"They're admitting it": Experts say megamerger helps corporations that used pandemic to raise costs

Major food conglomerates that hiked prices amid the pandemic could benefit a $24.6 billion grocery megamerger facing a federal court challenge from the Federal Trade Commission over concerns that the newly created company would raise Americans’ food prices.

The country's food supplier system is dominated by corporate conglomerates that stand to flourish under the megamerger between The Kroger Co. and Albertsons, experts say.

“Throughout the food supply chain, we've got these market power bottlenecks,” Randy Stutz, president of the American Antitrust Institute, told Salon. “We need to prevent any and all of them from getting any worse than they already are.”

"Market power bottlenecks" in grocery and food products

Under the deal, The Kroger Co. would acquire Albertsons, combining America’s two largest grocery chains in the biggest supermarket merger in U.S. history. The combined company would control 22% of the U.S. food retail market; Kroger and Albertsons collectively own and operate nearly 5,000 supermarkets and 4,000 pharmacies across nearly 40 brands in 48 states. There’s a decent chance you shop at one of Kroger’s or Albertsons’ supermarkets: Kroger Co. owns brands like Dillons, Ralphs, Mariano’s and King Soopers; Albertsons’ regional brands include Safeway, Jewel-Osco and Randalls.

Kroger says the sale will unlock efficiencies that would lead to “lower prices and more choices for more customers.” The FTC argues the deal would “eliminate fierce competition,” likely translating into higher prices and a smaller variety of brands, among other impacts. Four out of five consumer product mergers in the U.S. (which includes food retailers) lead to higher prices for customers, according to a 2008 study from the FTC and Princeton University.

Antitrust experts and food economists told Salon the merger could create a dominant grocery giant with power to raise food prices, largely without losing customers. A combined Kroger-Albertsons could also create conditions in which the biggest food brands prosper – corporate giants that, according to one federal report, exploited the pandemic and high inflation to raise prices.

"There isn’t actually much choice" in the grocery aisles

America’s food industry is incredibly consolidated, often dominated by a handful of conglomerates that produce the majority of a given food product.

In 2022, the four biggest food brands in pork, coffee, bread, beer and cookies controlled 60% of those markets. Laid out more plainly: in the snack bar category, four companies – General Mills, Kellogg, Simply Good Foods and Mars – made 66.4% of the snack bars stocked on shelves, per 2021 data.

The biggest food brands have power in a range of products. PepsiCo, for example, controls 88% of the chip dip market. The J.M. Smucker Co., known best for jarred fruit spreads, owns 25% of the coffee market – and 47% of the premium pet food space. Unilever, which owns beauty brands like Dove, Pond’s and Axe, makes half the mayonnaise on grocery shelves. Kraft Heinz owns another 30% of the mayonnaise market, as well as nearly 20% of bacon, 10% of coffee and juice, and more than 70% of dry mac & cheese mixes.

“For the average shopper, the grocery store seems more abundant and full of variety than any other time in human history,” Claire Kelloway, program manager at the Open Markets Institute, told Salon. “But all these different brands mask the fact that there isn't actually that much choice.”

In recent years, and during the pandemic, costs associated with many of those companies’ products have soared. The cost of eggs is up 54% from November 2020 to March 2024. Milk prices are up 36%, and cereal prices are up 28% since then. In 2022, food prices rose 9.9% – the steepest annual price hike since 1979. Grocery prices rose more than overall food prices in 2022, swelling 11.4%. As of July 2024, food prices have risen 25% since the pandemic. 

But during periods of high prices, profits soared. Food retailers’ profits increased to 6% over their total costs in 2021; in the first three quarters of 2023, that rose to 7% – “casting doubt on the assertions of some companies that rising prices at the grocery store are the result of retailers’ own rising costs,” the FTC said in a recent report on the grocery sector’s pandemic pricing practices.

In an analysis from The Guardian of 100 top public companies’ quarterly earnings statements from early 2022 vs. early 2020, profits were up by a median of 49%. Albertsons’ quarterly profits were up 671%; Keurig DrPepper’s quarterly profits were up 83%, and Hershey’s were up 62%.

“There's some basic red flags in terms of economic indicators that strongly suggest there's serious market power problems,” Stutz told Salon.

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Food brands using the pandemic or inflation ‘as cover’ to raise prices

Executives at some of the biggest food conglomerates have admitted to raising prices more than necessary during the pandemic and periods of high inflation. In 2021, executives from Tyson, which owns brands like Sara Lee and Hillshire Farm, told investors that “pricing actions” in beef led to sales earnings that “more than offset the higher (cost of goods).” In 2022, executives from Procter & Gamble – which owns Tide, Bounty, Gillette and many other brands – told investors that, looking at future sales growth, “we continue to believe that the majority of that growth will be price driven with a negative volume component, as you would expect given the inflationary pressure.”  

Last month, a Kroger executive testified in the FTC’s case against the Albertsons merger about an email that seemed to imply Kroger did, in fact, raise prices more than needed earlier this year. “Retail inflation has been significantly higher than cost inflation,” Kroger’s senior director for pricing wrote in an email to his bosses in March, per Bloomberg.

“If they're admitting it, and the federal government is finding evidence of it, then we absolutely know that to be true,” Amanda Starbuck, research director at Food & Water Watch, told Salon of grocery and food conglomerates exploiting outside events. “There's plenty of evidence out there that (suggests) it is pretty easy for them to point to a terrible, tragic disaster, and use it as coverage to profit and to raise prices.”  

A spokesperson for Kroger said in a statement that "this cherry-picked email covers a specific period and does not reflect Kroger’s decades-long business model to lower prices for customers by reducing its margins."

"What’s missing is the fact that Kroger’s retail prices include the cost to run a grocery store, including labor, transportation, advertising and other costs. Many of these costs have significantly increased since 2020. Kroger’s pricing decisions are impacted by factors beyond inflation," the statement continued. "We work relentlessly to keep prices as low as possible for customers in our highly competitive industry. This is especially true for essential products like milk and eggs. Since 2020, these commodities saw significant cost fluctuations for a broad range of products. Despite these challenges Kroger has maintained competitive pricing for milk and eggs, especially compared to Walmart. Reducing margins to lower prices over time so more customers shop with us is our business strategy, and the strategy we will implement at Albertsons after our merger.”

Under a more powerful Kroger-Albertsons, an already deeply consolidated pool of food brands could stand to prosper from even further consolidation. More consolidation – and more influential corporate giants – risks more deeply entangling the interests of profit-driven companies in America’s food system.  

“Allowing a merger like that to go through really threatens to lock in and entrench a very concentrated market structure,” Stutz told Salon. “Among the levers to pull, in terms of promoting competition, that's one less lever that can be pulled, right?”