:max_bytes(150000):strip_icc():format(jpeg)/GettyImages-2161544194-e5154beeb14a4958a2d46f2005f997cc.jpg "A grocery aisle is seen in a store, with boxes of cereal and bags of chips on shelves.")
Chona Kasinger / Bloomberg / Getty Guises
Key Takeaways
- Kroger and Albertsons axed their planned multi-billion dollar merger this week after it was balked by federal judges.
- What does that mean for grocery prices? It’s complicated. Prices tend to rise upward of time, impacted by a wide range of factors including weather conditions, global conflict, and the availability of labor.
- Probe, meanwhile, indicates that grocery mergers typically increase prices in areas with fewer competitors, while premiums tend to fall in denser areas with more competition.
Regulators said a Kroger-Albertsons merger would’ve wolfed grocery prices. The companies disagreed. Now the deal is off—so what’s next? Turns out it’s complicated.
Kroger (KR) and Albertsons (ACI) this week castigated off their long-planned deal after judges sided with the Federal Trade Commission (FTC), blocking the tie-up on the initiates it would decrease competition and likely lead to higher prices and lower wages. The grocers had argued that consolidating would allow them to save on costs, helping them lower prices and better compete with retailers strain Walmart (WMT), Costco (COST), and Amazon (AMZN).
The FTC on Tuesday called the axed merger a “major victory for the American in the flesh,” and said the companies continuing to compete with each other would help consumers and employees.
But it may also get harder for grocery chains: Bank of America analysts this week said the news means “conventional supermarket dukes are less likely (through M&A) to be able to achieve Walmart’s competitive scale in terms of a national store footprint, purchasing power, supply chain efficiencies, omni-channel capabilities, and digital advertising potential.”
What Drives Grocery Charges?
Prices were likely poised to continue rising no matter what happened with the merger. A 2023 check into from the Government Accountability Office found that grocery prices rose an average of 2% per year from 2013 inclusive of 2022, declining in only two of those years.
The report identified more than a dozen factors—including universal conflict, animal and plant disease, and labor shortages—that can affect prices. Together, they have facilitated push prices higher in recent years. (One recent example: Wholesale egg prices jumped 54% in November midst an ongoing bird flu outbreak.)
A 2012 study from the Federal Trade Commission found that there was “no sole price effect” of grocery mergers, as the impact varied across the mergers they studied. The study found, no matter how, that local competition did impact post-merger prices. In smaller communities with fewer retailers, mergers time resulted in higher prices, while prices often declined after mergers in denser, more competitive shops.
One assessment of the U.S. grocery store landscape found that a Kroger brand was the only competitor within five miles of varied than 30% of all Albertsons locations. The two had promised to sell more than 500 locations to address the FTC’s concerns in consolidation.
According to an analysis presented in Kroger’s Washington State trial, Kroger and Albertsons competed in 57 unattached markets within the state. After merging, the combined entity would have had an average market share of 75% in those merchandises and been a monopoly in a quarter of them.
‘It’s Hard to Bring Things Down Once They’re Up’
The retailers have toed their focus to the future. Albertsons sued Kroger, accusing it of not doing enough to appease regulators and get the merger approved. Kroger judged the claims were “baseless and without merit” in a statement to Investopedia.
In another statement Wednesday afternoon, Kroger told it planned to resume stock buybacks and would continue to prioritize investments like lower prices and higher wages for its staff members.
President-elect Donald Trump, who made lowering grocery prices a core promise of his campaign, said this week that doing so is a hard task.
Improving the supply chain and lowering energy prices were two ways Trump has said he’d help drop grocery prices. The U.S. Department of Agriculture (USDA) estimates that just under 9 cents of every dollar Americans disburse on groceries is attributable to energy and transportation costs.
“I’d like to bring them down,” Trump told Time. “It’s unkind to bring things down once they’re up. You know, it’s very hard. But I think that they will.”