What retailers are part of the supermarket … market?
This week, closing arguments wrapped in the Federal Trade Commission’s antitrust case to block a proposed merger between the supermarket chains Kroger and Albertsons. At the center of this case is who Kroger and Albertsons compete with, as well as what a supermarket is.
In cases like this, the FTC has to: define the market, determine who’s in it and ask what would happen if two of those competitors merged, according to Chris Sagers, a law professor at Cleveland State University.
“You have to know what sort of competition they would face if they raised prices, what alternatives could consumers turn to,” he said.
In this case, the FTC is defining the supermarket market. Douglas Farrar, the agency’s director of public affairs, explained that it considers supermarkets to be one-stop shops for groceries.
“They typically have a broad and deep assortment of products in a variety of package sizes” and lots of inventory, he said. Plus, there may be bakery, a deli, maybe a florist.
The FTC counts Walmart — the nation’s largest grocer — and Target as supermarkets, Farrar said. It also considers the stores owned by the two companies in this case, Albertsons and Kroger, to be supermarkets too.
They’re rivals that compete with each other on price, Farrar noted. “And if they merge, that competitive dynamic will go away, and we could see prices rise.”
The FTC says there are other retailers that sell groceries that don’t compete with supermarkets in the same way: those include wholesale club stores like Costco, which often require membership fees; dollar stores; and what it calls limited assortment grocers, like Aldi, which carry fewer brands. It also excludes premium natural and organic stores, such as Whole Foods, which it says generally have higher prices.
All that is to say, the FTC isn’t considering any of them as supermarkets, said law professor Chris Sagers. “You know, admittedly the market definitions that the government alleges here are pretty narrow.”
The FTC is arguing that while consumers can shop for some of the same products at these other retailers, those stores are still not substitutes for a supermarket, Sagers explained.
“They’re not interchangeable enough that no one will be hurt by this merger,” he said.
One of the companies involved, Albertsons, said in a statement that the way the FTC is viewing the grocery industry is “outdated.”
And the grocers are pushing for a much wider definition of a supermarket to includes these club, dollar and organic stores, noted Brian Albrecht, chief economist at the International Center for Law and Economics.
“They argue if you allow the merger through, because we have these competitors, we’re not going to be able to raise prices. In fact, we need this merger in order to compete with Walmart and Costco,” he said.
Ultimately, defining a market is meant to help figure out how it will then change if one particular deal goes through, Albrecht added.