What is a grocery store? – Daily News

By Leah Nylen and Jaewon Kang | Bloomberg

At the heart of the federal government’s fight to stop Kroger Co. from buying Albertsons Cos. for $24.6 billion is an existential debate about how Americans buy groceries today.

The Federal Trade Commission and grocers have been arguing their case for the past three weeks before a federal judge, who is expected to decide the outcome of the largest U.S. grocery deal in the coming months.

In addition to industry experts, executives from Kroger, Albertsons, Amazon.com, Walmart, Target and other retailers testified about how they view the industry and run their businesses. A hearing on the government’s request for an injunction blocking the acquisition is expected to conclude Tuesday, Sept. 24.

In numerous testimonies on topics ranging from egg prices to the proposed sale of hundreds of stores, the agency and the companies have sparred over how to define a grocery store and which businesses are included in the sector.

The issue will be central to the judge’s decision, a watershed moment both for America’s two largest grocers, who say they must join forces as consumer habits evolve, and for antitrust authorities who have taken a tougher approach to big deals under the Biden administration.

The FTC Case

The FTC argues that Kroger’s acquisition of Albertsons would combine the two largest “traditional supermarkets,” which offer a “one-stop shopping” experience where customers can buy everything from fresh produce to pet food. It presented as evidence dozens of internal emails and spreadsheets showing that the two supermarkets constantly compare prices and designate each other as their main competitor.

Antitrust authorities have long focused on grocery markets and have established some variations within the sector. They argue that traditional supermarkets like those owned by Kroger and Albertsons are distinguished from other food retailers by store size and product assortment.

The FTC, which sued to block the deal in February, argues that department stores Walmart and Target compete in that market. Not included in the agency’s definition are dollar stores, convenience stores, e-commerce operations like Amazon and Instacart, and club stores that charge a membership fee and offer large quantities of an item, like Walmart-owned Costco and Sam’s Club. Limited-assortment stores like Trader Joe’s and Aldi are also excluded.

See also: Unions steal spotlight at Kroger-Albertsons antitrust trial

As early as 2007, the FTC argued that high-end or organic supermarkets, such as Whole Foods Market, were different from traditional grocers because they charged higher prices and focused primarily on organic or natural products.

Modern market

Grocers say the concept of a traditional supermarket is “outdated” and no longer describes the way people shop.

Customers can buy staples like milk and eggs everywhere from Walmart to Dollar General Corp. to Costco to Amazon. They argue that the best way to think about grocery shopping today is to think of it as a “MULO+ omnichannel” world — an industry term that describes multiple points of sale, methods or channels for purchasing groceries, including in-store or online.

“Most grocery executives in the country are extremely focused on what nontraditional segments are doing to take share from them,” said John Clear, senior director in the consumer and retail group at consulting firm Alvarez & Marsal Holdings LLC, who previously worked at Lidl US LLC.

Dollar stores saw significant growth after the Great Recession of 2008, and continued inflation has further shifted consumer spending to value-oriented retailers such as Costco, Aldi and Trader Joe’s. While these operators are opening stores faster than traditional grocers, he said, people aren’t visiting retailers much more today than they were a few years ago.

Kroger and Albertsons announced their deal nearly two years ago, saying it would help them better compete with larger rivals. Albertsons began measuring its market share about six months ago using the MULO+ metric that includes Amazon and Costco, CEO Vivek Sankaran said in court. Albertsons’ share has fallen under that metric.

See also: Who is C&S Wholesale, potential buyer of 63 Albertsons stores in California?

“People are not consuming more simply because they are shopping elsewhere,” he said.

Kroger CEO Rodney McMullen said Albertsons is among the grocer’s many competitors, and Walmart is the grocer’s “number one competitor.” Kroger checks Walmart’s prices on some products daily. Kroger tracks Walmart more closely than Albertsons, in part because Albertsons’ prices are 10 to 12 percent higher than Kroger’s.

McMullen, who grew up in Kentucky and Ohio and has worked at Kroger for more than 40 years, painted a picture of a grocery shopper who has multiple options. While it’s more convenient for busy customers to buy their groceries at one store, consumers don’t always do that, he said.

Kroger has made a variety of changes as competitors have expanded their grocery offerings. The company has begun offering larger packages in response to club stores, he said, and has beefed up its organic food offering. It is looking to lower prices further in part as Aldi and Lidl grow.

Grocery Shopping Strategies

Other retailers offered rare insight into how they view the industry and envision growth. Walmart, the largest food retailer in the U.S., which began selling groceries in the late 1980s, was a recurring character in the testimonies.

Marc Lieberman, vice president of merchandising and operations at Walmart U.S., said club stores and discounters are different from traditional supermarkets, but Costco and Aldi are competitors in the grocery space.

“There are so many more players today” than there have ever been historically in the food retail industry, said Joe Feldman, an analyst at Telsey Advisory Group.