gets even worse when you look at the supply chain. These companies charge “slotting fees”, so a company selling their products pays Kroger for shelf space and location. The better the location and more space, higher the fee. So this allows large companies to squeeze out new entrants by buying up the shelf real estate and promotes consolidation of the supply chain as well.
aside from the 3 walmarts(all around 40 miles away from our one actual town)…we have 3 regional grocers. HEB(40 and 60 miles), an IGA store(40) and our one local “Lowes”…used to be Super S.(and 2 dollar stores, but the only produce is milk)
none of them are all that conducive to local agriculture….because of reasons,lol.
HEB is the best in this regard…but one still needs an expensive vendor ID and millions of dollars in liability insurance(pretty cheap, last time i did it, 20+ years ago).
for a tiny operator like me, it just aint worth the hassle.
especially since i’m in a building back phase after 4 years of neglect due to wife’s cancer adveture.
so i’ll be doing it old school…got my signs made to hang on the truck…and i’ll set up just north of town where the roadside park used to be.
if theres no value added, i dont need a tax number or anything…and if i’m outside city limits, i need not ask their permission(theyre very protective of the one grocer).
Eldest recommends that i set up a facebook page for this endeavor…and if the cops or whatever run me off the side of the road, that might be an option…
black/gray market farming.
eventually, i intend to have a market day out here on the farm…but i gotta finish the infrastructure(getting there).
then i can sell meat and eggs legally…as well as have the various dutch oven things i make.
‘Does the Australian government take any steps to prevent abuse of pricing power?’
There was a Senate inquiry last year about how Coles and Woolies abuse their power but I do not know if they have finished or not. Both chains abuse their power as do smaller local chains too so it is a matter of shopper beware!
https://www.theguardian.com/commentisfree/2024/apr/15/without-competition-coles-and-woolworths-misuse-their-market-power-and-the-australian-public-gets-screwed
https://theconversation.com/8-ways-woolworths-and-coles-squeeze-their-suppliers-and-their-customers-223857
I agree, this topic is not covered nearly enough, thank you for posting this. Friends from Holland visited recently and they were shocked at how high the food prices were. Food is not cheap in Nederland, but it has gone up even more here. This is counter-intuitive since most of the meat, eggs, milk, chicken, fruit, veg, nuts are all grown and produced locally in California.
I’m glad that the mega-merger of Kroger and Albertsons will likely not proceed. The biggest supermarket in the small town is Safeway (Von’s in So Cal) and that chain is owned by Albertsons. A competitor, Grocery Outlet has plans to build a store in town, but several (frivolous) lawsuits have been filed to block it. I would suspect that Safeway wants to maintain a quasi-monopoly as it is the largest grocery store, and there are no other large stores unless you want to drive for almost an hour east. Safeway has been sued for over-charging and has also been sued in years past. The penalties are not adequate to provide disincentives for further fraud, of course. Nod nod, wink wink.
https://www.sfchronicle.com/bayarea/article/grocery-stores-overcharging-18303789.php
Supply and demand? Free market? What a load of…
One of the nice things about St. Louis is it’s one of the few places I’ve lived where two (private) local grocers (Dierbergs and Schnucks) dominate the scene.
I believe Kroger tried, failed, and began exiting in the late 80s.
My wife is from Rochester, NY, and the Wegmans chain seems to have greatly expanded over the years. But their concept is more about prepared food for consumption on/off premises.
Here on Oahu we have 3 traditional chain grocers (down from 4 when two locals merged) but it was an earthquake when Costco came in. Due to significant military population DeCA (Defense Commissary Agency) is also a big player. The advantage DeCA has is that transportation costs are consolidated world-wide and applied across the whole system, so a savings outside of CONUS.
Spent a couple years in New Orleans and they have a local chain, Rouses, that seems to use a similar concept and also is doing well
This is not limited to US or “west” as a general category.
Some fifteen years ago I went to Croatia and Serbia and was amazed by the quality and taste and heart of local foods. I kept plotting how to get this precious stuff imported into UK which is where I live but of course life got in the way and scuppered my cunning plan.
Fast forward two years ago, Croatia, and locally produced food is nowhere to be seen. In smallest of the food shops, never mind big supermarkets in Split and around, all food on sale is the Y and Z quality offal schrapnel reject stuff that nobody in Germany or France (where the stuff comes from), would touch with a cattle prodding stick. One step away from being actively damaging for human consumption. The girls at the counter looked at me as if I swallowed a buffalo when I asked for some local traditional delicacies.
Haven’t had a chance to check the Serbs at the same time but I fear they are under the same management plan.
Joys of EU, eh?
Watch Gommorah people, it is an educational film. (Matteo Garonne version of course, not the sanitised versions that followed).
The ability to manipulate the supply chain and pricing has been refined with the use of new computing power…inspired data analytics …. inspired to bilk more and expand the predatory take. AI should further enhance the the take.
The 20 – 30 something wunderkinds in the Albertsons marketing department need to watch their Xer cashiers deal with boomer customers physically cutting out and presenting the weekly sale flier ‘coupons’ with scissors. “No, you have to ‘cut’ out the JUST FOR YOU coupons on your smart phone!”
Pan to customer walking out, leaving everything on the conveyor. on their way to Aldi or Strack, never to return.
Aldi doesn’t have coupons, so kudos to them. The queues go faster this way. I love Aldi btw.
This week’s coercive marketing at Kroger consisted of charging 9.99 for a twelve-pack of any flavor soda from all three major sources; or 4.99 with a ‘digital coupon’. In other words, olds, you will pay double because you will not let us track you on your cell phone just to do some simple shopping. Double?? As a tax for not being a gullible shopper or celphone junkie? Seriously?
Grabbed one pack of generic and headed for the exits, rather than buying the 5 packs I would have.
Bring in Asian-style public wet markets. OTR (long form food history video journalism) has a video on Bangkok’s Khlong Toei https://youtu.be/6yEwrUk_bCk?si=HPLrPj9VYpwoMJBH
My brother worked in A&P corporate. Remember them? They lost out to newer and bigger competition, especially Walmart. In their own backyard (NY/NJ), A&P was out competed. Some of the prominent competition are grocery co-operatives, with two of the better known ones Key Foods and Shop-Rite. The co-operatives are of the store owners (many own several stores) where they band together to bulk buy, share trucking fleets, IT services, marketing, etc.
In my local market, there are other supermarket chains expanding, like Wegman’s and H-Mart. Wegman’s will feature regional farms, when they’re in season.