Paul Guppy of the Washington Policy Center reports that the courts could result in the closing of neighborhood Albertson stores instead of saving them

Paul Guppy
Washington Policy Center

Earlier this week two judges, one federal and another in Washington state, banged their gavels and told two prominent grocery retailers they are not allowed to conclude a voluntary business merger. As much as these judges might think they can stop time, it won’t prevent the dynamic changes taking place in the way grocery consumers make choices.

Mergers, acquisitions and buy-outs happen regularly. They are a routine and vital part of a free economy. They occur when suppliers and retailers respond sensitively to consumer trends and choices. Companies merge when the economic facts on the ground inform owners that such a move makes market sense and will be beneficial to all concerned.

In that spirit the carefully negotiated $25 billion deal that would have allowed Kroger to acquire Albertsons is the result of a changing grocery landscape. Today, shoppers choose daily from a wide array of grocers. The largest are Costco and Walmart. These active competitors along with Target, Dollar Discount, Trader Joes and many more would outweigh a Kroger-Albertsons market share by billions of dollars.

Albertsons and Kroger supermarkets represent just 34% of overall U.S. grocery share. In addition, the growth of online grocery shopping has increased four-fold, from $28 billion just four years ago to $128 billion today.

These dry statistics don’t include the thousands of independent and family-owned outlets available to consumers. A simple map search in most areas pops up dozens of neighborhood grocery stores and supermarkets. 

The two judges, who oddly announced their rulings on the same day, seem weirdly disconnected from today’s shopping reality. Both judges based their interference on an antiquated view of “grocery store” and applied it to current market conditions.

The federal judge referenced the archaic concept from the 1980s – the one-stop homemaker who drives less than five miles to make all weekly household purchases at one location. As fond as the memory of helping mom unload the station wagon is for the older generation, app-based delivery, online shopping, “big box” retail and other innovations have made that quaint idea a relic of the past.

The Albertsons chain is ailing financially and has been searching for a viable buyer for years. The rescue proposal from Kroger offered a workable solution, but now the harsh intervention of the courts could result in the closing of neighborhood Albertson stores instead of saving them.

We hope that doesn’t happen, but when the government blocks a conscientious and voluntary business transaction, it doesn’t look good for the weaker company’s economic survival, which would lead to widespread job losses.

In the meantime, the unstoppable trend of consumers accessing wider shopping choices will continue. A couple of judges squashing a routine business merger is not going to change that. They have simply harmed the market’s ability to adapt to changing realities.

Paul Guppy is a senior researcher at the Washington Policy Center.

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