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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
According to US Federal Trade Commission chair Lina Khan, supermarket warehouse stockers are at least a little like celebrity authors: they deserve a competitive marketplace to sell their labour. This week, a trial in a Portland Oregon federal court kicked off to determine the future of a blockbuster grocery merger. The FTC is seeking to block Kroger from closing its $25bn acquisition of arch-rival Albertsons, a tie-up announced nearly two years ago.
Among the FTC’s arguments is a worry about so-called monopsony. In other words, grocery workers — in particular unionised workers — would only have a single chain to which they could sell their labour. The agency says the competition between Kroger and Albertsons extends to collective bargaining and workers would be harmed if one market buyer disappeared in a merger. The Biden administration made the same argument for top book authors when publishers Simon & Schuster and Penguin Random House attempted to merge. A federal judge eventually bought the argument.
The FTC also has more traditional theories of harm, namely that the overlap of stores in several particular cities will diminish competition. Kroger has annual sales of more than $150bn while Albertson’s annual revenue is nearly $80bn. The pair argue that they have agreed to meaningful divestitures. But more fundamentally, they say the grocery market now is dominated by the likes of Walmart, Target and Amazon and the tie-up will allow the merged company to invest billions in lowering consumer prices.
The backdrop to the deal is a pandemic era that was favourable to packaged food and grocery companies whose sales, profits and profit margins surged amid galloping demand and supply chain snarl-ups.
In 2019, Kroger and Albertsons had thin ebitda margins of around 4.5 per cent. By 2023, those margins had expanded to nearly 5.5 per cent. That change does not seem like much, but in a high turnover business where revenue was growing quickly, the ebitda dollar gains have totalled in the billions.
Ordinary Americans experiencing shopping sticker shock will probably not be excited about the two biggest supermarkets combining. But there is a substantive discussion in the retail industry about Americans’ food shopping habits and if online shopping, supercenters and club stores — which require customers to pay a membership — really are the same experience as visiting a traditional bricks and mortar grocery store. That those rival retail formats are typically not unionised adds another intriguing advantage.
