Alaska’s two biggest grocery chains to sell stores as part of merger. This business professor explains why.

The two biggest grocery store chains in the country, and Alaska, are moving forward with their multi-billion-dollar merger, and they’ve announced a plan to sell more than a dozen stores in Alaska to a third company.

That proposal by Fred Meyer parent company Kroger and Carrs Safeway owner Albertsons, to sell 14 Safeway stores in Alaska to C&S Wholesale Grocers, is designed to satisfy the Federal Trade Commission.

The worry is that if a single company controls grocery sales in a particular community, the lack of competition would lead to higher prices for consumers and reduced bargaining power for union workers.

Jarrad Harford, a professor of finance at the University of Washington Foster School of Business, has been following the proposed merger since it was first announced nearly a year ago. And Harford says there’ve been a lot of questions since then about the significant overlap the companies have in places like Alaska.

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The following transcript has been lightly edited for clarity.

Jarrad Harford: You know, it’s interesting even though these mergers are national in scope, the arguments with the FTC are very local. And so Alaska is going to be one of the areas where, because it’s basically, you know, currently all Kroger and Albertsons, there’s a couple of Walmart Supercenters, you’ve got Costco to some extent as well. But, like, there’s really no easy alternative. And so the problems that this merger presents for the consumer are probably most acute in a place like Alaska. And I think that’s why they tried to basically take all of the Albertsons stuff in Alaska and say, “We’ll keep that as a separate competitor.”

Casey Grove: Right. And what it would involve is the selling off, I guess, the proposal is the selling off of Albertsons properties, I think, 14 of them in Alaska. Those are the Safeways that we have here. Who would they be selling that to? And, I guess, what do we think might happen down the road with that?

JH: Yeah, so it’s interesting, because you remember that the reason why Albertsons owns grocery stores in Alaska in the first place is that Albertsons merged with Safeway a ways back. And now, I think, basically this merger, the agreement they’ve come up with, to sell to a company called C&S, is designed to present the FTC as compelling a case as possible that this merger can go through and still leave competition at a local level in the grocery space. And in order to do that, they had a fairly difficult challenge of finding another player in the grocery space that was large enough to arguably be able to put up some real competition against a new giant merged Kroger-Albertsons entity. And so they went beyond, you know, the sort of traditional retailers and looked at C&S, which is more known in the wholesale space. They are a massive wholesale grocery supplier, and they have a lot of reach and scope in that space. They have a smaller retail footprint. They do have experience running retail, but they’re large enough, and they have the, kind of, buying power in the grocery space that makes them a viable owner and competitor of these stores.

CG: I think, probably for the average person, the concern would be that if C&S buys these stores, will they keep them open in the future? And what do you think about that?

JH: Yeah, um, that’s a great question, and it’s the one on everyone’s mind. And, you know, at least in Washington, everyone wants to draw parallels to when Albertsons bought Safeway and sold a whole bunch of stores to Haggen, in order to satisfy FTC demands. And consequently, Haggen went through bankruptcy and then ended up selling most of those stores to Albertsons. But I think this one is different. Haggen was small and buying those, as many stores as it did, at that time, was an aggressive expansion. And it got itself into some financial distress doing so. C&S is large enough and financially stable enough that it can absorb these 413 stores (across the nation) and be a viable competitor. I think there’s a lot less concern that they would close them. They’re paying almost $2 billion for them. So they have a financial interest in making this work. And they have the experience and wherewithal to make it work. And as part of the agreement, and again, this is a clear nod to the FTC and its current leadership, as part of the agreement, they agreed to keep all existing labor agreements in place and cut no union jobs.

CG: Maybe I should ask this question more directly. I mean, no single person that I’ve talked to about this thinks that this is a good thing for Alaskan grocery buyers, you know, or the unions. And so I guess, maybe I should pose that question to you. I mean, is it? Is it not?

JH: The hard part is the counterfactual. So if you if you think about Kroger and Albertsons’ argument for why the merger makes sense and is needed is that the grocery landscape in the U.S. has changed a lot and that scale has become more and more important, and that they’re dealing with Amazon and Walmart as the two biggest national players in grocery, you know, and cost goes in there as well. And so on a local level, whereas it might look differently, they’re basically saying, “We’re not actually going to be able to survive in our present form, without scaling up.” And reasonable people can disagree about whether or not that’s true. But the problem with saying, you know, “This merger isn’t going to benefit me,” the question is, well, compared to what? Compared to what you have now? Yeah, maybe that’s true. But compared to what might transpire as the grocery landscape continues to be scale-oriented? Not necessarily.