What is a grocery store? – Orange County Register

Authors: Leah Nylen and Jaewon Kang | Bloomberg

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

The Federal Trade Commission and grocery store owners have been defending their case for the past three weeks before a federal judge who is likely to decide 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 sector and run their businesses. The hearing on the government’s request for an injunction blocking the takeover is set to conclude Tuesday, Sept. 24.

In extensive testimony covering issues ranging from egg prices to the proposed sale of hundreds of stores, the agency and companies argued over how to define a grocery store and which businesses fall into that sector.

The question will be central to the judge’s decision, a watershed moment both for the two largest U.S. grocery chains, which say they must join forces as consumer habits change, and for law enforcement, which has taken a more rigorous approach to large transactions under the Biden administration.

FTC Case

The FTC alleges that Kroger’s acquisition of Albertsons would combine the two largest “traditional supermarkets” that offer “one-stop” shopping experiences where customers can buy everything from fresh produce to pet food. They provided dozens of internal emails and spreadsheets that show the two companies constantly compare prices and refer to each other as a primary competitor.

Antitrust enforcers have long focused on grocery stores and have established some variations on the industry. They argue that traditional supermarkets, such as those owned by Kroger and Albertsons, are different from other food retailers because of their store size and product mix.

The FTC, which sued in February to block the deal, says larger Walmart and Target stores compete in that market. The agency’s definition excludes dollar stores, convenience stores, e-commerce operations like Amazon and Instacart, and club stores that require membership fees and offer large quantities of a given item, such as Costco and Sam’s Club, which are owned by Walmart. Limited-assortment stores like Trader Joe’s and Aldi are also excluded.

See also: Unions steal show in Kroger-Albertson antitrust trial

As far back as 2007, the FTC argued that supermarkets offering organic or premium foods, such as Whole Foods Market, differ from traditional grocery stores in that they have higher prices and focus primarily on organic or natural products.

Modern market

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

Customers can buy staples like milk and eggs everywhere from Walmart and Dollar General Corp. to Costco and Amazon. They say a better way to understand today’s food shopping is in the world of “MULO+ omnichannel”—an industry term that describes multiple points of sale, methods or channels for purchasing food, including brick-and-mortar stores and online.

“Most grocery executives in the country are hyper-focused on what non-traditional segments are doing to capture 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 ongoing inflation has further shifted consumer spending toward value-oriented retailers like Costco, Aldi and Trader Joe’s. Although these operators are opening stores faster than traditional grocers, he said, people don’t go to many retailers today more than they did 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 using a MULO+ index about six months ago, which includes Amazon and Costco, Chief Executive Vivek Sankaran testified in court. Albertsons’ share has fallen below that index.

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

“People don’t consume more just because they buy elsewhere,” he said.

Kroger CEO Rodney McMullen testified that Albertsons is one of many competitors for the grocery store, and that Walmart is the grocery store’s “No. 1 competitor.” Kroger checks Walmart’s prices daily for some products. Kroger tracks Walmart more closely than Albertsons, in part because Albertsons’ prices are 10% to 12% higher than Kroger’s.

McMullen, who grew up in Kentucky and Ohio and worked at Kroger for more than 40 years, painted a picture of a grocery shopper who has a range of options to choose from. While it’s convenient for busy shoppers to shop for groceries in 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 strengthened its organic food selection. The company is trying to keep lowering prices, in part as Aldi and Lidl expand.

Food strategies

Other retailers offered rare insight into how they view the sector and think about growth. Walmart, the largest U.S. food retailer that started selling groceries in the late 1980s, was a recurring figure in the testimony.

Marc Lieberman, vice president of merchandising and operations at Walmart US, said club stores and discount stores are different from traditional supermarkets, but Costco and Aldi are competitors in the grocery market.

“There are so many more players in the food retail market today” than ever before, said Joe Feldman, an analyst at Telsey Advisory Group.