Kroger egg pricing turns merger process into inflation battle

(Bloomberg) — Kroger Co. raised milk and egg prices more than necessary to account for inflation, the company's top pricing executive testified during a court hearing on the U.S. government's attempt to block the grocery chain's purchase of rival Albertsons Cos.

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Andy Groff, Kroger's senior director of pricing, acknowledged in an email to his superiors in March that the company had raised its prices more than necessary to adjust for increased costs.

“For milk and eggs, retail inflation was significantly higher than cost inflation,” Groff wrote.

Groff testified about his email as part of an antitrust lawsuit brought by the Federal Trade Commission and a group of states that seeks to block Kroger from buying the Albertsons chain. U.S. District Judge Adrienne Nelson in Portland, Oregon, is expected to rule on whether to stop the $24.6 billion takeover.

Higher inflation

Kroger and other grocers have benefited from periods of higher inflation by passing price increases on to consumers. Supermarket operators raised retail prices rather than absorbing all price increases, and higher grocery prices caused sales to jump until shoppers held back on spending.

Antitrust regulators say the deal between Kroger and Albertsons would lead to higher prices for consumers because the companies compete directly in hundreds of markets across the U.S. The grocers say the acquisition would result in lower prices and better position them to compete with retailers such as Amazon.com Inc. and Walmart Inc.

The company's goal is to “pass our inflation on to consumers,” Groff said in response to questions about his email.

Kroger tries to be competitive on “everyday groceries” – the five items customers buy most often: milk, eggs, sugar, bananas and iceberg lettuce, Groff said. Each week, Kroger compares its prices on those items with those of three others: Walmart, Aldi Inc. and a traditional retailer in the market. Albertsons is the “key traditional retailer” in every market where it competes with Kroger, Groff said.

Dairy plants

Kroger has entered the dairy business over the years and now operates more than a dozen dairies. Egg prices hit record highs in the U.S. in early 2023 due to a bird flu outbreak that killed tens of millions of birds and limited supply.

In Illinois, where Kroger operates the Mariano's chain, company executives produce a weekly egg price report comparing prices from Walmart, Meijer Inc. and Albertsons' Jewel-Osco, said Matthew Marx, president of the Kroger division that oversees Mariano's. The FTC walked Marx through several of the weekly egg reports from 2022 and 2023.

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In May 2022, for example, both Walmart and Meijer cut egg prices by 14 cents per dozen, but Mariano's decided to keep its prices the same to keep up with higher prices at Jewel-Osco, Marx said.

A year later, in April 2023, when egg prices skyrocketed again, Mariano's decided to keep its prices close to Jewel-Osco's even as Walmart lowered its own prices.

'Match Jewel'

“We are looking at Jewel, Walmart and Meijer. We are focusing on Jewel,” another Kroger manager wrote in an email to Marx, recommending that Mariano's keep its prices the same. The next month, Walmart and Meijer cut prices on a carton of 18 eggs by 32 cents, while Jewel cut its price by 20 cents to beat Mariano's. “Please follow Jewel,” Marx wrote to his colleagues.

Todd Kammeyer, president of Kroger's Fred Meyer stores, also acknowledged that his stores in the Pacific Northwest and Alaska use Albertsons and Safeway prices as a “ceiling” for egg prices. “We would not exceed Safeway and Albertsons prices,” he said.

However, he said they might also match Walmart's prices if they were lower.

During the 2023 Superbowl, Albertsons and Safeway offered a “shockingly low” retail price on beer, which Fred Meyer stores matched, Kammeyer testified. He said that was a one-time occurrence because Superbowl week offers the biggest beer sales of the year and customers often buy other products as well. “We thought it would be in our best interest to do the same,” he said of the price match to Albertsons.

Still, Groff dismissed the notion that Kroger would raise prices after the acquisition, saying Walmart would prevent the merged grocers from charging customers higher prices.

“No, we would not change our pricing strategy,” he said. If we raised prices, “we would lose customers. I have no doubt that would happen.”

– With support from Jaewon Kang.

(Updated with additional details starting in paragraph 10.)

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