Why Food Prices Could Skyrocket Thanks to This Grocery Merger

Written and narrated by Errol Schweizer, former VP of Whole Foods, and Benjamin Lorr, author of The Secret Life of Groceries

If you walk into any grocery store in America, there’s a pretty good chance it’s about to be owned by one single mega-grocery store corporation. And that’s really bad news for the prices you pay.

[News clip]: A massive supermarket merger could change how millions of Americans shop for groceries.

[News clip]: Kroger, the nation’s largest supermarket chain, is merging with its rival Albertsons.

[News clip]: … potentially creating a grocery empire.

Safeway, Ralphs, Smiths, Harris Teeters, Shaws, Kings, Randalls, and about 25 other brands, will all be owned by a single company if the Kroger-Albertsons merger goes through. They claim the merger will “lower grocery prices.” Should we take Kroger and Albertsons at their word?

In a word: No.

In six: Get the fuck out of here.

This mega grocery store merger is bad news for everyone except a few top executives and shareholders on Wall St. Here’s why.

My name is Errol Schweizer, former V.P. of Grocery for Whole Foods with over 25 years in the industry.

And I’m Benjamin Lorr, author of The Secret Life of Groceries. I spent five years studying the grocery industry as a journalist.

Kroger is already the #2 grocer in America with over $130 billion in annual sales. Albertsons is number #4 with over $70 billion of sales per year. If allowed to go through, the massive new firm would command over $200 billion dollars per year in sales, over 15% of the US grocery market, and the lives of over 700,000 people who stock, pick, sweep, or ring registers on your behalf.

To put it bluntly, this deal is an antitrust travesty. In a time of record food prices and skyrocketing corporate profits, it should be criminal — in the moral sense — to even suggest it. And it might actually be criminal in a legal sense too. But this merger isn’t just the product of two bad actors — it’s the inevitable outcome of a broken system. To understand why we need to go back and study grocery history.

You might find it funny, but the supermarket was a truly miraculous American innovation. Before the supermarket, Americans spent about 40% of our budget on food. Today we spend less than 10%. It is the lowest percent in the world and shrinking every year. Before supermarkets, grocery stores were horribly inefficient and expensive. Then a very American discovery was made.

A manager at Kroger — at that time, just a small chain — realized if he made everything bigger he could also make everything cheaper. Bigger stores meant less warehousing, staffing, and construction costs. Then, he took those lower costs and passed them onto the customers, using the power of size to lower prices — it changed everything.

The model was so successful that in 1930 there was exactly one supermarket; just five years later, there were thousands. The only thing left to do was to keep making supermarkets bigger and bigger.

But without competition and regulation, the bigger-and-cheaper model allows for two or three firms to grow so big they have a real advantage, and it simultaneously creates a cost-cutting race to the bottom for everyone, including those giants.

You may never have set foot in a Kroger or Albertsons, but you probably recognize some of the stores that they now control. These brands are tombstones in a graveyard of chains that Kroger and Alberstsons gobbled up over the years as they’ve gotten bigger and bigger. 

Their brand names give the illusion of a diverse marketplace. But from 1993 to 2019, the number of grocery stores nationwide declined by roughly 30%. The biggest brands tripled their control of grocery sales, with five chains controlling 60% of the market. This merger will make things much worse.

First it will give the new firm huge leverage over its workers. The combined duo would become America’s largest private unionized employer, and if history is any guide they will use that power against workers. As the grocery industry has consolidated, workers’ living conditions have declined. 

[Clip from Kroger strike]: “Can I get a show of hands, how many of you feel like you’re living a comfortable life? Anybody?” 

A recent report found that up to 75% of Kroger employees faced food insecurity. 14% experienced homelessness. Imagine working in a grocery store when your family is going hungry. Is this the dystopia you want to live in?

A merger will also be dependent on large scale layoffs in warehouse operations and other behind-the-scenes jobs that keeps a store running. Grocery becomes a reverse Robin Hood, taking all those cost savings from “synergies” (layoffs) and funneling them to the rich executives and institutional investors who own large swathes of the stock. This isn’t cynicism or theory. We just watched it happen during Covid.

Grocery purchases surged. Americans bought more than ever. Kroger’s profits went up 90%. And what happened? Kroger gave “essential” workers a $2 per hour raise… for 6 weeks… then it canceled the raise. And sunk its profits into two separate $1 billion buybacks rewarding… executives and investors. And prices didn’t go down, they went up!

And this brings us to how the merger will impact you, the consumer.

[Kroger CEO]: A little bit of inflation is always good in our business.

That’s Kroger’s CEO Rodney McMullen spilling the beans on how grocers like Kroger and Albertsons took advantage of the inflation narrative to gouge consumers and rake in extra profits. Some analyses have shown over 50% of price inflation has been driven by corporate profits. For every extra dollar you are paying this past year, 54 cents has been pure corporate profits. 

And consolidation in the grocery industry is a big driver of this dynamic. Don’t believe us? Compare restaurants to grocery stores. Both restaurants and groceries suffered from inflation. But Americans’ grocery costs have “inflated” almost 5% points higher.

Why? Because restaurants exist in a relatively healthy industry defined by lots of small chains and heavy competition while grocery has been reduced to just a handful of swollen conglomerates operating as a massive oligopoly. 

In a healthy market, when business costs go down, consumers pay lower prices. But that is not the case in a consolidated market. Research shows when there is less competition, price savings get turned into corporate profits. And if allowed to go through, this merger will set off a wave of regional grocery mergers that will further concentrate the marketplace.

We need a new model.

In 1944, the government moved to break up the great A&P, which at its peak only controlled 12% of the U.S. grocery market. This new Kroger/Albertsons chain would sit at 15% instantly. Walmart is already at 27. Costco at 9.

The creation of these giant chains was intentional policy. Over the last 50 years, antitrust protection has weakened, as regulators allowed mergers to go through as long as prices stayed low. But covid destroyed this illusion. Not only do we see the effects of over-consolidation in high prices, we see it in fragile, just-in-time supply chains that can’t shift with erratic demand.

This deal is rotten. If the FTC doesn’t block itt, what’s the point of the FTC? Here we are optimistic. New chairwoman Lina Khan understands the importance of preventing mergers like this one.

[Lina Khan]: An inflationary environment can give cover to companies with market power or monopoly power to exploit that power.

But regulators and policymakers should do more than just block the Kroger and Albertsons merger. They need to take a hard look at the grocery industry’s race to the bottom, where cost savings come out of workers and the environment. If every store needs to size up to compete, that necessarily means competing against fewer and fewer stores. It just doesn’t work. 

Just as the supermarket was America’s gift to the world in the 1930s, we can lead the way to a more just food system today. We need enforcement of anti-trust laws such as the Robinson-Patman Act. We must break up the grocery giants to encourage the growth of cooperative, employee- and family- owned grocery stores that reflect our communities’ diversity and regionality.

We can build strong unions with strong industry wide wage and safety standards. And we need to start building a public food sector, or a public option for our food system. Food should be a right, and there are major issues that even the most well-intentioned private industry just can’t solve.

The same ingenuity that revolutionized an inefficient model in the 1930s will be required to reinvent the unjust one we have today. The good news is we know it can be done.