The Biggest Supermarket Merger That Wasn’t
The Journal | December 12, 2024
Hosts: Jessica Mendoza, Patrick Thomas
Producer: The Wall Street Journal & Gimlet
Co-Production: Spotify and The Wall Street Journal
1. Introduction: The Battle Over a Mega-Merger [00:05 - 01:36]
Jessica Mendoza opens the episode by highlighting a significant corporate showdown unfolding in an Oregon courtroom. Patrick Thomas describes the intense atmosphere of the trial:
“It's a smaller, a little bit of a smaller courtroom. Not accustomed to these kind of high profile antitrust trials. And it got really hot in that courtroom. I mean, everybody's got to pack together in the back benches. And it was, yeah, it would get pretty toasty.”
— Patrick Thomas, [00:14]
The central conflict revolves around the Federal Trade Commission’s (FTC) attempt to block a $20 billion merger between Kroger and Albertsons, the two largest supermarket chains in the United States.
2. The Proposed Merger: Creating a $200 Billion Giant [02:49 - 03:49]
Jessica Mendoza provides background on the merger:
“In 2022, Kroger, the country's largest supermarket chain, announced plans to buy a big competitor. Albertsons. Kroger operates more than 2,700 supermarkets across the country...”
— Jessica Mendoza, [02:49]
Patrick Thomas adds context about Albertsons’ market presence:
“Albertsons, which is a little bit more known. On the west coast, the name is a little bit less known, but you know, think of Safeway a storied name like that that falls under the Albertsons company.”
— Patrick Thomas, [03:12]
The merger was set to form a colossal $200 billion entity with approximately 4,500 stores nationwide.
3. FTC’s Antitrust Concerns: Preserving Market Competition [03:49 - 04:11]
The FTC's opposition centers on antitrust laws, aiming to prevent reduced competition and potential price hikes for consumers:
“The FTC's case essentially is you can't take the number one and the number two biggest supermarket, put them together, and not expect there to be a loss in competition in the market...”
— Patrick Thomas, [03:49]
4. Kroger and Albertsons’ Defense: Competing with Giants Like Walmart and Amazon [04:11 - 06:39]
Kroger and Albertsons counter the FTC’s claims by positioning themselves against even larger competitors:
“If you bought these kinds of groceries at Walmart, you could save on average over $700 a year.”
— Jessica Mendoza, [04:24]
Patrick Thomas emphasizes Walmart’s dominance:
“Well over 20% of the grocery market share goes to Walmart, and Kroger's only 9%. So people really go to Walmart for groceries...”
— Patrick Thomas, [04:37]
Kroger CEO Rodney McMullen cites the strategic threat posed by Amazon’s acquisition of Whole Foods:
“He keeps a copy of the local business journal in his office to just remind him of that deal and that Amazon is out there.”
— Patrick Thomas, [06:06]
Albertsons voices deeper concerns about their long-term viability without the merger:
“We see bigger threats on the horizon to our business... in two to three years from now, we don't think we can even compete...”
— Patrick Thomas, [06:45]
5. The Ruling: Judge Adrienne Nelson Blocks the Merger [07:15 - 07:45]
After a three-week hearing, Judge Adrienne Nelson delivers a decisive ruling against the merger:
“...something that would erode competition and ultimately lead to higher prices for consumers and that this merger was not going to happen under her watch.”
— Patrick Thomas, [07:25]
Nelson emphasizes the detrimental impact on consumer choice and market competition.
6. Aftermath: Albertsons Sues Kroger for Billions [07:45 - 09:49]
Contrary to expectations of the merger saga ending, Albertsons swiftly initiates legal action against Kroger:
“Albertsons is suing them for, I mean, billions of dollars... a significant chunk of money for a company like Kroger...”
— Patrick Thomas, [08:46]
Albertsons alleges that Kroger breached the merger agreement by failing to pay a $600 million termination fee and not adequately attempting to secure regulatory approval:
“Albertsons says that Kroger should have offered to sell more stores, that the stores they agreed to sell should have been more profitable...”
— Jessica Mendoza, [09:07]
Kroger refutes these claims, asserting that Albertsons breached the agreement first.
7. Implications for Kroger and Albertsons [10:35 - 11:38]
Patrick Thomas discusses the divergent futures of the two companies post-merger fallout:
“Kroger has said that there's not someone as big or transformational as Albertsons out there. So they may do some other wonkier things like share repurchases...”
— Patrick Thomas, [10:35]
Conversely, Albertsons faces uncertainty, with potential layoffs and store closures looming:
“Albertsons is far more uncertain... in two to three years they might have to consider layoffs and store closures...”
— Patrick Thomas, [11:12]
8. Broader Industry Impact: Empowering Retail Giants [12:12 - 13:33]
The ruling not only affects Kroger and Albertsons but potentially benefits other retail giants like Amazon and Walmart:
“The FTC argued that while those companies do sell groceries, they aren't in direct competition with traditional supermarkets. And Judge Nelson agreed.”
— Jessica Mendoza, [12:12]
Patrick Thomas speculates on the opportunities for these giants to further consolidate their market positions:
“Amazon could do more grocery deals to try and establish more of a brick and mortar presence...”
— Patrick Thomas, [12:46]
9. Political Context: FTC’s Stance Under the Biden Administration [13:33 - 14:11]
Jessica Mendoza raises the question of whether the merger would have fared differently under a previous administration:
“This all happened under the Biden administration's FTC, which has been pretty strict about mergers in the past four years. Would a merger like this have had a better chance under a Trump administration?”
— Jessica Mendoza, [13:33]
Patrick Thomas acknowledges the uncertainty surrounding this hypothetical scenario:
“We'll never know the answer to that.”
— Patrick Thomas, [13:53]
10. Insights into the Supermarket Industry [14:11 - 15:11]
Patrick Thomas delves into the competitive and low-margin nature of the supermarket sector:
“The supermarket industry... it's a low margin business... their pricing strategies have to be so precise in order to make a profit.”
— Patrick Thomas, [14:16]
He characterizes the industry as fiercely competitive, where companies constantly vie for market share and profitability:
“They're fierce competitors that spy on one another and try to get the best deal on certain products and sue each other.”
— Patrick Thomas, [15:03]
11. Conclusion: The Consumer's Role and Future Outlook [15:03 - 16:04]
Jessica Mendoza and Patrick Thomas conclude by considering the ultimate impact on consumers and the evolving landscape of grocery retail:
“Ultimately, we'll might take some time, but consumers will be the judge on how this ultimately impacted their food prices.”
— Patrick Thomas, [15:03]
Patrick reflects on the broader implications, suggesting that the outcome of this saga may determine future pricing trends and market dynamics.
Final Thoughts:
The episode of The Journal meticulously dissects the high-stakes attempt to merge Kroger and Albertsons, underscored by regulatory challenges and competitive pressures from retail behemoths like Walmart and Amazon. The failed merger not only reshapes the futures of the involved supermarket giants but also signals a potential shift in the grocery industry's competitive landscape, with significant ramifications for consumers and market dynamics.