The ‘Big Grocery’ Lawsuit Goes to Court

The FTC suit against the Kroger-Albertsons merger would result in higher food prices

WSJ editorial. 

"The Federal Trade Commission lawsuit to block the Kroger-Albertsons supermarket merger goes to trial this week, and the stakes are large for consumers. Chair Lina Khan is again contorting antitrust law and—get this—Kamala Harris is cheering this government bid to raise food prices.

Grocery competition has intensified with the expansion of dollar stores, limited-assortment discounters, warehouse centers and online retailers. Supermarkets such as Kroger and Albertsons have lost ground to lower-priced retailers. Their $24.6 billion merger aims to make them more competitive.

Kroger says the merger will save $1 billion for customers and $1 billion in higher wages and benefits for workers. Customer savings could be larger if competitors reduce prices in response. But Ms. Khan thinks the only good merger is a dead one, and she is using the case to test novel antitrust theories.

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Start with how the FTC narrowly defines the market as traditional supermarkets. This excludes Walmart, Costco, Amazon, Trader Joe’s, Aldi and myriad other food retailers with different business models. The FTC says supermarkets offer “one-stop shopping.”

That’s true, but most people also shop around for variety and lower prices. Online commerce makes this easier. Consumers who shop at supermarkets typically frequent at least four other types of grocery retailers, such as club stores and supercenters. If Kroger raises prices, people have many alternatives.

The FTC’s claim that the merger will lead to excessive market concentration is also undermined by Kroger’s agreement to divest 579 of roughly 5,000 stores. Thus the agency is trying the novel argument that the merger will eliminate “head to head” competition. But this would mean competitors can never combine. No court has ever held this.

The FTC also offers the unprecedented theory that the merger violates antitrust law because it would reduce competition for “union grocery labor.” The Clayton Act forbids the monopolization of commodities and articles of commerce—not workers. The Supreme Court has said the government can’t use antitrust law to regulate labor relations.

The FTC says the merger would make it harder for unions to play Kroger and Albertsons against each other in collective bargaining since labor wouldn’t be able to leverage the threat of a strike at one store to encourage customers to shop at a unionized competitor. So the merger would result in less generous labor contracts.

Perhaps Ms. Khan doesn’t appreciate the irony of the agency’s argument. Collective-bargaining agreements and restrictive union work rules have made supermarkets less competitive. Supermarkets are merging to reduce costs with supply-chain efficiencies. The alternative might be to go out of business, as many have.

Progressives blame supermarket consolidation for higher prices. But grocery prices increased by a mere 13.4% in the decade before the pandemic, compared to 19% for prices overall and 17.5% for wholesale food prices. Competition and consolidation helped keep down prices until the Biden-era inflation.

Yet Ms. Harris has praised the FTC lawsuit, though a win for the agency would result in higher prices and potential job losses if stores close because they can’t compete. Ms. Khan doesn’t care. Her goal is to create legal uncertainty that discourages companies from even attempting to combine.

The FTC lawsuit seeks a preliminary injunction against the merger while the agency tries the case in its administrative tribunal, which could take years. A delay could reduce the merger’s benefits, especially if stores close in the interim.

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That’s why Kroger last week challenged the constitutionality of the FTC’s administrative process. Its lawsuit argues that the double for-cause removal protection for administrative law judges violates the Constitution’s command that the President “shall take Care that the Laws be faithfully executed.” This extends the High Court’s ruling in Free Enterprise Fund v. PCAOB (2010).

Kroger also cites the Court’s recent Jarkesy landmark to argue that only Article III courts can “adjudicate core private rights,” including the right of businesses to contract. This would mean the FTC can’t use its tribunals to adjudicate mergers or business deals it alleges are “unfair methods of competition.”

The Kroger countersuit won’t affect the federal trial, but it could result in curtailing the FTC’s power. The more Ms. Khan stretches the law, the more she undermines her agency’s authority."