Don’t bet against the latest super supermarket merger

Late Friday, May 7, the day before the 2022 Kentucky Derby was to take place, a chestnut colt named Rich Strike made the race roster after, quite literally, another horse pulled out of competition at the last minute.

The next day, May 8, Rich Strike made his fortune: the ridiculously long, 80-1 longshot won the Derby, the world’s premier thoroughbred horse race. The horse, bought for $30,000 last September, won $1.86 million.

Was the victory a misplaced flash or a massive mistake by the bettors?

Similarly, the odds now strongly suggest that the Biden administration will not allow two grocery retail giants, Kroger and Albertsons, to complete their recently announced $24.6 billion merger. Don’t bet against it just yet, though.

Politics aside — and the Federal Trade Commission will make the call on the deal, minus the White House — Kroger and Albertsons have several strong market arguments to favor their marriage. In addition, each is positioned to lengthen its favorable odds.

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The main issue to which critics of the deal refer is competition. Kroger and Albertsons rightly note that the biggest grocery sellers in the country are not grocery stores, but retailers and big-box wholesalers. The country’s largest grocery store, Walmart, is a retailer, and the second largest is Amazon, an online retailer.

Additionally, Walmart owns Sam’s, a huge grocery wholesaler; Amazon owns grocer Whole Foods; and #3 on the list is another Big Box Boy, Costco.

All of them sell No. 4 Kroger and No. 5 Albertsons in grocery stores and none is a “supermarket” like the two fiances. If the merger happens, they claim, they will sell about 13% of all US grocery stores while Walmart alone will still sell 25% of all US grocery stores.

Rather, they argue, the government should approve the merger as one of the market’s last best checks on Walmart’s (or Costo’s or Amazon’s) nearly unchecked growth in grocery retailing. It’s a powerful and effective sales pitch.

To bolster it even further, Albertsons has promised to “divest” up to 375 stores if the deal is approved and Kroger, throwing the Congressional Dems a tasty working bone, adds that its stores will be “a compelling alternative to department stores.” non-union competitors.

Overall, writes Ryan Young for the National Review, “A combined Kroger-Albertsons wouldn’t reduce people’s options for groceries or give those stores the market power to raise prices.”

In fact, he continues, the merger will likely add competition to an ever-changing grocery retail scene, a scene with more online ordering, less in-person shopping, and an increasingly expensive infrastructure to store, fill and deliver to your home. food orders.

This shift to a “full-scale hybrid business model,” Young says, is “just the latest step in a century-long evolution of the grocery market.”

The merger, “if it happens, would be part of this ongoing process,” of a clerk getting your grocery order ready at post-war supermarkets and “frozen food aisles” at Walmart bottling its own milk and Costco growing its own “broiler”. “Chickens.

Perhaps the most important takeaway, he adds, is that the merger “has no guarantee of success, given both the intense competition and the long history of failed mergers.”

Other competition experts agree. Scale – the size now essential to enter the Big Boy grocery game with Walmart, Amazon and Costco – is at the heart of the merger. “Scale is needed to deliver the prices and investments that consumers demand,” Neil Saunders, a head of GlobalData Retail, told Reuters recently.

“From a broader national perspective,” he added, “a combination of Kroger and Albertsons does not pose a major threat to the competitive dynamics of the market.”

This judgment could also apply to us: the “competitive dynamics of the market” is, like it or not, what we have become in today’s dollar-centric “broader national perspective”.

Worse still, almost nothing poses “a major threat” to this deeply ingrained view of our markets or our government that often seem to operate from the same office.

Another reason to bet against the Kroger/Albertsons deal is a Derby-sized longshot.

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