Quantfury Gazette

FTC’s move to block merger of grocery giants Kroger (NYSE:KR) and Albertsons (NYSE:ACI) could have an upside for Walmart (NYSE:WMT)

by
Nathan Crooks
Quantfury Team
Kroger and Albertsons

The Federal Trade Commission on Monday filed a lawsuit in an attempt to block grocery store giant Kroger’s (NYSE:KR) planned acquisition of rival Albertsons (NYSE:ACI), arguing that the $25 billion deal would reduce competition and lead to higher food prices for millions of Americans.

It’s Economics 101, and the regulator is acting to prevent further consolidation in an industry that’s starting to look like a monopoly. It’s also increasingly under radar with food inflation still high, especially in an election year. Americans spent more than 11% of their disposable income on food in 2022, the highest percentage in more than 20 years.

The government’s argument is simple: fewer grocery store chains will end up costing consumers more as monopoly power increases. It said that a proposal from Kroger and Albertsons to sell hundreds of stores belonging to their side chains wasn’t enough.

The merger would also give the combined company “leverage to impose subpar terms on union grocery workers that slow improvements to wages, worsen benefits, and potentially degrade working conditions,” the FTC alleged.

Walmart (NYSE:WMT) was by far the largest grocery retailer in the US last year, with nearly 17% of the retail market, according to Retail Info Systems. Kroger and Albertsons came in the fourth and sixth spots, respectively. If combined in the case of a successful merger, the two companies would have just over 6% of the total retail market, still behind Walmart, Amazon (NASDAQ:AMZN) and Costco (NASDAQ:COST).

The FTC lawsuit will now head to court, and it’s worth noting that the US government has a mixed record in recent years when it comes to winning antitrust cases. The lawsuit, however, comes at an interesting time for Walmart, a company with far greater market share than any other food retailer in the US and yet without any government oversight to limit its own monopoly power.

Walmart itself has been making a number of moves on its own in recent months. America’s largest retailer earlier this month revealed a deal to buy TV-maker Vizio for $2.3 billion in an effort to expand its advertising operations. It also said earlier this month that it would sell a fleet of container fleets to J.B. Hunt Transport Services (NASDAQ:JBHT) as part of a deal that would expand ties between the two companies.

Walmart may be reading the tea leaves, knowing that it can’t actively buy its way into a bigger share of the US grocery market. That’s not stopping it from expanding its tentacles into areas that have the potential to help it improve logistics, increase margins and tap into new ways to reach and attract customers and grow their market share even bigger, without bringing so much unwelcome government oversight.

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