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A ruling in the Kroger-Albertsons merger case will hinge on how U.S. District Court Judge for Oregon Adrienne Nelson interprets a 1980s-era definition of the grocery industry in the 21st-century marketplace.
Post-hearing memoranda were due Sept. 27. Judge Nelson’s decision will address issues of monopoly, monopsony, and the rise of e-commerce.
Last month, Cincinnati, Ohio-based Kroger and Boise, Idaho-based Albertsons concluded a hearing before the Federal Trade Commission regarding the government’s August motion for a preliminary injunction to block the two grocery giants’ proposed $24.6 billion merger.
The two companies operate more than 300 grocery stores across Washington, including Kroger stores branded as QFC and Fred Meyer and Albertsons stores under the Safeway and Haggen brands.
The FTC claims the merger would violate antitrust laws and raise consumer prices by creating a monopoly.
A monopoly is a market structure where a single seller controls the supply of a product or service. A monopsony is a market structure where a single buyer controls the demand for a product or service.
Washington Attorney General Bob Ferguson filed a parallel lawsuit in January. In addition to AG staff assigned to the case, Ferguson contracted with the Los Angeles firm of Munger, Tolles & Olsen for $2.5 million in fees.
Although filed under Washington antitrust law, the case seeks a nationwide injunction. King County Superior Court Judge Marshall Ferguson – no relation to the attorney general – has already stated that he is not sure of having jurisdiction in what is typically a federal case but will let the case continue. Closing arguments are anticipated in early October.
A federal injunction would block the merger until the full case is heard by the court next year. Merger discussions may or may not continue, as the parties may assume their odds of winning are reduced.
Eric Fruits is a senior scholar at the International Center for Law & Economics and an adjunct professor of economics at Portland State University. Last year, he authored a white paper evaluating publicly available information on the potential merger.
The breadth of the competition laid out during the hearing surprised him.
“How to define the relevant market is a key issue,” Fruits said. “No one knows how to handle e-commerce. Both the FTC and the Kroger-Albertson’s team had a hard time articulating how important that is.”
The FTC counts stand-alone supermarkets and the grocery areas of big-box retailers Walmart and Target as competitors. Costco, limited-inventory stores like Trader Joe's, and the rapidly spreading “dollar store” neighborhood markets are not considered competitors.
What Fruits described as “the archaic concept of the one-stop shopper still holds” under the FTC rule last tested in the 1980s. “It defines the typical grocery store shopper as one who will drive less than five miles and will make all purchases for the household at a single store. These are not the typical customers anymore; it is unusual not to visit several stores.”
In addition to regional competition from destination “club” stores like Costco, consumers now have many options for center-aisle goods. Dog food, paper products, and other non-perishables have moved online for ordering and delivery.
However, Fruits said the labor marketplace has also changed. The retail sector is diverse, and skills acquired in the grocery industry are readily transferable to a variety of retail settings across different industry sectors.
When asked what would happen if the federal judge ruled in favor of the merger and the state court found that the merger violated Washington state law, Fruits speculated that it would most likely result in stores owned by the merged entity in the Evergreen State being sold off or closed.
“It’s a case of better be careful what you wish for,” he said.