Inflation has burdened every sector of the American economy, but nowhere is it more noticeable than at the grocery store. Americans pay 25 percent more for groceries today than they did in 2019, while wages remain stagnant, creating an accessibility crisis. As many as 42 million Americans now rely on federal assistance programs to acquire basic necessities, and a quarter of Americans listed grocery inflation as one of their primary concerns leading into the 2024 presidential election. While pandemic-era supply chain disruptions may have kick-started grocery inflation, shifting dynamics of grocery retailers and the current state of competition are ultimately at the center of America’s grocery problem. Kroger and Albertsons controversial merger proposal outlines how this crisis evolved and represents a pivotal moment for the future of food pricing.
Kroger-Albertsons Merger
In October 2022, Kroger and Albertsons announced their entrance into a definitive merger agreement. Since the announcement, the effects of this merger have been hotly debated by economists and policy makers. According to Kroger, merging would expand access to affordable, quality food, create “Zero-Hunger” communities, and provide a more convenient shopping experience—effectively addressing the most pressing concerns of American consumers. They even go so far to say the deal is necessary for them to remain competitive in the face of big box chains. Kroger and Albertsons have crafted a narrative that paints them like David, valiant underdogs in the struggle against Goliaths of Amazon and Walmart. A lofty and questionable depiction considering both are already among the nation’s largest retailers, but the deal’s supporters are adamant that merging is the only way to keep prices low.
As of 2024, the Federal Trade Commission (FTC) and nine individual states have sued to block the Kroger-Albertsons merger. In a press release from the FTC, the commission argues that the deal will have severe consequences for consumers. The council claims that the head-to-head price and quality competition between the two companies is the driving force behind their low prices and service, which would be eliminated as a direct result of the deal.
Capitalizing off Crisis
To understand the complexity of concerns surrounding this merger, we must first look back to the global pandemic of 2020. Lockdowns and new safety restrictions caused a decrease in available labor, an increase in shipping costs, and dramatic shift in consumer demand that quickly threw the supply chain into shambles across every sector of the economy. These disruptions significantly inflated the cost of goods and are estimated to account for 60 percent of inflation between 2020 and 2021. The supply chain has since stabilized, so the fact that grocery prices have remained high and even increased three years out is cause for suspicion.
Last March, the FTC released a report, “Feeding America in a Time of Crisis”, investigating this phenomenon. After examining financial data and public records associated with nine companies across the grocery industry, the FTC concludes that input costs are not the main cause of prolonged inflation. Instead, the report finds that large firms, including Kroger, entrenched their market power by acquiring suppliers and wholesalers, therefore limiting purchasing opportunities for their competitors.
Small retailers no longer had access to the same variety of goods and struggled to keep shelves stocked, which drove away their customer bases and diminished profit margins. Community Foods Market, a California based independent grocery store, saw record profits in the first few months of the pandemic, but by the end needed to launch a community funding campaign to keep its doors open. At the same time, Amazon, Walmart and Kroger saw record profits in the fallout of the pandemic. In 2021, revenue-over-cost for these retailers reached 6 percent, their highest peak since 2015. In the third quarter of 2023, their profits only skyrocketed, reaching 7 percent over total costs.
The effects of monopolistic consolidation are not limited to crisis situations. As the share of buying power continues to diminish for independent stores and small chains post-pandemic, they become increasingly unprofitable and are forced to shut down. As of today, 23.5 million Americans live in food deserts, areas more than 10 miles from the nearest grocery store, and 76 counties in the US lack any grocery store at all. Large chains have no personal connection to their communities and close underperforming stores at a whim, disproportionately affecting rural locations. Conversely, locally run and operated grocery stores are interdependent on their communities and have a greater focus on providing cheap, healthy food options, making their success vital in these areas. Without the ability to fairly compete, local options can no longer fill in the gap of grocery retailers for less profitable regions, and the inequity in accessibility and price will only continue to grow.
Confronting Grocery Giants
In response to the FTC’s suit against the merger, Kroger-Albertsons promised to divest 579 locations. They argue that by transferring these locations to another retailer, C&S, they will not be consolidating the market, but rather turning C&S into a new competitor. This seems to assuage antitrust concerns, but it wouldn’t be the first time Americans were burned by bad faith divestment promises. In 1999, Safeway acquired the Alaskan grocery chain Carr’s, and divested seven stores to maintain competition. Six of them closed within the year, ultimately leaving Alaskans with the lack of options and increased pricing they feared.
While it may be true that Kroger and Albertsons are less competitive than Walmart or Amazon, it’s also clear that the existing grocers have exploited their market power at the expense of working class Americans. In the long-run, adding another grocery giant to the mix will only exacerbate existing concerns. The FTC continues to push back against the merger in their pending suit and remains unaffected by Kroger-Albertsons divestment argument. If the court decides to block the merger, it would set an important precedent for confronting other dominating players and preventing further inflation. If nothing is done to reign in food pricing, more Americans will have to make difficult decisions on how to manage their spending—opting for less nutritional options or forced to cut down on consumption—leading to devastating long-term health outcomes.
