June 14, 2024

Image source: https://www.supermarketnews.com/retail-financial/kroger-albertsons-sound-negative-comments-over-pending-merger

On October 13th, 2022, it was announced that Kroger, the largest grocery chain in the US, and Albertsons, the second largest, were seeking to merge. Since then, the deal has resulted in lawsuits, sell-offs, and grocery giants seeking to assert themselves in a digital age.

Tracking Kroger’s Path

Kroger is massive, operating a vast network of over 2,700 stores with brands such as Ralphs, King Soopers, and Dillon’s under the Kroger umbrella, increasing that number even further. In fiscal year 2023, Kroger generated revenue exceeding $148 billion, solidifying its position as the largest traditional supermarket company in the United States [1].

Kroger owns 22 subsidiaries [2] in addition to dozens of brands under its belt. Meanwhile, the title of highest-grossing distributor of groceries belongs to Walmart, and Amazon continues to find new ways to expand its massive $1 trillion market share with the grocery market being “prime” territory [3]. Amazon, in particular, has very likely marked a lot of Kroger’s trajectory over the last several years with its acquisition of Whole Foods in 2017 [4] with additional store openings, including a “‘dark store’ entirely devoted to filling online orders,” according to CNBC, “Amazon Fresh” opening its first brick and mortar location in 2020 [5], establishing grocery deliveries and expanding it to non-prime members in November of last year [6], and piloting a subscription service for free grocery deliveries over $35 as of late 2023 [7].

Meanwhile, Kroger signed an exclusive deal with Ocado Group in 2018 [8], a UK-based firm that deals in grocery technology and controls a 50% stake in Ocado.com [9]. This deal specifically was to secure licensing for Ocado Group’s technology, including drones that fulfill orders in various warehouses across the country, establishing the foundation on which its delivery service would run [10]. In 2021, Kroger announced “Kroger Delivery Now,” a collaboration with Instacart where customers could receive items directly from a nearby store in 30 minutes [11]. It also announced Kroger Boost, a service complimentary to its delivery service that gives customers free grocery delivery and double points on fuel [12].

There is a very clear race between these conglomerates to keep pace with each other, with the pandemic accelerating the competition between capitalist firms. In particular, the deployment of drone technology in Amazon warehouses and Kroger’s partnership with Ocado is demonstrative of an investment in constant capital at the expense of variable capital. For example, a breakdown from the National Library of Medicine published in 2022 revealed how the COVID-19 pandemic has significantly affected grocery retailers, prompting operational adjustments due to health concerns and changes in shopping habits. While existing literature lacks analysis on this issue, researchers address this gap by developing economic models. These models consider shifts in customer behavior, such as less frequent in-store visits and bulk shopping, and the impact of occupancy limitations on service capacity, customer behavior, store traffic, and profit. Interestingly, despite reducing foot traffic, occupancy limits may not necessarily lead to profit declines. The same study found that offering delivery or curbside pickup services can influence in-store customer behavior, affecting infection risk and profitability differently. Curbside pickup, in particular, allows retailers more control over externalities, potentially reducing store traffic and increasing profit. These findings offer insights for retailers on navigating occupancy limitations and health safety measures to manage infection risk and maximize profit [13].

It is here we can already see that the restrictions caused by the pandemic had a notable impact. During the COVID-19 pandemic, many customers embraced alternative shopping methods such as delivery or curbside pickup, recommended by the CDC for safe grocery shopping. A survey conducted early in the pandemic found that nearly 80% of respondents shifted to ordering groceries online. Consequently, the previously low 3% share of online grocery shopping before COVID-19 surged to 12.5% by 2022 [14]. The shift in consumer product acquisition is evident with the rise of automated warehouses, exemplified by Kroger’s central hub system. These hubs serve neighboring facilities, referred to as “spokes,” delivering within a 90-mile radius. Instead of manually unloading and stocking large quantities of shipped products in-store, the items are pre-packed by drones before reaching the spoke and are then delivered directly to consumers. Such advancements under capitalism can be viewed as anti-worker due to inherent contradictions within the capitalist system. However, under socialism, the nature of these advancements would be perceived differently. The working class would embrace these labor-saving technologies, recognizing that they can lead to societal benefits. Reduced working hours to meet societal demands can offer more opportunities for self-actualization rather than facing unemployment and misery. 

How can we view these technological advancements? The composition of capital, that of both Kroger and the broader grocery sector, is evolving at the expense of labor. These changes result in a reduced need for labor power, leading to fewer workers while maintaining or even increasing production levels. Capitalists promote these technological advancements as “cost-saving,” suggesting they will lower commodity prices. While this may be true, it often comes at the expense of the livelihoods of many in the working class. Furthermore, any temporary reductions in prices are unlikely to result in lasting improvements to the living standards of the working class, as issues such as unemployment, inflation, and rising rent continue to impact them.

This demonstrates how the pandemic took an already emerging change that was occurring as competition forced the development of more efficient machines, and catapulted it into a crucial point of interest for any grocery retailer trying to maintain and expand its reach. This as a need, not simply a desire, is reflected in figures stated by the UFCW as follows:

Despite claims of C&S’s financial stability, the company has experienced a significant decline in revenue over the past six years, with sales decreasing from $27.7 billion in 2017 to $21.7 billion in 2023, marking a 21.5% drop. This decline occurred despite significant food price inflation, resulting in a more substantial decrease of over 40% in sales volume [14].

It’s important to note, however, that these figures are most likely referring to sales in stores (see the 2017 figure, for example [15]) and hardly touch on the totality of Kroger’s size, reporting its total sales at $123.28 billion to $148.26 billion in 2022 [16]. Furthermore, while its profit margin only managed to reach 21% in one quarter from 2012-2014, since 2015 it’s been consistently above 21%+, with an exceptional Q1 in 2020 where they posted a 24.3% profit margin, the average over the last 5 years being around 22.15%. This is very likely explained by its purchase of Harris Teeter in 2014. With competition between grocers growing, the merging and acquisition of supermarkets has allowed for remaining supermarkets to compete with Walmart and Amazon.

The Merger and Its Consequences

With the pandemic throwing any company with the capital and the foresight to develop a proper delivery infrastructure a significant financial opportunity, the sprint for capital to grow itself has presented Kroger and Albertsons with a very clear choice: merge or be left behind. So how has this merger panned out?

Despite Kroger and Albertsons launching a joint website in a bid to convince the general public the merger will be positive for everyone, the process has already been detrimental to the livelihoods of workers. In 2022, the United Food and Commercial Workers (UFCW) took a position against the merger, where International President of the UFCW Marc Perrone highlighted concerns over the proposed merger between Kroger and Albertsons, citing potential negative effects on UFCW members and US families, particularly amidst inflation worries regarding food, groceries, prescription drugs, and gas prices. He also stated that protecting the livelihoods of grocery workers, both union and non-union, is the top priority for the UFCW, as the largest union of grocery store workers in the U.S. Alongside local unions, the UFCW is engaging in discussions and vows “to oppose any merger that threatens the jobs of America’s essential workers, union and non-union, and undermines our communities” [17].

Speaking again in September 2023, Marc Perrone, International President of the UFCW, emphasized the union leadership’s alleged commitment to safeguarding the interests of its members. With the announcement of C&S Wholesale Grocers’ intention to purchase 413 Kroger and Albertsons stores, the UFCW pledged to thoroughly assess the potential impact on its members, customers, and communities. Perrone reiterated the union’s priority of ensuring a stable and favorable outcome for its members, including protecting wages, benefits, and pensions. Emphasizing the essential role of workers in the success of these companies, Perrone stressed the importance of any deal being in their best interest:

“While we review this latest merger development fairly and objectively, the UFCW and all our Locals remain absolutely united to using every tool we have to protect our union members’ livelihoods and their families’ future health and well-being.”

Perrone also expressed the union’s willingness to hold dialogue with both Kroger and C&S Wholesale Grocers throughout the merger process:

“As we have always said, we seek a transparent relationship with the companies throughout this process and continue to remain open to any dialogue or document review with either Kroger or C&S Wholesale Grocers” [18].

While the UFCW has positioned itself against the merger in the public eye, its insistence on “maintaining dialogue,” and the leadership’s complete lack of interest in mobilizing workers against it highlights the hypocrisy of the idea that they’re leveraging “every tool available to them,” when the only tools they are willing to use seem to be whatever maintains a positive relationship between the UFCW leadership and the capitalists. Furthermore, the position UFCW has taken nationally is largely the result of pressure being led by a handful of locals and a myriad of organizations across the US, organizing a “Stop the Merger” campaign, according to an undisclosed source affiliated with the UFCW. This campaign overall has seemed to focus mostly on cultivating relationships with bourgeois politicians in local city councils, indicating the continued lack of, and necessity of, a political vehicle that represents the interests of workers. It also very clearly highlights the existence of a conflict between the union leadership and the interests of the rank and file.

The campaign’s primary arguments center around the following concerns [19]:

  1. Increased prices for consumers
  2. Job losses for workers
  3. Challenges for farmers and suppliers in selling their products

The potential for job losses is already in view, as Kroger and Albertsons both announced an attempt to sell off $1.9 billion in assets and stores in preparation for the merger, announced in September 2023:

“The 413 stores, along with QFC, Mariano’s, and Carrs brand names, are being sold to C&S Wholesale Grocers. Kroger will also divest the Debi Lilly Design, Primo Taglio, Open Nature, ReadyMeals, and Waterfront Bistro private label brands. In addition, C&S will get eight distribution centers and two offices” [20].

The Albertsons-Safeway merger in 2015 resulted in the sale of 168 stores as mandated by the FTC. Following the sale, one of the buyers laid off workers and declared bankruptcy. Albertsons subsequently repurchased 33 of these stores, some at auction for as little as $1. This indicates potential negative consequences for workers as a result of such mergers [21].

While we certainly can’t predict the future, we can at least forecast the potential backlash for thousands of workers across the country and the potential bargain that Kroger will gain at the expense of these same workers.

“The supermarket giant will invest $500 million to lower prices on “day one” following the transaction’s close and also plans to invest $1.3 billion to improve Albertsons’ brick-and-mortar stores” [22].

Though $1.3 billion is nothing to scoff at, it’s a drop in the bucket in the context of a $25 billion merger, as well as the fact that Kroger will be absorbing all of Albertsons’ revenue, which for 2023 was reported at $76.8 billion [23]. Let’s also not forget that Kroger has done this before. Kroger allocated over $125 million to reducing prices after merging with Harris Teeter in 2014 and more than $100 million to the same end after merging with Roundy’s in 2016 [22]. For the Harris Teeter merger, those price adjustments account for approximately 5.2% of Kroger’s total investment. For the Albertsons merger, that figure is 0.65%, meaning in proportion they are investing significantly less in this venture while food prices over the years have soared. This indicates that investment will be going elsewhere, most likely a healthy combination of dividends for the stockholders and investment into the shifting climate from the store to online delivery, from variable capital to constant capital, job to drone.

With all the profit Kroger stands to make, to what extent will the workers (the ones who avoid layoffs) benefit?

Economic Roundtable, based on “the largest independent survey of retail workers ever conducted in the US,” reported on the conditions of workers in Washington, California, and Colorado. Over the last 20 years, Kroger employees have faced worsening living and working conditions due to reliance on low-wage, part-time staff with unpredictable schedules. Despite being surrounded by food, over three-quarters of Kroger workers struggle with food insecurity, often running out of food before month-end and sacrificing meals, especially those with children. This food insecurity rate is seven times higher than the national average. Moreover, the majority of Kroger workers are financially strained, with wages failing to match the rising costs of essentials like food and housing. Experienced food clerks have seen a significant decline in wages, ranging from 11 to 22 percent when adjusted for inflation. In the wider grocery industry, nearly a third of workers are near or below the federal poverty threshold [24].

The article continues with grim descriptions of homelessness, psychological degradation, and a continued decline in the quality of the life of the worker. The point is that Kroger’s profits will rise, but the masses of laborers who acquire those profits for Kroger will continue to enjoy an increased rate of exploitation. Meanwhile, all of this has been taking place since before this merger was announced, despite the presence of the UFCW, (and the Teamsters in some of the distribution, although excluded from the new delivery programs,) further highlighting the total divide in the interest from the bourgeois union leadership and the rank and file. The need for a revolutionary approach is apparent as even the reform factions that currently exist are still doomed to repeat the collaboration of the institutions they’re trying to reform, negotiating on capital’s terms, a feature of relying solely on the trade unions within the confines of bourgeois legality.

This leaves the topic of the farmers. Which farmers? An article from Civil Eats goes into detail;

“On December 1, a group of organizations including the National Farmers’ Union, the National Family Farm Coalition, and Farm Action sent a letter urging the Federal Trade Commission (FTC) to block the merger. Soon after, the FTC—which has taken on an increased focus on anti-trust and competition law since Chair Lina Khan took the helm last year—requested more information to complete its regulatory review. Then, on January 10, a coalition of influential trade groups that represent West Coast produce growers sent a letter to the FTC, adding their voices to the opposition based on what they said would be devastating impacts on fruit and vegetable farmers” [25].

The article focuses on Vidalia onion production, which will work perfectly for our analysis as the article makes the point that demand for the crop has increased. So what is their input?

“While exact statistics are hard to pin down, Cliff Riner, chairman of the Vidalia Onion Committee, said that in the mid-2000s, there were about 200 Vidalia farmers. Now, about half of them are gone, he estimates, but the 100 that are left are farming the same number of total acres in addition to bringing in onions from South America…”

“Big grocery chain buyers told growers directly that they could either start importing sweet onions from South America in the off-season themselves, or the store would bypass them and buy from elsewhere” [25].

So who remains from this reshuffle? Bland Farms for example has been experiencing great business, with 2019 being of note. In March 2020, Produce News reported Bland Farms’ optimism about the Vidalia crop they were importing from Mexico and Peru, including the investment in equipment, brand deals, and marketing going into increasing revenue from the crop. Bland Farms sits comfortably as the top producer of the crop, laying claim to ⅓ of the industry [26]. Meanwhile, the USDA reports that between 2017 and 2023, the number of farms went down 7%, a continuing trend, since 1982 [27], and in another report the number of “small family farms” continues a downward trend in operating profit from 2011-2020, (unlike every other category who, while seeing decreases during the period, saw substantial increases from 2019-2020 [28]). From this, we can logically conclude that it’s the small farms that have suffered the most as a result of this shift.

Despite commitments to offer more “local” options, the reality is the monopolization of the supermarkets and groceries has thus allowed more bargaining power to said monopolies, in turn, forcing the farm industry to also monopolize further, even importing crops from Peru, Mexico, and more to maintain availability (and revenue,) year-round.

Our Fight for a Better Future

The small farmers, the retail clerks, and the working class as a whole all seem to lose in the wake of the monopolization of the grocery stores. The success of Kroger’s merger with Albertsons is not guaranteed, as they are now facing a lawsuit to prevent it from the Federal Trade Commission [29]. But whether or not it succeeds is beside the point, for their defeat will be a victory for their competitors, who will go on expanding their control of the markets and reaping the profits themselves. Either way, the capitalists win, and the workers lose.

What must communists do to turn this perpetual defeat into victory for the working class? First and foremost, we must reorganize the trade unions, a task that the CWPUSA is already engaged in. We particularly need to organize the unions against the reformist elements, which only serve the interests of the capitalists. We must expand our ranks within the unions, win over the existing membership, and develop their class consciousness. In short, we must transform the resurgent labor movement into a revolutionary trade union movement that opposes rather than collaborates with the monopolists.

At the same time, and as vital as they are for developing the forces of the revolution, trade unions alone will not end the capitalist system that exploits us. For that, we need the socialist revolution. To that end, we must continue our effort to rebuild the Communist Party in the US, for history has demonstrated that, in the age of imperialism, only the organized vanguard of the proletariat can lead the working and oppressed peoples of the world to a better future, to socialism-communism.

Sources

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