Local residents are worried about a proposed merger between Kroger, which owns City Market, and Albertsons, which owns Safeway. Photo by Gail Binkly.
Competition is an essential cornerstone of a capitalist economy. So what happens when it’s reduced?
That was the question that drew Colorado Attorney General Phil Weiser to Cortez on May 18. Weiser has been visiting locations around the state to discuss the proposed merger between grocery giants Albertsons, which owns Safeway, and Kroger, which owns City Market, King Soopers, and a num¬ber of other chains.
Weiser spoke with a crowd of some 50 to 60, answering questions and listening to their comments.
Kroger CEO Rodney McMullen has said the $25 billion merger between the nation’s two largest grocery chains could bring about lower prices because it would result in sav¬ings for the companies, according to report¬ing by Reuters.
But the crowd in Cortez seemed highly skeptical.
“If they say they would be able to offer lower prices because of economy of scale, I’m not buying that,” commented former Cortez Mayor Karen Sheek.
Kroger and Albertsons are the two largest U.S. operators of traditional grocery stores, according to reporting in the Philadelphia Business Journal. Kroger operates some 2,700 supermarkets and Albertsons operates more than 2,200. Together, the two companies employ more than 710,000 people.
However, they face tough competition from Walmart, Target, dollar stores, and oth¬er non-unionized places. Walmart is ranked No. 1 in grocery sales in the United States, according to Reuters.
The merger is being examined regarding whether it might violate antitrust laws.
Weiser noted that antitrust laws are his specialty and he has worked on many merg¬ers. “I don’t believe I will ever work on a merger that every person will have as strong views on as this one,” he said.
The deal is not set to close until the first quarter of next year, he said, “so we have ample time to get our facts and analysis, to decide whether this vio¬lates antitrust laws. If I believe it does, I can challenge this merger” under fed¬eral or state laws.
The Federal Trade Commis¬sion is also review¬ing the proposed merger.
“It’s possible that us and the feds will come to the same conclu¬sion,” Weiser said. “We could join the FTC lawsuit [if the agency decides to oppose the merg¬er], or bring our own lawsuit, or bring one even if the FTC is OK with the merger. We are in uncharted territory on that question. My hope is whatever situation I am in, the FTC will be in that same situation.”
Other states are also reviewing the merger he said, “so it is possible we wouldn’t be the only state that is concerned.”
Weiser said worries about the business deal have been raised about three types of impacts: to consumers; to workers at the stores; and to suppliers.
Consumers are troubled about the possibility of higher prices and fewer food choices.
Workers face the possibility of losing jobs and pensions. But some workers have also voiced concerns about the impacts to con¬sumers, Weiser said. They say store closures could harm older people who might not have transportation to go to more-distant outlets. They worry about the creation of “food deserts.”
A reduction in food choices could also be problematic.
“Someone in Longmont with a disability [who commented on the merger] needs spe¬cial foods, and one store has them,” Weiser said.
In addition, suppliers view the business deal as potentially harmful. “There are lots of small businesses who are suppliers who need shelf space,” Weiser said. A decrease in the number of stores would mean less shelf space.
At the Cortez gathering, many comments were made about the merger of Safeway and Albertsons in 2015 and what effects that had.
Weiser said the two companies had agreed to “spin off” stores, meaning they would sell some of their outlets to other grocers in order to ensure that competition was main¬tained. Weiser said that was a failure because many of the stores sold to other companies ended up failing.
“What did we learn from the 2015 merg¬er? We know that the remedy didn’t work. Some stores closed. Some of those stores are sitting empty today eight years later.”
Lance McDaniel of Cortez said empty buildings are a legitimate concern.
“In Cortez we have two vacant stores [a former Walmart and a Safeway] that stores have moved out of,” he said, saying this re¬sulted in urban blight.
Weiser agreed that’s a potential problem. “In Glenwood Springs I saw one store that closed after the Safeway-Albertsons merger. It’s still vacant. It’s still causing blight. That is not a formal antitrust argument, but I will be thinking about the practical consequences of this merger.”
Sheek asked how much research has been collected regarding communities where Safeway and Albertsons stores merged.
In 1975, she said, Cortez had both a Safeway and a City Market, but not then a Walmart. “Safeway left and it’s my under¬standing our City Market was then charging some of the highest prices in the state of Colorado,” she said.
Weiser said there were small cities that had Safeway, Albertsons and City Market stores before 2015. The Safeway-Albertsons merger resulted in a 3-to-2 store reduction in those locations.
“Look what happened in 2015. They did close stores, so I would assume this [merger] would as well. They might be able to spin them off to a rival, but would that present the same level of competition? Or could that be a failure and stores end up going bank¬rupt or being sold back?”
The state is gathering evidence and ana¬lyzing it at this point, he said.
“That evidence is critical,” he said. “We will be looking to the data under the differ¬ent circumstances to inform our judgment. We’re doing that work right now.”
He said he didn’t yet have any preliminary conclusions he could offer, but, “It ain’t over till it’s over.”
Mary Dodd, chair of the Montezuma County Democrats, said the impacts to grocery-store workers need to be seriously considered. She cited a recent report by the Economic Policy Institute that said the pro¬posed merger would likely have a major im¬pact on workers’ wages nationwide because it would lower their ability to negotiate for better wages.
The report said the merger would wind up reducing wages for grocery workers not only at stores owned by Kroger, but for all grocery workers in areas that were impacted by the merger.
The EPI report estimated that in the Los Angeles-Long Beach-Anaheim metropolitan area, the annual wage loss would amount to $51.4 million, the largest loss in the country, while in Phoenix-Mesa-Scottsdale, Ariz., es¬timated as the ninth-most-affected area, the loss would be approximately $13.9 million annually.
Weiser agreed that the impact on workers is a major issue. “Generally workers do bet¬ter when there is competition for their ser¬vices.”
Several people commented that the im¬pacts to metropolitan areas would be less dramatic than to rural areas. One woman from Mancos said, “It’s important to keep all of these stores here to shop at.”
Weiser said he’s heard from a number of people in rural areas who are troubled by the proposal and don’t believe they’ll have as many food choices, despite the presence of Walmart superstores. He said when he visit¬ed Gunnison, people told him their Walmart doesn’t have much in the way of fresh food or veggies.
Weiser said he lives with¬in a very short drive of both a King Soop¬ers and Safe¬way, as well as a Walmart, Target, and Trader Joes. “The merger is not likely to affect the prices I pay,” he said. “Gunnison and Cortez are a totally different situ¬ation.
“So, what if 20 percent of Colorado is looking at a bad result [from the merger]? I will fight for the 20 percent who are affected.”
He spoke of a merger proposed years ago between Dish and Direct TV. At that time, he said, the companies said 85 percent of Americans had access to cable, the satellite-TV companies had to compete against cable, and the merger would be better for the 85 percent.
But the Justice Department maintained that the merger would be bad for the re¬maining 15 percent of Americans because it would be a 2-to-1 merger for them.
“You can’t allow some to be harmed just because they are in the minority,” Weiser said.
(A note: The Dish-Direct TV merger may still eventually occur because both compa¬nies are now losing customers to streaming services.)
Asked what the CEOs of Albertsons and Kroger would say about concerns, Weiser replied, “The CEOs would claim, ‘I’ve got a fix for the harm. You need to say why my fix isn’t good enough.’
“The classic fix is spinning off the stores to another entity.” However, that “fix” didn’t work with the Safeway-Albertsons merger.
“I don’t think they have a leg to stand on,” he said. “Fool me once, shame on you. Fool me twice, shame on me.”
He said a “crown jewel provision” in a merger can provide some protection.
Such a provision “requires divestiture of a different package of assets from what a respondent was originally required to divest . . . if the respondent fails to divest the origi¬nal asset package on time or does so in a manner or condition that does not comply with the order,” according to the FTC’s website.
“If they don’t make the fix work as it’s sup¬posed to, they have to surren¬der some of the crown jewels,” Weiser explained.
Dan Wald¬vogle, director of the Rocky Mountain Farm¬ers Union, who was at the Cor¬tez meeting, raised worries about po-tential impacts to agricultural growers. He said Montezuma County is “an agricultural powerhouse” and many growers sell to the commodity market.
But ag is struggling now, he said, and an¬other factor is that, “We are just about the furthest from any interstate of any place in the country.”
“Please consider me an ally in ensuring this county maintains a viable agricultural sector,” Weiser said.
He urged people to register their concerns through his office’s website.
“If you have people who remember the last merger and it became harder for them as a supplier, you need to give that informa¬tion. Any points you have from past mergers or your fears about upcoming mergers, we need to hear.”
Weiser added, “Fewer competitors lead to worse outcomes, it’s fair to say. Workers are more likely to be paid less in a market with fewer entities.”
In a joking reference to the old TV show Lost in Space, he said, “There is a danger, Will Robinson.”
