If Fred Meyer sells some Safeway stores to win merger approval, how could a smaller company compete?

To win regulatory approval of the Kroger/Albertsons merger, the company will probably need to find someone to buy some of the stores in Alaska, where Safeway is the major competitor to Fred Meyer.

The Alaska move will probably be part of a nationwide divestiture of from 100 to 375 stores from a combined firm that would have 5,000 stores.

A senior researcher for Consumer Reports questions the logic of the proposed divestiture of stores and the claim that a company with 100 to 375 stores would be “agile” and capable of competing with the merged grocery giant.

A U.S. Senate subcommittee held a hearing on the merger Tuesday, with company executives defending their plan and claiming it will lead to lower prices, higher wages, etc.

Skepticism is called for. The state should be examining the 1999 purchase of Carrs by Safeway, the divestiture that followed and the closure of seven stores.

Among their many brands, Kroger owns Fred Meyer, while Albertsons owns Safeway. The merger would mean that Albertsons would no longer be a competitive force to keep Kroger’s prices in check.

Kroger and Safeway say they would close no stores under the deal. But that doesn’t mean the divested stores—which they would no longer control—would remain in business.

The $24.6 billion purchase of Albertsons by Kroger is supposed to make the new company more competitive, by “growing the store footprint, increasing the number of fulfillment centers, growing their store brand portfolio and the ability to analyze data on more households,” said Sumit Sharma of Consumer Reports, in testimony submitted to Congress.

Yet the stores to be divested would have fewer assets to compete. He asked, how could a new company compete if the rationale given for the merger is to be believed?

“Merging parties in general will have incentives to make sure that the purchaser of divested assets is not an effective competitor or at least not as effective a competitor of one of the merging parties,” Sharma said. “This is illustrated by the failed divestment of 168 stores that the FTC (Federal Trade Commission) required when Albertsons and Safeway merged,” he said.

“The most likely outcome of this merger between the two largest supermarket chains will be significantly lessened competition and lead to higher prices, fewer choices and worse supermarket and grocery access for consumers in some neighborhoods,” Sharma said.

Andrew Sweeting, an economics professor at the University of Maryland, called for special care in the creation of any divestiture package. He said in this case the solution “may not only involve divesting a large number of stores where the merger might reduce local competition, but also distribution centers, trademarks and manufacturing plants for private label products, and a set of digital assets, possibly including data.”

“The evaluation of any divestiture package should also account for the fact that the success of any new business is uncertain, and that the degree of risk to be borne by consumers should be appropriately limited.”

Meanwhile, Gov Mike Dunleavy and Attorney General Tregarrick Taylor continue to stay silent about the proposed merger, the economic impact on hundreds of thousands of Alaskans and what this means for food security across the state. Dunleavy campaigned on “food security,” which he used as an empty feel-good phrase that required no action on his part. In September he created the “Office of Food Security” in the governor’s office, with no budget and no staff.

Attorneys general in California, Illinois and Washington D.C. are in federal court trying to prevent Albertsons from paying a $4 billion dividend to shareholders, claiming it would weaken the company and give Kroger the ability to claim Albertsons is likely to fail. Oregon is supporting a Washington lawsuit against the merger.

The proposed merger would reduce competition, lead to higher prices and eliminate jobs in Alaska.

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