Lina Khan, gunslinger against big business and chairwoman of the Federal Trade Commission, had her day of reckoning on July 13 when the Republican-led House Judiciary Committee met with her to discuss the agency’s aggressive stance against big business mergers.
As expected, the more than four hour hearing was divided along party lines with Democrats generally praising Khan for tackling difficult issues concerning business concentration in certain areas of the U.S. economy.
Led by committee chairman Jim Jordan (R-OH), Republican congressmen were not so kind. The firebrand Ohio Republican, who termed Khan’s 25-month tenure, a “disaster,” opened the hearing by stating, “She centralized the decision making at the commission within her office, eliminating any pretext of due process or transparency in that decision making. Her approach is best characterized as one of intimidation, followed by inaction.”
Later during the hearing, Rep. Kevin Kiley, (R-CA) asked if Khan was challenging deals she expected to lose in court, citing the recent approval of Microsoft’s decisions to acquire Activision Blizzard and earlier court decision that allowed Meta (Facebook) to acquire virtual reality content maker Within Unlimited. Khan responded by stating, “Absolutely not, we fight hard when we believe there was a law violation, and unfortunately things don’t always go our way.”
Even though most of the hearing centered around tech companies, Rep. Thomas Massie (R-KY) expressed concern that large grocery retailers and suppliers are using monopolistic practices against independent grocers. The FTC commissioned a study 17 months ago to review those practices, but no final report has yet been issued. Khan told Massie that the issue is an important one but the agency is still collecting and studying data from the nine retailers, wholesalers and CPG firms it ordered to supply detailed information about such areas as supply chain and pricing.
While Khan would not supply a specific timeline on when the agency’s report would be issued, her belief that dominant businesses often hold unfair leverage over smaller competitors has recently borne fruit for the National Grocers Association (NGA), which has pressed the FTC for more than a year about the advantages that some large food retailers have over rivals with their ability to squeeze grocery suppliers for more favorable terms, including through price, promotions, payment terms and product availability.
Shortly after the House Judiciary Committee hearings, the FTC and the and Department of Justice released a proposed update to merger enforcement guidelines. The proposed draft significantly re-writes merger enforcement standards to include new considerations for mergers that enhance buyer power. Specifically, one of the 13 proposed guidelines directly addresses buyer power (i.e., monopsony power) where a merger of competing buyers lessens competition for other sellers. The proposed changes mark a significant shift in merger enforcement to incorporate the concerns that NGA brought forth to federal enforcers.
The NGA noted that, in a significant shift, the proposed guidelines strongly consider how buyer power impacts competition amongst rival firms, which is a strong contrast to the current guidelines that largely ignore how buyer power abuses impact competition.
“NGA is pleased to see federal antitrust enforcers take seriously the competitive concerns that arise when dominant firms abuse their buyer power to impose discriminatory terms on their rivals,” said NGA SVP-government relations and counsel Chris Jones. “NGA and its members have consistently warned federal antitrust officials about how U.S. consumers are worse off due to buyer power abuses in an increasingly consolidated grocery sector. This problem has been laid bare by pandemic-era supply chain disruptions and increasing food price inflation where independent grocers have been put at critical disadvantage relative to their dominant competitors, especially those who serve rural and urban communities.”
The Washington, DC-based trade association, whose primary members include independent grocers, said the top four national grocery retailers account for 69 percent of all U.S. grocery sales. Two of these top four retailers, Kroger and Albertsons, have submitted plans to federal enforcers to merge by early 2024.
While it has not publicly condemned the proposed Kroger-Albertsons deal, NGA’s president and CEO Greg Ferrara expressed his association’s concerns shortly after the deal was announced in October 2022.
“A merger of the nation’s top two grocery chains should raise serious questions about a single supermarket giant gaining unprecedented dominance over the nation’s food supply chain,” said Ferrara. “A merger would not only put smaller competitors at an unfair disadvantage, but also increase anticompetitive buyer power over grocery suppliers, which ultimately would harm consumers. It is our expectation that this deal will receive rigorous scrutiny from federal antitrust enforcers.”
As for the impact of newly proposed merger guidelines on independent retailers, NGA said it will provide comments on the updated draft guidelines ahead of the deadline which closes in 60 days.
‘Round The Trade
If the Kroger-Albertsons merger is ultimately approved, the top 10 executives at the Boise, ID-based chain could receive a collective $146 million in payouts if they resign or are laid off, according to a recent SEC filing. For CEO Vivek Sankaran, if the deal is approved that would result in a change of control of the company which could trigger a payout to the former PepsiCo executive of as much as $43 million. Nice work if you can find it! More Albertsons news: the big chain’s retail media network, Albertsons Media Collective (AMC), will be partnering with Meta and ad agency Kargo to roll out new digital circular ads. According to AMC’s LinkedIn page, “Our pilot is replacing traditional digital circular ads with dynamic ad campaigns across Facebook and Instagram to meet more consumers where they are. The interactive digital experience allows shoppers to connect to their local store to clip offers and add products – that they are interested in – to their shopping list. We are merging product and promotional data to enable advanced targeting, actionable content and measurable performance. Our future plans include a rollout to display and connected TV as well as dynamic localization and personalization to better engage shoppers and drive sales.” Every retailer wants to capitalize on the potential of retail media (but most are light years behind Amazon and Target). Many merchants also want to find a way to eliminate print coupons and increase their digital promotional efforts…inflation continues to moderate as the Consumer Price Index rose an overall 3 percent increase in June, its slowest growth rate in more than two years and a huge reduction of the 8.1 percent rate in June 2022. And while grocery prices continue to fall in many departments, center store pricing has not followed that trend. Perishables suppliers/distributors and HBC/GM manufacturers have adjusted their pricing to more accurately reflect more supply chain normalcy, but many large CPG companies have been unwilling to do so, opting for higher profits (and stock prices) even though their unit sales are declining. As one Northeast retailer told me, “The variables and unknowns we all faced during COVID have generally disappeared and many vendors have made the necessary adjustment to bring their pricing down from a year ago. We’re not seeing that with most of our higher profile brands. This is pure greed. When sales continue to decline or remain flat into Q4 (the busiest period of the year) and private label volumes continue to increase significantly, I wonder how greedy some of these publicly-traded companies will remain.”…Target has promoted Lisa Roath to executive VP and chief marketing officer. A 17-year veteran of the Minneapolis mass merchant, Roath most recently was SVP-food and beverage merchandising. She will report to Cara Sylvester, who held the CMO title until a few months ago when she was named executive VP and chief guest experience officer…Dollar General, arguably the country’s most unsafe retailer, has added $340,000 in new fines from OSHA (Occupational Safety and Health Administration) for repeat safety violations at two Tampa-area stores and has still not paid $21 million in previous fines issued by the federal agency. Then again, what are the odds that a blocked fire exit or merchandise stacked too high will actually harm anyone? Obviously, racking up millions in fines rather than doing the right thing is a more efficient way to operate for the nation’s largest dollar chain, which has earned the rare “Severe Violator” rating from OSHA…Tops Markets recently remodeled two stores in Erie, PA and added a new fuel center at its W. 38th Street location and added new beer and wine SKUs at its E. 38th Street unit in the Flagship City District. Tops’ store in nearby Waterford was also removed. Currently underway are two others remodeling products in northwestern PA – Meadville and Union City.
Local Notes
Congratulations to John Ruane, who on July 20 was named president of ADUSA’s The Giant Company (TGC) after serving as interim president for the past 11 months. Clearly the parent company is making the right move here. John knows the grocery business as well as anybody; he’s an executive who possesses strong people skills, a tireless work ethic and a calm and steady hand. John’s already had a great career that began when he was 14 when he started working for Hy Shulman (remember him?) who operated the highly successful Foodtown Supermarket in Caldwell, NJ. After that, John spent nearly 28 years at Pathmark, then had a short stint at A&P before joining TGC sister company Stop & Shop in 2011. In 2013, he moved to Carlisle, PA to lead TGC’s fresh merchandising team before becoming chief merchant in 2018. In a career filled with notable achievements, John Ruane’s elevation to the presidency of The Giant Company is truly the highlight!…Sprouts Farmers Market is scheduled to open its Haddon Township, NJ store on September 8, marking the second Garden State unit for the Phoenix, AZ-based natural and organics merchant. The perishables-oriented chain will also open a new store on W. Oregon Avenue (Quartermaster Plaza) in Philadelphia and reportedly has signed a deal to cut the ribbon on a new unit in the refurbished Roosevelt Mall in Northeast Philly…German discounter Lidl will debut its first Brooklyn store, a 33,000 square foot unit in the Crown Heights section of the new York City’s most populous borough. Two months ago, Lidl announced it would open its second Manhattan store on Eighth Avenue in Chelsea. Lidl will also be closing a handful of unprofitable units including one in Brooklyn Park, MD. Other stores that are slated to be shuttered include locations in Oxon Hill, MD; Charlottesville, VA; Richmond, VA; Thomasville, NC; Florence, SC; and more locally in Howell, NJ. Another Lidl will open late this year or early 2024 in Harrisburg, PA…rival Aldi has gained approval to build a new 21,659 square foot store in Somers Point, NJ (Atlantic County). By the end of this month Aldi will also have opened two new stores – one in Rocky Point (its 12th Long Island store) and another in Rensselaer…Nestle will close its Freehold, NJ coffee plant in November, its only U.S. java joint, which would affect 200 workers. The reason: overseas cost savings. Nestle said it would shift coffee products to plants in Brazil and Mexico, where it invested $340 million to open a new facility last year in Veracruz. The Freehold facility originally opened in 1948…kudos to Shirley Axe, who retired after 32 years with Ahold Delhaize USA. Most recently, she was manager of Savory, the chain’s retail publication (which falls under the retailer’s Peapod Digital Labs unit). For many years she served as health and wellness manager for The Giant Company and her smiling presence and positive energy was always noticeable at the many new stores TGC opened over the past 25 years. Shirley, good luck with all future endeavors!…one obituary this month as Andre Watts, the virtuoso classical pianist who rose to fame at the age of 16 under the tutelage of Leonard Bernstein, has died. Watts spent most of his childhood years in Philadelphia where he was selected to perform – at the age of 10 – with the Philadelphia Orchestra. After his New York Philharmonic debut six years later, Watts became a sought after performer, especially for his interpretations of Franz Liszt and Sergei Rachmaninoff. While he continued to perform live concerts until 2020 (when COVID impacted his availability), Watts, 77, spent most of his time at Indiana University’s Jacobs School of Music where he had been a faculty member since 2004.