The largest proposed grocery merger in U.S. history is being challenged in court, with Federal Trade Commission antitrust regulators saying a merger could raise grocery prices at a time when customers are already struggling.
Supermarket chains Kroger and Albertsons insist their proposed $24.6 billion deal would allow them to lower prices and more effectively compete with retail giants like Walmart. Many economists have long argued that when companies merge, prices often come down because of efficiencies of scale. Federal Trade Commission Chair Lina Khan says that may not always be the case.
“Even if those efficiencies arise, if the company’s not checked by competition it won’t have an incentive to pass those benefits on to the consumer because those consumers may not have anywhere else to go,” she said.
Why are food prices so high?
Khan, who attends “listening tours” in communities throughout the U.S., recently heard from an attendee about grocery price frustrations. It’s been an issue the country has been confronting for years.
“Every time I go to the supermarket, I get sticker shock,” a listening tour attendee said to Khan. “Groceries are so expensive now.”
Since 2019, the average price of a dozen eggs has risen 126%, while the price of a loaf of bread jumped 54% and a pound of chicken breast rose 33%, according to the CBS MoneyWatch price tracker. Overall, grocery costs have jumped about 25% since January 2020.
Higher prices at supermarkets can be linked to higher manufacturing costs and lingering supply chain issues from the COVID pandemic and bird flu.
“The COVID-19 pandemic placed tremendous pressure on the supply chains that produce and move the nation’s food from farm to table,” the FTC wrote in a March report. “When unexpectedly put under sustained stress, there were not enough extra hands ready to pick up the work of sick colleagues, not enough spare trucks and truck drivers ready to haul more loads, and no easy way to suddenly ramp up production to meet surging demand.”
Khan said there’s a lot of discussion about what’s driving the inflation.
“What’s been interesting is that even as some of those supply chain pressures have eased, prices have not come down concurrently as much,” Khan said.
Some, including President Biden, who named Khan to her position in 2021, have also pointed to “greedflation” — the notion that companies will opportunistically raise prices to benefit their own profit margins.
“We’ve actually seen some executives boast on earnings calls about how inflation is great for their bottom line,” Khan said.
The FTC’s role in combating costly groceries
Last month, Khan said the FTC would probe why grocery prices remain high.
“We want to make sure that major businesses are not exploiting their power to inflate prices for American families at the grocery store,” she said in Aug. 1 prepared remarks.
One of the ways the FTC fights to keep prices down is by breaking illegal monopolies and blocking mergers that stifle competition.
The FTC grocery suit focuses on Kroger, which owns Ralph’s; and Albertsons, which owns Safeway. Together, the two companies have nearly 5,000 locations across the country. Khan says a merger risks raising food prices even higher than they are now. The chains deny they would exert monopoly power and say that merging would allow them to lower prices.
Lawyers for the supermarket chains and the FTC gave their closing arguments earlier this month. Separately, Washington and Colorado have sued to block the merger.
