Albertsons, which bought back 30 of its former stores from Haggen, will have adjacent stores in some places, defeating regulators’ bid to foster competition amid large supermarket mergers. But healthy rivalry is hard to keep alive in a shrinking industry, experts say.
The residents of Baker City used to have two supermarkets competing for their business, a Safeway and an Albertsons facing each other across the main street of the rural town in eastern Oregon.
When the two grocery behemoths merged, the Federal Trade Commission required them to shed nearly a couple hundred stores to preserve competition. The Albertsons in Baker City was among 146 sold to Bellingham-based Haggen, but Haggen went bankrupt and closed the store in just a few months.
Baker City will remain a two-supermarket town but competition will only be an illusion, because Albertsons bought back its store and now both are owned by the same Idaho-based corporate giant.
The boomerang trajectory of that Baker City store shows how the FTC’s antitrust effort to foster healthy rivalry among profitable grocers has failed in the Haggen case.
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The small, private equity-backed grocer ended up selling or closing dozens of stores, and its own brand is now imperiled. Albertsons winds up with a stronger hand, especially after the company paid $14 million to get back 30 of its former stores from Haggen, including 10 in Washington state.
Baker City is the starkest example, because it’s a rural area with few choices and there are no other major grocers within a 40-minute drive. But in Washington state locations such as Renton, Milton, Tacoma and Puyallup, there’ll be Albertsons and Safeways in close proximity to each other — exactly what the FTC was trying to avoid.
The situation, experts say, underscores not only how the FTC made a disastrous bet, but also how it’s become more difficult to encourage diversity among traditional supermarkets. In recent years the industry has consolidated into gigantic chains as a response to competition from the likes of Costco Wholesale, Wal-Mart and even Amazon Prime.
Diana Moss, president of the American Antitrust Institute, a Washington D.C.-based nonprofit, says that it was regulators’ leniency to mergers over the past two decades that led to this problem. “The fewer competitors, the harder it is to find a viable buyer of the assets that can fully restore the competition lost by the merger,” Moss said.
Daniel McInnis, a partner specializing in antitrust practice with D.C. law firm Thompson Hine, says that the FTC actually pays a lot of attention to supermarket mergers, which are politically sensitive. What the failure of Haggen to emerge as a strong competitor shows is that the agency “as imperfect as everybody else in guessing the future.”
The well-publicized debacle will probably result in higher standards being imposed on future supermarket mergers, he says.
It’s hard to predict what further requirements the agency might impose, but one possibility is having an independent trustee find a buyer for the stores that supermarket chains are required to divest when they merge, McInnis said. (Right now, the merging companies find a buyer and the FTC approves it.)
“This is highly likely to make it harder to get supermarket mergers done,” McInnis said.
The FTC declined to comment for this story. Albertsons didn’t respond to repeated requests for comment. The company said in a media release that the FTC agreed to its participation in the auction that led to the repurchase of its old stores. It said it would open the now-closed stores in 2016.
Haggen, which filed for bankruptcy in September, blames Albertsons for sabotaging the transition of the stores and has sued it for $1 billion. Albertsons has denied the allegations.
It’s not clear how Albertsons’ strengthened hand in some locations will affect prices. McInnis, the lawyer, says many large supermarket chains practice uniform pricing across vast regions, so it might not make a difference even in remote Baker City.
And in urban areas like the Puget Sound, consumers have many options, including warehouse giants like Costco and Wal-Mart or specialty retailers and ethnic grocery stores, all of which in recent decades have eroded supermarkets’ dominance.
For hundreds of workers endangered by the collapse of Haggen, the return to their former employer is a blessing.
“We look forward to working with Albertsons to ensure that these stores are a success, and that the hardworking men and women are able to continue serving their communities and earning the wages and benefits they deserve,” the United Food and Commercial Workers International Union said in a statement last November after the Albertsons repurchase was announced.
In Baker City, the local officials are happy to have the extra jobs, and two grocery stores instead of a very crowded single one.
Greg Smith, head of economic development for Baker County, said that having Albertsons reopen means 50 jobs. That’s more than 1 percent of the county’s nonfarm workforce being added back to the local economy.
“That’s the equivalent of Nike doing a major expansion in Portland or Microsoft doing a major expansion in Seattle,” says Smith. “We’re not worrying about monopoly. We would love to return back to what we’d consider the status quo.”