Kroger’s Egg Prices Turn Merger Into Inflation Fight – Daily News

By Leah Nylen | Bloomberg

Kroger Co. raised its milk and egg prices more than necessary to account for inflation, the company’s chief pricing officer said in testimony during a trial involving the U.S. government’s effort to block the grocery chain’s takeover of rival Albertsons Cos.

Andy Groff, senior director of pricing at Krogers, admitted in an email to his bosses in March that the company had raised prices more than necessary to adjust for higher costs.

“For milk and eggs, retail inflation was much higher than cost inflation,” Groff wrote.

Groff testified about his email as part of an antitrust lawsuit by the Federal Trade Commission and a group of states that sought to block Kroger from buying Albertsons. U.S. District Judge Adrienne Nelson in Portland, Oregon, is expected to rule on whether to halt the $24.6 billion acquisition.

Higher inflation

Kroger and other grocery retailers have benefited from periods of higher inflation by passing on price increases to consumers. Supermarket operators raised retail prices rather than absorbing all the increases, and higher food prices led to sales jumps until shoppers pulled back on spending.

Law enforcement officials say the Kroger-Albertsons deal will lead to higher prices for consumers because the companies compete in hundreds of markets across the U.S. Grocery retailers say the acquisition will lead to lower prices and better position them to compete with retailers like Amazon.com Inc. and Walmart Inc.

The company’s goal is to “pass inflation on to consumers,” Groff said in response to questions about his email.

A Kroger spokesperson said: “This selected email is time-specific and does not reflect Kroger’s decades-long business model of driving down prices for customers by squeezing margins.”

Kroger wants to be competitive in what it calls “everyday essentials” — the five items customers buy most often: milk, eggs, sugar, bananas and iceberg lettuce, Groff said. Each week, Kroger compares its prices for those items to three others: Walmart, Aldi Inc. and a traditional retailer in the market. Albertsons is a “key traditional retailer” in each market where it competes with Kroger, Groff said.

Dairy plants

Kroger has entered the dairy market over the years and now operates more than a dozen dairies. Egg prices reached record highs in early 2023 in the U.S. because of bird flu, which killed tens of millions of birds and squeezed supplies.

In Illinois, where Kroger operates the Mariano’s chain of stores, company executives compile a weekly report on egg prices, comparing prices with Walmart, Meijer Inc. and Albertsons’ Jewel-Osco, said Matthew Marx, president of the Kroger division that oversees Mariano’s.

The FTC provided Marx with several weekly egg reports for 2022 and 2023.

For example, in May 2022, both Walmart and Meijer lowered egg prices by 14 cents per dozen, but Mariano’s decided to keep prices the same to align with higher prices at Jewel-Osco, Marx said.

A year later, in April 2023, as egg prices rose again, Mariano’s decided to maintain prices at Jewel-Osco’s even as Walmart lowered its own.

“Match the gem”

“We are looking at Jewel, Walmart and Meijer. Our focus is on Jewel,” another Kroger executive wrote in an email to Marx, recommending that Mariano’s maintain its prices. The next month, Walmart and Meijer cut prices by 32 cents per 18-egg carton, while Jewel cut prices by 20 cents to beat Mariano’s. “Please match Jewel’s prices,” Marx wrote to his colleagues.

Todd Kammeyer, president of Kroger’s Fred Meyer stores, also acknowledged that his stores in the Pacific Northwest and Alaska use Albertsons and his Safeway stores as a “ceiling” for setting egg prices. “We wouldn’t exceed” Safeway and Albertsons prices, he said.

However, he added that they could also align their prices with Walmart’s if they were lower.

During the 2023 Superbowl, Albertsons and Safeway offered a “shockingly low” retail price for beer, which Fred Meyer stores matched, Kammeyer testified. He said that was a one-time occurrence because Superbowl week offers the biggest beer sales of the year and customers often buy other products as well. “We thought it was in our best interest to do the same thing,” he said of Albertsons’ price matching.

Groff, however, dismissed the idea that Kroger would raise prices after the acquisition, saying Walmart would not allow the combined grocery companies to charge customers more.

“No, we wouldn’t change” our pricing strategy, he said. If we raised prices, “we would lose customers. I have no doubt we would.”