The Federal Trade Commission’s court case against Kroger’s proposed acquisition of rival grocer Albertsons is a week in, and reports from the Portland, Ore., courtroom reveal a bare knuckle brawl between the grocery giants and federal regulators.
The case made big headlines on Wednesday, when the FTC focused on one of its central arguments that Kroger would raise prices on shoppers if the $24.6 billion merger is approved.
According to a story in Bloomberg, the FTC produced an email from Andy Groff, Kroger’s senior director for pricing, acknowledging that the grocer had raised the price of eggs and milk “significantly higher than the cost of inflation.”
Headlines declared that higher prices for the two staples constituted price gouging, but Groff argued that if the combined Kroger-Albertsons raised prices, they would lose market share to competitors like Walmart.
Brittain Ladd, a supply chain management and grocery industry analyst, said in an interview with Supermarket News that he believes Kroger’s decision to keep the price of eggs and milk artificially high could be a stress test on consumers.
“In the case of eggs and milk, Kroger chose to pass along the full cost of inflation to customers,” he said. “I believe they did this to determine what percentage of customers would buy the higher priced eggs and milk. If the majority of customers purchased the eggs and milk, Kroger would know that they could keep selling the eggs and milk at the higher prices.”
Ladd said Kroger and other grocers could do a better job of explaining how and why they raise prices on some items. He noted that the complexity of dairy and poultry markets play a role in shifts in price. The poultry market has been hit hard by avian flu that has killed over 50 millions birds this year alone, he said.
“I think that they also should have done a much better job of explaining, how do they raise prices, when do they raise prices, why do they raise prices? And they didn't do that, and so they put themselves in this position where they look like they are price gouging,” he said.
Neil Saunders, managing director and retail analyst at GlobalData Retail, also noted the rapid changes in egg prices over the last few years due to bird flu and the “enormous” price increases for bird feed.
“There are a lot of reasons why egg prices fluctuate,” he said. Now, whether Kroger has artificially inflated those prices? No, I haven’'t seen the evidence, but what I do know is that egg prices at periods in time have gone up across the board. It isn’t just Kroger that’s pushed them up.
“I'm not sure it’s a knockout blow from the FTC on that front because that's almost a separate argument in and of itself, and they would have to do an awful lot of work to prove that Kroger has artificially profited and price gouged,” he said.
In court, Kroger executives noted that they benchmark their egg prices to those set by Albertsons and other competitors.
Kroger said in an email to Supermarket News that the information provided by the FTC to show price gouging was misleading and not representative of the grocer’s overall strategy.
“This cherry-picked email covers a specific period and does not reflect Kroger’s decades-long business model to lower prices for customers by reducing its margins,” a Kroger spokesperson said in an email response to questions. "What’s missing is the fact that Kroger’s retail prices include the cost to run a grocery store, including labor, transportation, advertising, and other costs. Many of these costs have significantly increased since 2020. Kroger’s pricing decisions are impacted by factors beyond inflation.
Kroger said it works to keep costs low, particularly for essentials like milk and eggs.
"Since 2020, these commodities saw significant cost fluctuations for a broad range of products. Despite these challenges Kroger has maintained competitive pricing for milk and eggs, especially compared to Walmart. Reducing margins to lower prices over time so more customers shop with us is our business strategy, and the strategy we will implement at Albertsons after our merger," the company said.
