SNAP Back to Reality: Why the FTC Needs a Broader View of the Kroger-Albertsons Case
The FTC’s take on the Kroger-Albertsons merger seems to be driven by nostalgia.
The FTC is playing word games.
T he FTC’s court losses under Lina Khan’s leadership have a common theme: word games. In nearly every antitrust case it brings, the agency defines relevant markets in ways that make accused companies look more dominant than they really are. We call this the “relevant-market fallacy.” History is repeating itself in the agency’s recent move, along with nine attorneys general, to block the proposed Kroger-Albertsons grocery merger. The FTC defines the relevant market to exclude direct competitors such as Aldi, Amazon, Costco, and dollar-store chains.
The FTC is also committing a more subtle form of the relevant-market fallacy that is getting almost no attention — and it could directly harm the low-income consumers that the FTC claims to protect.
The U.S. Department of Agriculture (USDA) administers the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps. To qualify as an eligible store, businesses must meet certain criteria based on either their sales or inventory of staple food. Grocery providers compete vigorously for SNAP dollars.
That competition has been increasing as the USDA incorporates digital avenues for SNAP use. For example, Amazon, which is also subject to a separate antitrust suit by the FTC, now accepts SNAP benefits on its online platform in 48 states and the District of Columbia.
Walmart is the clear leader when it comes to SNAP. It receives 24.7 percent of all SNAP dollars, according to market-research company Numerator. That’s up from 18 percent just ten years ago. Walmart’s share of SNAP dollars is more than the next four stores (Kroger, Costco, Albertsons, and Sam’s Club) combined. But SNAP shoppers are still more likely to shop at dollar stores, like Dollar Tree and Dollar General.
It comes as no surprise that consumers shop for groceries at a variety of different stores, not just supermarkets. There are large retail outlets like Walmart and H-E-B. Some prefer wholesale models like Sam’s Club and Costco. More than 1,000 new dollar stores are opening in the U.S. every year.
The FTC doesn’t consider these options to be acceptable alternatives. It apparently assumes that shoppers would not take their business elsewhere if Kroger and Albertsons decided to raise prices.
The FTC’s market definition directly contrasts that of the USDA, which implicitly admits that club stores and dollar stores are indeed substitutes for grocery shopping and compete directly with Kroger and Albertsons.
When SNAP benefits were rolled back last year to their pre-pandemic levels, a poll of Kroger shoppers found that 37 percent were taking more of their business to dollar stores, which have a higher share of SNAP shoppers than Kroger. Costco also has a larger share of SNAP dollars than Albertsons.
What’s worse is that Kroger and Albertsons would be less equipped to compete against Walmart if their merger is ultimately scuttled. Walmart leads the market for a clear reason: lower prices. Even dollar stores fall behind Walmart’s price points. In an effort to better compete, Dollar General now offers fresh produce at more than 5,000 stores in the United States. The initiative is part of a long-term plan to compete against Walmart as a one-stop shop. That’s a win for low-income shoppers.
The FTC’s take on the Kroger-Albertsons merger seems to be driven by nostalgia. But as one Kroger executive put it, “You just can’t be a 1990s grocer. You have to be courageous, break things, and quickly adapt.” That’s why grocers, and even the USDA, are investing in new online-shopping options to supplement brick-and-mortar retail. Everyone else is embracing the modern age. Why can’t the FTC?
The FTC’s market definition word games are unlikely to win in court. But they may make Kroger and Albertsons think that a merger is not worth the legal expenses and the delay. SNAP shoppers would lose the most if the FTC gets in the way. But all Americans, still reeling from three years of high inflation, would benefit from the combined firms’ increased competition with Walmart and other highly relevant competitors.
Alex Reinauer is a research fellow at the Competitive Enterprise Institute (CEI). Ryan Young is a senior economist at CEI.