Understanding the Impact of the Proposed Kroger-Albertsons Merger in the Grocery Market Competition in the Northwest

By: Melanie Canales and Aaron Johnson on 8/7/2024

Cover photo by Kipp Teague via Flickr, Creative Commons.

In October of 2022, the second largest grocery chain in the United States, Kroger, announced a planned 24.6 billion dollar deal to acquire the nation’s fourth largest grocer, Albertsons. If allowed to proceed, Kroger would become the second largest grocery chain in the United States with a market share nearly as large as Walmart’s. Regional grocery store chains controlled by Kroger in this scenario would include Albertsons, Harris Teeter, Ralphs, QFC, King Soopers, Vons, Safeway, Jewel Osco, and Acme. In 2024, the FTC filed suit to block the merger, contending that it would lead to higher prices and fewer choices for consumers, while eliminating critical competition for workers, negatively impacting wages, benefits, and working conditions.

Using the Grocery Gap Atlas, we analyzed the impact of Kroger’s acquisition of Albertsons on the northwest United States - specifically Washington, Oregon, Idaho, Montana, Colorado, and Wyoming - where Kroger and Albertsons as separate chains overlap and compete significantly. We use both Herfindahl-Hirschman Index and Four Firm Concentration Ratio to measure market concentration. Four Firm Concentration Ratio presents the market share percentage (between 0% and 100%) of the top four companies in a market. According to the new merger guidelines issued jointly by the U.S. Department of Justice and Federal Trade Commission in 2023, “HHI is defined as the sum of the squares of the market shares; it is small when there are many small firms and grows larger as the market becomes more concentrated, reaching 10,000 in a market with a single firm.” According to these merger guidelines, “mergers raise a presumption of illegality when they significantly increase concentration in a highly concentrated market,” and it goes on to explain that “markets with an HHI greater than 1,800 are highly concentrated, and a change of more than 100 points is a significant increase.”

Within the six-state U.S. northwest region we analyzed, the regional HHI will increase from 1440 to a highly concentrated 2620 if Kroger’s acquisition of Albertsons were allowed to proceed. Colorado and Washington would see the most dramatic increases to their state grocery market HHI’s; Colorado’s increases from 2110 to 3400 with a CR4 of 85%, and Washington’s increases from 1540 to 2840 with a CR4 of 71%. They also would both see Kroger, by itself, become dominant over more than half of their overall state grocery markets, with Kroger controlling 54.39% in Colorado and 51.64% in Washington. See below for a breakdown of the HHI and CR4 increases by state:

In an attempt to make their merger plan seem more acceptable, Kroger has proposed to divest 579 stores - including 294 within our case study region - to C&S Wholesale Grocers, a food wholesaling company that currently only operates 23 retail stores. This is an attempt to rerun a failed play that was tried in Albertsons’ previous acquisition of Safeway; in 2015, the FTC allowed that merger to proceed after Albertsons divested 168 stores. Most were sold to Haggen, a smaller grocer that quickly imploded, allowing Albertsons to buy back 44 of its stores, while 27 more either closed completely or were converted to non-grocery businesses. Today only half of the stores that were divested in the deal are operating as competitors to Albertsons. In short, the divestiture plan was a disaster.

It is for this reason that the FTC has thus far rejected Kroger’s proposed divestiture plan as an adequate mitigation of the anti-competitive effects of the proposed merger. According to the FTC, “the proposed divestitures are not a standalone business, and C&S would face significant obstacles stitching together the various parts and pieces from Kroger and Albertsons into a functioning business—let alone a successful competitor against a combined Kroger and Albertsons. The proposal completely ignores many affected regional and local markets where Kroger and Albertsons compete today. In areas where there are divestitures, the proposal fails to include all of the assets, resources, and capabilities that C&S would need to replicate the competitive intensity that exists today between Kroger and Albertsons.” In other words, the FTC is highly suspicious that Kroger’s much larger divestiture plan could result in the same disaster that befell the stores divested by Albertsons in 2015.

We analyzed both the most ideal effects of Krogers’ proposed divestiture, as well as the possible effects of their plan working as poorly as Albertsons did. If all the stores that Kroger proposes to divest survived as competitors to Kroger, regional grocery sector HHI would increase from 1440 to 1690 - less than 1800, but a 250 increase, and thus certainly a significant trend towards consolidation. Colorado (2160) and Wyoming (2110) would still see their grocery sector become highly concentrated, with HHI’s elevated beyond the FTC’s 1800 HHI threshold.

However, if Kroger’s planned divestiture were to proceed similarly to the previous divestiture plan carried out as a part of Albertsons’ acquisition of Safeway, as described above, regional grocery industry HHI is raised to nearly 1800, and Washington’s state level HHI is elevated to 1831, above the highly concentrated threshold, alongside Colorado and Wyoming. Of course, accurately modeling how a failed divestiture is much more complex than imagining a random selection of 50% of divested stores surviving as competitors, and there is certainly great potential within Grocery Gap Atlas’s data for more detailed analysis of the potential impacts of different scenarios.