Business/Economy

What the proposed Albertsons-Kroger merger could mean in Alaska

Fred Meyer

A $25 billion deal that would unite Fred Meyer and Carrs Safeway grocery stores under one corporate umbrella is raising unique concerns in Alaska, where the stores are the dominant urban grocers in an isolated state with limited competition.

Kroger, the parent company of Fred Meyer, and Albertsons, parent of Carrs Safeway, announced plans to merge last month. The deal, if approved by the Federal Trade Commission, would create a grocery behemoth affecting food shopping and delivery across most of the U.S.

The two retail giants have said they will invest to improve the customer experience, reduce prices and increase wages and worker benefits. Experts say the combined chains will likely be required to sell off some stores in Alaska and other states to keep competition alive, though that raises concerns about whether any company can successfully compete against them.

Critics in Alaska, echoing national concerns, argue that the deal could lead to higher prices as competition and potentially stores are reduced, harming neighborhoods, jobs and food selection.

But they also point to Alaska’s unique conditions. Nearly all food consumed in the state is shipped here over the ocean, and many store shelves already run bare when winter storms delay shipments, heightening serious concerns about what a long-running disruption to the state’s food supply would mean.

The Alaska Department of Law, which oversees the Consumer Protection Unit, would not comment about whether or how it might address the proposed merger.

But a consumer advocacy group and two Alaska lawmakers have separately called on the Federal Trade Commission to stop it.

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Anchorage Democratic Reps. Zack Fields and Ivy Spohnholz said in an Oct. 31 letter to commission Chair Lina Kahn that food price increases they say will result from the merger would be “devastating” and “most acute” in Alaska, where “food costs are already well above the national average due to high transportation costs.”

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“There is extensive peer-reviewed data about the anti-competitive, inflationary impacts of reduced competition,” the lawmakers wrote. “A transition from a competitive to a largely monopoly market results in higher prices for consumers and less market power and income for front-line workers in the industry.”

Carrs  Safeway

A big deal’

Kroger and Albertsons are the nation’s two largest grocery stores, with Kroger the biggest. They own 5,000 stores nationally serving more than two-thirds of U.S. households. They employ 700,000 workers.

“We are bringing together two purpose-driven organizations to deliver superior value to customers, associates, communities and shareholders,” Rodney McMullen, the Kroger chairman and CEO, said in the announcement last month. McMullen would keep those roles for the combined company.

The companies’ Alaska operations consist of 12 Fred Meyers and 35 Carrs Safeways, said Dan Robinson, an economist with the Alaska Department of Labor and Workforce Development. The stores compete in the state’s urban areas, from Fairbanks to Anchorage to the Kenai Peninsula, and in Juneau in Southeast, sometimes in close proximity. Many Alaskans just call them “Freddies” and Carrs.

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Robinson said he could not disclose the chains’ Alaska employment numbers due to confidentiality laws.

“This is a big deal because those are the two big food and grocery stores, especially in urban Alaska, and the question is what this will do to competition and prices,” Robinson said.

A spokesman with Fred Meyer this week declined to comment. Representatives with Carrs Safeway could not be reached for comment.

In Alaska, some stores may need to be sold

The companies anticipate spinning off 100 to 375 stores to create a “new, agile competitor” to address regulatory concerns about competition.

Doug Ross, an antitrust expert with the University of Washington School of Law, said in an interview that the chains’ divestment plan likely includes Alaska because of the close competition in the state, though he said the specific stores for divesting have not yet been disclosed.

“I’d say surely the parties understand they have an antitrust issue in Anchorage (and Alaska) and they can’t get their merger through unless they propose a solution to that overlap,” he said.

For the merger to happen, stores that are divested to other companies must be able to compete as robustly as they did before the merger, he said.

But many fear that the combination of Albertsons and Kroger will create a giant with such dominant buying power that any new competitors can’t survive, he said.

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“They have not indicated how this (divestment plan) will work, so it’s possible that the plan provides competition that’s as meaningful as it is today,” Ross said. “But if not, the FTC will disapprove the merger and I think a federal court would be inclined to disapprove it too.”

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‘Carrs-Fred Meyer juggernaut’

Matt Berman, an economist with the Institute of Social and Economic Research at the University of Alaska Anchorage, pointed out that Alaska has previously experienced a grocery merger that tried to address anticompetitive concerns but failed.

When Safeway took over the Alaska-based Carrs chain for $330 million in 1999, the state under then-Gov. Tony Knowles ordered Safeway to sell seven stores, including four in Anchorage.

Alaska Marketplace acquired six of the stores, under a consortium that included Associated Grocers of Seattle, Alaska Commercial Co. with its rural grocery stores, and Bristol Bay Native Corp.

But all six stores closed within 15 months. Critics asserted that the state erred by allowing Safeway to sell off lower-performing stores.

Berman said he foresees challenges to the Albertsons-Kroger plan before the Federal Trade Commission, particularly for areas such as Alaska, where nearly all store products arrive at the Port of Alaska in Anchorage.

Carrs Safeway and Fred Meyer have a strong supply chain shipping product to the port and in Alaska, he said. That’s a critical part of their success, and replicating that could be a challenge for any possible competitor, he said.

“The question is how could a competitor put that together and compete against a Carrs Fred Meyer juggernaut,” he said.

An already ‘fragile’ supply chain

Graham Downey, consumer advocate with Alaska Public Interest Research Group, said he shops at the Fred Meyer and Carrs Safeway stores in Midtown Anchorage. They’re just a hop across Seward Highway from each other, and they often sell food made by different manufacturers.

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Downey said he envisions the combined chain downsizing two stores into one in that situation and others in Alaska. That would lead to higher costs for essential foods and household items, less product selection and fewer jobs, hurting the Alaska economy, he argued.

The consumer advocacy group signed onto a letter from the United Food and Commercial Workers Local 400, based in Maryland, asking the Federal Trade Commission to block the merger, he said. The organization’s Alaska chapter, Local 1496, did not respond to requests for comment for this article.

Downey said the proposed merger raises food security concerns because of Alaska’s isolation from the Lower 48.

“More consolidation will make the supply chain more fragile in Alaska,” he said. “There will be fewer people making decisions about bringing food up here.”

Alaska Public Interest Research Group is also asking members to sign a letter opposing the merger. The letter will be sent to the state’s congressional delegation, Downey said.

Alaska Sen. Dan Sullivan, a Republican, and Rep. Mary Peltola, a Democrat, did not respond to requests for comment.

Republican Sen. Lisa Murkowski’s office said the Federal Trade Commission will evaluate the merger and has responsibility for preventing it from happening if it will cause higher prices, reduced competition or negative workforce impacts.

“However, this potential merger is still very early in the process and there is not enough existing information for Senator Murkowski to fairly weigh in at this time,” Murkowski’s office said in a statement.

Alaska Department of Law mum

Officials with the Alaska Department of Law, including its consumer protection division, declined to discuss the proposed merger.

Patty Sullivan, a spokeswoman with the department, said it could not provide details about any future actions it might take. Because of confidentiality laws, the department could neither confirm nor deny the existence of antitrust investigations regarding the merger, she said.

“The Department of Law is aware of the transaction and is committed to protecting consumers through the vigorous enforcement of Alaska’s antitrust laws,” she said.

There are smaller stores selling groceries, such as New Sagaya and Natural Pantry in Anchorage, Three Bears Alaska in Chugiak and elsewhere in Alaska. But Fields, the Alaska lawmaker, said smaller stores aren’t true competitors to Carrs and Fred Meyer.

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Officials with those smaller stores declined to comment. An official with Alaska Commercial, with 34 stores in rural Alaska, said the company will continue to focus on its rural operations.

Fields pointed out that Anchorage has other supercenters that sell groceries, such as Walmart and Costco. But they’re not full-service grocery stores, they’re few in number, and they aren’t easily accessible to most neighborhoods.

Fields said he doesn’t see any positives if the stores unite in Alaska.

“This is huge for Alaska,” he said. “It will mean loss of jobs, higher prices and less selection, all negative.”

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Alex DeMarban

Alex DeMarban is a longtime Alaska journalist who covers business, the oil and gas industries and general assignments. Reach him at 907-257-4317 or alex@adn.com.

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