Hiltzik: Consolidation hardly results in worth drop

The mammoth proposed $24.6 billion merger of grocery store giants Kroger and Albertsons has been touted by merger companions as a boon for customers.

“We are going to study from every firm’s classes to carry higher worth and a greater expertise to extra clients, extra workers and extra communities,” mentioned Kroger CEO Rodney McMahon. Lun advised analysts and traders on a convention name Friday after the deal was introduced.

McMullen did not explicitly say that might imply decrease costs, however few customers thought “higher worth and a greater expertise” meant something aside from paying much less on the checkout line.

There isn’t any motive to permit the nation’s two largest grocery store chains to merge – particularly with meals costs already hovering.

–Sarah Miller, American Financial Freedom Undertaking

Some analysts mentioned a merger of the most important and second-largest grocery store chains would enable them to higher compete with Walmart, the most important grocery retailer, and Amazon.com, proprietor of Entire Meals.

However have not we heard all this earlier than?


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Cable, media and telecommunications firms at all times promise that their merger will carry decrease costs and extra option to viewers.

When AT&T closed its acquisition of Time Warner in 2018, AT&T CEO Randall Stephenson promised that the deal would enable the 2 firms to “present clients with differentiated, high-quality, cellular Prioritizing the leisure expertise…we are going to carry an entire new strategy to how the media and leisure trade serves customers, content material creators, distributors and advertisers.”

Comcast promised that its 2011 merger with NBCUniversal would open the door to a paradise of discretionary choices at mass costs. The corporate additionally pledged that it might not favor its personal content material by itself web community.

Did this occur? Do you are feeling such as you’re spending much less and getting extra from video and the web? Neither do I.

The identical goes for well being care mergers, that are additionally at all times touted as a path to higher know-how and decrease prices. As I’ve noticed prior to now, the merger of hospitals and medical insurance nearly at all times ends in larger prices, decrease effectivity, and fewer innovation. The reason being easy: mergers cut back competitors — and it’s competitors that drives down costs and encourages higher effectivity and innovation.

Again in 2004, Woodland Hills-based WellPoint merged with Indianapolis-based Anthem by merging the well being insurer’s pc programs and permitting clients’ medical information to profit them throughout the brand new firm’s expansive , leading to big financial savings.

By no means thoughts that WellPoint Chairman and CEO Leonard Schaeffer is predicted to make $37 million from the deal, plus a lump sum of $45 million in accrued pension rights. We’re nonetheless ready for the technical deserves of the WellPoint-Anthem deal to emerge 18 years later. However that did not cease CVS and Aetna from making the identical assertion once they introduced their merger in 2017.

A 2016 USC examine discovered that two giant programs that grew via acquisitions, Sutter Well being and Dignity Well being, dominated the California hospital market, driving up not solely their institutional The costs within the area even enable non-affiliated hospitals to cost larger charges.

All of those offers have roughly been permitted by the FTC. Encouragingly, the present FTC and its chair, Lina Khan, have sounded extra hawkish than the company’s predecessors. However an Albertsons-Kroger deal could be a significant problem.

Kroger is the proprietor of Food4Less and Ralphs and 26 different retailer manufacturers in California. Albertsons owns Safeway, Vons, Pavilions and 12 different manufacturers. It is a big advertising and marketing setup with a single proprietor.

“There isn’t any motive to permit the 2 largest grocery store chains within the nation to merge — particularly when meals costs are already hovering,” mentioned Sarah Miller, government director of the Undertaking for American Financial Freedom.

“With 60 p.c of grocery gross sales concentrated at 5 nationwide chains, the Kroger-Albertsons deal will squeeze customers who already cannot afford meals, crush staff preventing for a good wage, and destroy unbiased neighborhood shops,” Miller mentioned. “This merger is an train in monopoly energy, and legislation enforcement ought to cease it.”

Grocery store mergers may create one other oligopoly to match monopoly inputs that assist push up meals costs, mentioned former Labor Secretary Robert Reich, who now teaches on the College of California, Berkeley.

“At a time when grocery costs are skyrocketing, due partly to monopolies within the meals chain, this merger is not sensible,” Reich advised me by way of e mail. “There are two causes for the present enhance in meals costs: (1) World meals costs have been rising as a consequence of meals shortages attributable to the battle in Ukraine and local weather change. (2) Home monopolies in seeds, fertilizers, and meals processing are utilizing inflation to lift costs, making them costlier than rising prices — together with agricultural merchandise, labor and transportation prices.”

As Reich factors out, company profit-seeking is a little-mentioned think about client inflation. Wages climbed final 12 months, however the positive factors have lagged inflation, which is why so many staff and their households are feeling the sting of rising costs. Nonetheless, company revenue margins have soared to the best level, outpacing inflation and pulling it larger.

“In 2021, U.S. company markups and income will develop at their quickest annual price since 1955,” Roosevelt Establishment economists Mike Konczal and Niko Lusiani reported in June.

To be honest, grocery store firms have historically had a lot decrease revenue margins than most different industries — Kroger had an working margin of three.5% final 12 months on $137.9 billion in gross sales; One determine was 3.4%.

McMullen advised analysts he would use the estimated $500 million to $1 billion in annual financial savings from the proposed merger to decrease shelf costs, revamp shops and enhance employee wages and advantages.

However the firms mentioned they’d additionally pay Albertsons shareholders a $4 billion particular dividend, so it appears to be like like shareholders will get a lot of the proceeds.

It’s extensively believed that the businesses must promote some shops in areas the place their merger would cut competitors. For anybody interested by how this would possibly work, regardless of the guarantees of executives whipping it via press releases, there’s precedent. It is like discovering a nest of spiders in your banana bunch. It includes (look ahead to it…) Albertsons, which in 2014 struck a deal to purchase Safeway for $9.4 billion.

The FTC ordered the businesses to divest 168 of the two,400 shops the mixed firm would personal, most of them within the West. Greater than 140 had been acquired by Haggen Holdings, an 18-store chain within the Pacific Northwest owned by a Florida non-public fairness agency.

Because it turned out, Hagen was utterly incapable of rising practically tenfold in a single day. Inside months, it started shedding staff and filed for chapter earlier than the top of the 12 months. Haggen put 100 shops again on the block, 33 of which had been purchased again by Albertsons – a mean worth of about one-fifth of the sale worth. The corporate’s successful bid for some shops was $1 every.

After the smoke cleared, divestitures ordered by the FTC to guard competitors ultimately eradicated all competitors in some communities. One place that has gotten loads of media consideration is Baker Metropolis in japanese Oregon. Baker Metropolis initially had a Safeway and a Haggen, which competed with one another. After a number of possession transfers, it nonetheless owns two shops, however each are owned by the identical firm.

Baker Metropolis appears to be like like the way forward for the neighborhood with Kroger and Albertsons shops. They need to be ready for smaller and smaller aggressive markdowns, fewer selections on the cabinets, fewer associates within the retailer, and a worse expertise for customers irrespective of how a lot you chop costs. That is to not say McMullen’s promise won’t come true, simply that have tells us that is not the way in which to wager.

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