Chris Sanders
WASHINGTON (Reuters) – Grocery chain Kroger’s (NYSE:) bid to buy close rival Albertsons (NYSE:) has raised alarm bells in the western U.S., where officials fear its potential dominance, controlling more than half the market in some states. – will cause harm to consumers.
The proposed deal would create a grocery empire with more than 4,000 stores across the U.S. and has drawn fierce criticism from lawmakers and consumer groups concerned about rising prices, job cuts and store closures.
But the biggest resistance comes from Western markets, which make up six of the eight states that joined the Federal Trade Commission’s lawsuit Monday to kill the deal. They cross ideological lines, from politically conservative Wyoming to more liberal states like California and Oregon.
While Kroger says it needs the deal to compete with big national rivals like Walmart (NYSE:) and Amazon.com (NASDAQ:), it will be by far the largest player in some Western states.
“One of the main reasons grocery prices are soaring is that too few chains dominate grocery retailing,” said Stacy Mitchell, co-executive director of the Institute for Local Self-Reliance. She added that the deal could lead to “supermarket prices being pushed even higher by eliminating competition.” in many local markets.”
Shoppers in California and Nevada already pay the highest weekly grocery bills in the United States, and officials in both states fear the merger could lead to even higher prices.
The new company would own more than 50% of grocery stores in Washington and account for just under half of grocery sales in Arizona, each state’s attorneys general warned separately.
“Arizona consumers will see higher prices in the long run because one company will control more than half of the supply,” said Hitendra Chaturvedi, who teaches supply chain management at Arizona State University.
“A limited number of companies results in fewer choices, higher prices and lower quality for customers in the long run.”
Kroger promised to lower prices for customers, that stores would not close and jobs would not be lost. They argue that only non-union retailers such as Walmart and Amazon would benefit if the merger is blocked.
In the Northwest, Kroger and Albertsons will account for about 57% of tracked grocery store visits and “look poised to lead” the grocery space in the five-state region consisting of Idaho, Montana and the United States, according to research firm Placer AI. Oregon, Washington and Wyoming.
In California, where nearly 900 stores will change hands, residents currently pay just under $300 a week for groceries, well above the national average of $270.21, according to a HelpAdvisor analysis of Bureau of Labor Statistics data.
The Food and Commercial Workers union noted that in Los Angeles and Orange counties, 115 of 159 Albertsons stores are located within two miles of Kroger, making them vulnerable to closure if Kroger doesn’t keep its promise to keep stores open.
Kroger is selling 413 stores in 17 states, including California, Washington and Arizona, to C&S Wholesale Grocers to ease antitrust concerns.
If both companies refuse the Federal Trade Commission’s proposal to stop the deal, about 70% of the nation’s retail grocery market will be controlled by Walmart, Kroger-Albertsons and Costco (NASDAQ:), according to antitrust expert Christina Bartholomew.
Kroger needs the deal to compete with larger rivals, says Kevin Boe of the University of Washington’s Foster School of Business. “The synergies from the combination will reduce overhead costs and increase the purchasing power of suppliers, allowing them to reduce costs.”