A proposed merger between Kroger and Albertsons grocery stores would be disconcerting under the best of circumstances. But the inclusion of a planned $4 billion payout to Albertsons shareholders adds to the concern, warranting the attention it has received from the state of Washington and Attorney General Bob Ferguson.
From a general standpoint, the merger would be harmful to consumers. From a broader perspective, the proposal highlights the importance of oversight for corporations and industries that are in the public interest. The Legislature, after all, passed a Consumer Protection Act more than 60 years ago, recognizing that what is best for stockholders is not always best for the public.
Typically, corporations should have broad leeway in determining what is best for business and for investors; that is a foundational element of a capitalistic system. But the proposed payout to Albertsons shareholders — which was scheduled to be made last week until a court injunction — wafts with an unmistakable stench.
It is all part of a recently announced merger between Albertsons and Kroger, a $25 billion deal between the nation’s largest grocery chains. Albertsons owns Safeway, and Kroger owns Fred Meyer and QFC. Between them the companies operate 330 stores in Washington — a vast majority of full-service grocery stores.
Yes, there are plenty of Walmart and WinCo stores and Costco outlets, along with higher-end stores such as Chuck’s Produce and Trader Joe’s and Whole Foods, but most neighborhood grocery outlets fall under the Albertsons or Kroger brand — even if the name on the front of the store says otherwise.
Because of that, the merger falls under the scrutiny of regulators and state attorneys general. Ferguson’s department last week won a restraining order on the dividends, pointing out that the payments would require Albertsons to take out a $1.5 billion loan.
“By eliminating cash-on-hand and nearly doubling its debt, Albertsons will be in a weakened competitive position relative to Kroger, thereby harming grocery consumers and workers throughout Washington,” a King County Superior Court judge wrote in issuing the restraining order.
Competition is the underlying issue. Another foundational element of capitalism is that competition is necessary to optimize production and to serve consumers by providing them with a variety of choices. An Albertsons-Kroger merger would undermine that, and consumers would notice.
As Jenn McMillan writes for Forbes.com, a merger likely “will result in job losses (due to store consolidations) and higher food prices (because fewer companies will control a lion’s share of the market). But the real kick-in-the-pants is a combined Kroger-Albertsons is likely to worsen the presence of food deserts in poor urban areas, a major national challenge.”
Americans like to pretend that market forces drive the economy. But if the two largest grocery chains operating in Washington are allowed to merge, the market is skewed; a monopoly does not foster competition, nor does it benefit workers or shoppers.
The extent of the projected damage will be up to regulators to assess. But it should be easy to recognize that a $4 billion dividend to stockholders is misguided and would diminish Albertsons’ competitive stance long before a merger is finalized.
Paying off investors at the expense of consumers is not one of the foundational elements of a sturdy economy. It warrants intense scrutiny and oversight by state and federal governments.
