Would a Kroger-Albertsons merger drive grocery prices up or down? The answer is complicated

As grocery giants Kroger and Albertsons push to complete the largest supermarket merger in U.S. history, executives from the two companies have made a controversial claim.

The merger would lower food prices, rather than drive them up as U.S. regulators fear would happen if the deal goes through.

“The day we merge, we're going to start lowering prices,” Kroger CEO Rodney McMullen said at a hearing in federal court this week.

Will consumers, who have been frustrated by rising food prices for the past few years, finally see a price drop or not? Experts say the answer is complicated because food prices can vary by location and many factors come into play.

The pricing issue is a crucial part of an ongoing hearing that a federal judge in Oregon is holding to decide whether to grant regulators' request to temporarily halt the merger. The high-profile court battle, which will feature testimony from food executives and antitrust experts, is expected to continue into next week.

The Federal Trade Commission and several state attorneys general, including California Attorney General Rob Bonta, say the deal would eliminate competition that contributes to low prices. Kroger and Albertsons compete as rivals and therefore have an incentive to keep prices low to attract customers, regulators say.

The companies countered that together they would be big enough to compete with other giants making ever-larger claims on the grocery market. A spokesman for Kroger, which announced plans to acquire Albertsons in 2022 for $24.6 billion, said the merger would “bring lower prices to more customers” and allow them to “better compete with giant retailers Walmart, Costco and Amazon.”

And in a presentation about the merger, the supermarket chain claims that the company has reduced its gross profit margin over the years to keep prices low. McMullen reiterated that claim in his testimony, pointing out that Albertsons' prices are 10 to 12 percent higher than Kroger's, so the merger will help reduce those differences.

The conflicting answers underscore the variety of factors that can influence whether shoppers pay more for meat, eggs, vegetables and other popular foods, experts say. Rising food prices have become a political flashpoint in the U.S. presidential campaign, with Vice President Kamala Harris – the Democratic presidential candidate – calling for a federal ban on “price gouging” to bring down food prices.

The story continues

“In the grocery business, it's really hard to predict what prices will be two months from now because there are so many variables that go into food prices,” says Donald Polden, a law professor and former dean of Santa Clara University. Weather conditions overseas, for example, could affect the availability of certain products and affect the price.

The FTC alleges the merger would violate a federal antitrust law known as the Clayton Act, which is designed to spur competition and prevent the formation of monopolies. If there is less competition, the concern is that a company will then be able to charge any price it wants, Polden said.

Americans are already feeling the effects of the crisis. According to a report published in February by the left-leaning think tank Groundwork Collaborative, families are paying 25 percent more for food than before the pandemic.

Compared to other states, Californians spend the most on groceries. According to 2023 U.S. Census Household Survey data analyzed by HelpAdvisor, California residents spent an average of $297.72 per week on groceries. In Los Angeles, average weekly grocery spending was a few dollars lower, but still above the national average.

John Mayo, a professor of economics, business administration and government at Georgetown University, said the cost of ingredients, worker wages, management efficiency and competition all played a role in determining food prices.

While “competition can have a big impact on food prices in grocery stores,” he said, exactly how big the role of competition is in a particular area is “quite difficult.”

In its complaint against the merger, the FTC stated that people prefer to shop near where they live or work, which is why supermarket competition dynamics are felt at the local level.

In big cities with a lot of competition, like San Francisco, New York and Philadelphia, grocery store mergers have led to lower prices. But in places with less competition, like Fort Smith, Arkansas, and Topeka, Kansas, grocery store mergers have led to higher prices, Mayo said in a discussion on the topic.

Mayo pointed to a 2012 study by the FTC Bureau of Economics that examined how prices changed after grocery store mergers. The study examined the relationship between prices and a measure of market competitiveness. Some of the mergers resulted in estimated price increases, while others caused price decreases or resulted in relatively small price changes, the economists found.

“There is very mixed evidence on whether mergers in the food retail sector have a harmful effect on pricing,” he said.

A 2023 report by the U.S. Government Accountability Office identified other factors that can affect food prices, such as outbreaks of animal and plant diseases, the Russia-Ukraine conflict, the COVID-19 pandemic, and global trade issues.

The growing size of Albertsons and Kroger has caught the attention of regulators seeking to protect consumer interests. Albertsons owns the well-known brands Pavilions, Safeway and Vons. Kroger operates Ralphs, Food4Less, Fred Meyer, Fry's, Quality Food Centers and other popular grocery stores. If the merger goes through, the two supermarket chains would operate more than 5,000 stores in 48 states.

To address concerns that reduced competition could lead to higher grocery prices, Kroger and Albertsons have proposed selling 579 stores to another company, C&S Wholesale Grocers. The proposal involves 63 stores in California, mostly in Southern California.

Prices are not the only concern for regulators. The antitrust complaint also cites potential impacts on product quality, customer service, pharmacy services and union activity in the grocery industry.

However, for grocery shoppers, price is still the top priority.

On a scorching California day, shoppers pushed their carts through an air-conditioned Safeway, winding their way through aisles filled with frozen foods, meats and vegetables.

Throughout the San Leandro store, bright yellow signs displayed the latest deals for Safeway members. “Buy one value pack of chicken wings and get the other pack free,” one sign read. The Washington Avenue store is among those slated for sale if the merger goes through.

Alana Chand, 56, of San Leandro said she was surprised to see free-range eggs selling for about $8. Egg prices have risen as an outbreak of bird flu limits supply.

Still, she shops at Safeway because it's close to where she lives. There's also a Walmart in town, but she doesn't enjoy shopping there because it's “not the safest.”

“Price is a factor, but in the end you get what you need,” she said. “I mean, you just have to make it work.”

According to consumer data firm Numerator, Walmart is the most popular retailer nationwide, accounting for 21% of consumer packaged goods spending. On the West Coast, Costco is the most popular retailer, followed by Walmart, Albertsons, Kroger, Amazon and Target.

Ricardo Martinas, an Oakland resident, has noticed rising prices at several retailers, including Costco, which raised membership fees for the first time in seven years. Seeing long lines and too many items tied up at Walmart, the 53-year-old decides to shop elsewhere. His wife, he said, really appreciates the quality of the organic vegetables and eggs at Safeway.

“She said they had better quality here,” he said. “But to me it looks the same. The price is a little higher, but she said she wants to go to Safeway.”

With both state regulators and Kroger and Albertsons expected to appeal if they don't win the case, the wait for lower prices is likely far from over.

Subscribe to our Wide Shot newsletter for the latest entertainment news, analysis and insights.

This story originally appeared in the Los Angeles Times.