With the Kroger and Albertson merger, why trust market forces when you can just enforce the law?

A hedge fund manager argued that combined, Kroger and Albertson could offer lower prices by extracting greater promotional concessions from manufacturers. Why not just enforce the law?

The big news across the consumer goods and retail world is that Kroger announced it intends to purchase Albertsons for roughly $25 billion. The stated rationale is what you’d think: benefits of scale. Never mind that Kroger already has 2,800 stores. The second biggest grocer in America is buying the fourth—because management doesn’t think it can compete with the first. Quite a market we have here in America.

A lot has been written about the proposed acquisition—most of what I’ve seen has been somewhat negative. Eric Seufert at MobileDevMemo published a nice article on the implication for retail media networks. WSJ added that the new RMN will give Kroger huge power over manufacturers. On its face, the whole thing seems like a dare to the FTC. Kind of like when you’re potty training a child and you’ve had some success. Then on day three, they pee on the ground just to prove a point. Bloomberg wrote about Kroger’s plans to win over regulators by divesting 100-375 stores. Everyone should be incredibly skeptical of divestment agreements.

There’s even money that Kroger will buy back the divested stores later similar to what Albertsons did when it acquired Safeway a few years ago. Albertson was required to sell 168 stores due to concentration concerns when it acquired Safeway. Albertson was able to buy back a good chunk a few years later.

I gave some preliminary thoughts on the transaction over at More Perfect Union. Basically, Kroger acquired its way to the top of American retail. If the deal goes through, the big winners are private equity and executives, while the big losers are workers, consumers, and manufacturers.

I heard a novel defense over on Fox Business. That the merger will give Kroger more power over manufacturers, allowing it to extract more trade dollars, which will result in lower prices for consumers.

Here's Burt Flickinger, a hedge fund manager who owns shares of Kroger, explaining:

The national brand suppliers like my alma mater, Procter and Gamble, have been in my professional view been discriminating against supermarket shoppers and supermarket retailers by not passing along the price and promotional allowances during and after covid the way they do the wholesale clubs and the supercenter operators. So it's important to give Kroger and Albertsons the leverage and small retailers through the national grocers association need similar leverage and that's what the FTC should be looking at rather than blocking this merger.

Or the FTC could just enforce the actual law.

The price discrimination described is illegal under federal law.