The grocery business is noted for its narrow margins – typically between 1 and 3 percent.
Homebuilders, by comparison, earn 10-20 percent on average and hotels as much as 30 percent. But grocers make their tight margins work by selling in large volume.
Economies of scale are critical, which is why chains embrace new technology and merger opportunities when conditions are right.
Unfortunately, some in government appear to believe that businesses exist first and foremost for altruistic reasons, such as ensuring high salaries for workers.
Consider government interference in the tentative merger between Kroger and Albertsons grocery chains. Earlier this year, the U.S. Federal Trade Commission sued to block the deal because it not only believes it will eliminate competition, leading to higher prices for food products, but would also hurt the union that plays the two companies against one another to drive up wages.
The FTC’s actions are not only an overreach but hypocritical because of how they flip-flop on their definition of grocery store.
In the Feb. 26, 2024, lawsuit opposing the merger, the FTC stated that “Kroger and Albertsons are the #1 PUBLIC and #2 traditional supermarket chains in the United States,” but did not acknowledge Walmart as a retail grocery competitor.
However, in its March 21, 2024, report titled, Feeding America in a Time of Crisis, the agency stated, “Walmart has also grown into one of the nation’s largest grocery retailers.”
Walmart’s share of grocery sales is 28.3 percent, while the combined market share for Kroger and Albertsons is 16.5 percent.
Nevada Attorney General Aaron Ford has joined a coalition of attorneys general also suing to stop the merger earlier this year. Ford said he is concerned that the merger would lead to higher grocery prices.
Of course, Ford conveniently ignored that labor using competing companies against each other to raise wages for members tends to drive up the costs for consumers. That’s no small matter for Nevadans, who have the second-highest grocery bills in the U.S., behind only California.
Kroger and Albertsons both serve Nevada and face significant competition from warehouse stores such as Walmart and Costco, and also online competition from Amazon.
A deal would bolster efficiencies, meaning that the combined purchasing power of Kroger and Albertsons will give the merged entity the ability to negotiate better deals with suppliers, which means savings can be passed on to consumers through lower prices, as Mary Lau, the president of the Nevada Retail Association, wrote in the Las Vegas Review-Journal last month.
If the federal government’s meddling in private business wasn’t bad enough, state lawmakers in neighboring California appear determined to hurt consumers through a proposal that is nothing more than a make-work program.
California Senate Bill 1446 would limit grocery and drug stores to no more than two self-serve checkout stations per employee monitor. The proposal would also require self-service checkout stations be limited to 10 items or fewer.
The bill is being pushed by organized labor, including the United Food and Commercial Workers Union, the same union that celebrated the FTC’s efforts to block the Kroger-Albertsons merger.
What does a poorly considered California bill have to do with the Silver State? Too often, bad legislation that originates in California quickly finds its way across the state line.
Food prices have risen 25 percent since 2020, and yet there are still lawmakers and bureaucrats who believe it’s good policy to require stores to employ unnecessary workers rather than letting companies use technology to cut costs.
Kroger and Albertsons have stayed in business for more than 200 years combined by meeting consumer demand. Unlike the government, the companies can’t rely on coercion to get what they want.
