What The FTC Lawsuit Against Kroger Could Mean For Grocers
The FTC has filed a lawsuit to stop the $25 billion KrogerKR-AlbertsonsACI merger. The historic lawsuit rigorously documents how the 5,000 store, 710,000 employee mega-deal will eliminate competition, create higher prices for consumers and reduce wages for workers, especially by harming collective bargaining power. Labor unions, growers, and elected officials have echoed these concerns. Eight states’ attorneys general, along with the District of Columbia, have joined this federal lawsuit, which may be the first road test of the FTC’s new merger guidelines. It may also be a turning point for a heavily consolidated industry.
Kroger claims the deal will help them compete with Walmart. Yet the result of a successful merger would mean the top 3 grocers could account for over 50% of all grocery sales, further reducing choices for workers, consumers and suppliers. The lawsuit may create space for a grocery industry beyond mass consolidation. This future could instead be cooperative.
The grocery industry is heavily consolidated among a handful of chains. The top 5- Walmart, Kroger, Albertsons, Costco and Ahold - are close to 65% national market share. Walmart alone has increased market share from 28.4% to over 30% since 2021, mostly at the expense of supermarkets. While the Kroger merger has dominated headlines, Walmart is the true center of gravity in the grocery industry. Walmart impacts pricing, wage levels, supplier priorities and production methods across the industry. Walmart is an EDLP (Every Day Low Price) retailer with tremendous leverage over suppliers, demanding the lowest costs every day. Walmart realizes it is a risky partner and doesn’t want to be more than 30% of any given supplier’s business. When Covid-19 crippled ocean freight timelines, Walmart contracted for its own shipping fleet. When other grocers run out, Walmart stays in stock, usually at the expense of competitors without such leverage. The chain mandates over 98% fill rates from suppliers.
Kroger, as the #2 chain at 10% national market share, is a unique competitor to Walmart. Kroger went on a buying spree over 20 years ago, snapping up leading regional chains to form a national footprint. Kroger’s partnership with dunnhumby in the early 2000’s transformed their business model with leading consumer data insights. The launch of new store brands, such as Simple Truth, helped Kroger face off with Walmart on price and assortment, while stealing share upmarket from Whole Foods. In the process, Kroger became the largest health food chain, pressuring Whole Foods’ margins and forcing the sale to AmazonAMZN in 2017.
This retail consolidation among a handful of chains enables concentration further back in the supply chain, from CPG, to wholesale, to growers. The top 4 yogurt companies control 75% of sales and the top 3 cereal companies control 90% of your crunchy breakfast options. Concentration means more uniformity among fresh products, elbowing out smaller, diversified growers. If you like the same 5 kinds of apples all year round, well, then you are in luck. Concentration also means lower wholesale costs, a cost factor usually invisible to consumers. While larger chains like Walmart and Kroger can leverage store count, market density and sales volumes to ensure lower logistics costs, smaller chains without such efficiencies can sometimes rack up 3-5 times such costs. A supplier selling the same item at $1.00 wholesale to both a mass merchant and a small independent can end up with retail prices as far apart as $1.40 and $2.25, just due to different markups. Robinson Patman is an antitrust law that mandates suppliers offer all retailers the same terms regardless of scale but is eclipsed on a daily basis in the grocery industry.
These economies of scale enable Walmart, Kroger and a handful of other mass merchants to dominate market share in dozens of metro areas. In Chicago, Jewel-Osco (Albertsons), Walmart and Costco take almost 50% market share. In the DFW metro, Walmart, Kroger and Target take nearly 50%. Austin may market itself as “weird”, but 75% of its grocery market share is just H.E.B. and Walmart. Denver is a Kroger town, with its King Soopers at over 33%. Salt Lake city is likewise with Smith’s. In Southern California and Seattle, Kroger and Albertsons take 40% and 50% respectively. And Walmart has greater than 50% market share in dozens of cities across the southern and midwest heartland. There are a few exceptions to such market concentration. Publix dominates Florida and Market Basket is the most beloved in Boston. But most of the time, grocery is already the Walmart and Kroger show.
The New York City metro is a unique outlier. No retailer has a commanding presence. While Stop and Shop (Ahold), Costco and Albertsons (Acme, King’s) may be significant players, the solid market positions of Food Bazaar and thousands of independent corner store bodegas and green grocers help give customers and retail workers more options. But what really sets the New York metro apart is the long term success of retailer-owned cooperatives such as Wakefern, Allegiance and Key Food. These unionized grocers have survived and thrived through banding together to share products, services and expertise.
Cooperatives are unique in that they take different forms, including independent owner groups, consumer cooperatives and worker ownership. Cooperatives have their own 8 point code of honor, respected worldwide. By maintaining a balance between individual liberty, enterprise independence and collective security, cooperatives distribute wealth and power in a much more equitable fashion than typical corporate structures. Cooperatives leverage scale by buying and/or contracting for billions of dollars of goods and services for their members.
This is why wholesale and retail service cooperatives set New York apart from other metro areas. Wakefern, based in New Jersey, is the largest retailer-owned supermarket cooperative in the U.S., with over $18 billion in sales and over 362 stores, including ShopRite, PriceRite and Fairway Markets. Over a dozen chains in New York also belong to Allegiance Retail Services, including Pathmark, D’Agostino’s and Foodtown. Key Food is a $4.5 billion cooperative that owns over 17% of NYC market share, with dozens of stores in diverse, working class neighborhoods across the 5 boroughs.
Outside of the northeast, facing off against Walmart and Kroger, Associated Wholesale Grocers is a $10 billion retailer-owned wholesaler servicing over 4000 stores across 36 states. Likewise, INFRANFRA is a $2 billion retail services cooperative of over 500 small format, independent and worker owned natural products stores. Across the pond, the Mondragon worker cooperative complex in Spain operates over 2000 stores, including hypermarkets, grocery stores, gas stations, and even perfume stores. And in Austin and central Texas, GAMA is an immigrant owned wholesale cooperative servicing hundreds of gas stations, bodegas and corner stores.
Consumer cooperatives are another format, owned and governed by local community members. Park Slope Food Co-op, PCC Natural Markets, Wheatsville Co-op, and Mississippi Market are all consumer cooperatives, in Brooklyn, Seattle, Austin and St. Paul, respectively. Consumer cooperatives in the Twin Cities area even have their own wholesaler, Co-op Partners, which specializes in buying from local growers and manufacturers. And also based in St. Paul, National Cooperative Grocers (NCG) services over 200 consumer cooperatives with over $2.5 billion in combined sales. NCG negotiates lower costs, wholesale contracts, product promotions, marketing and new item placements for member stores that compete head to head with Kroger, Sprouts and Whole Foods. NCG is a stateside version of an even larger cooperative phenomenon.
Internationally, the consumer cooperative sector holds significant grocery market share in many countries. There are over 4000 such stores in the U.K., with 4 million members and 6.6% market share, and is among the top 10 grocers. In the Netherlands, there are 550 cooperative stores with 10% market share, including Walmart-style hypermarkets, corner stores and discounters. Cooperatives dominate Switzerland, with over 2500 stores, Italy with over 1600 stores, and France, with over 1600 stores. Scandinavia is particularly cooperative focused. Norway has 1300 stores at #1 in market share, while Sweden has 760 stores with 36% market share. Denmark has 770 stores at #2 in market share. Finland is a grocery cooperative mecca. S Market is #1 at 46% market share, with 2.4 million members and “an economy based on mutuality”. The Denmark based Co-op Trading is a larger Scandinavian version of NCG. Co-op Trading supports 4500 stores and 13 million members with multiple brands of private label as well as crucial retail services. In Japan, over 312 consumer cooperatives and 30 million members belong to JCCU, which likewise provides store brands, retail services and policy advocacy for member stores.
Cooperatives are by no means utopian, but they are a compelling alternative to concentration of ownership for the grocery industry. Cooperatives mean that a handful of shareholders like the Walton family aren’t hoarding all the gains while keeping wages low and causing widespread worker food insecurity. Cooperatives allow for greater employee choice in where to work, increasing the bargaining power of workers. They enable a greater variety of retail customers for growers, and are more focused on localization of supply chains. They lean into building long term supplier relationships, not “churn and burn” category management with sky-high slotting fees and 60-70% annual new product attrition that some national grocery chains are known for. Most importantly, cooperatives enable more consumer choice in where to shop. These options mean that no one company has ultimate leverage over the supply chain, including what is produced, how it is grown and how low the prevailing wages will be set. Any major shifts in the grocery industry, such as fair pay, scaling up regenerative and organic production, healthier packaged foods, more fresh products, less factory farmed meat, are more likely in a cooperative ecosystem.
Evolutionary biologist David Sloan Wilson even makes the scientific case for cooperation, “It is broad scale cooperation that is the source of prosperity in human societies”.
The historic lawsuit by the FTC, the District of Columbia and states including Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming is a major step in stopping grocery consolidation, while protecting workers and consumers. It should be a prelude to further antitrust activity, including breaking up Walmart. In doing so, it may open the door for a more cooperative future for grocery.
