Kroger wants to acquire Albertson’s. The Federal Trade Commission wants to stop them. Reasonable people can disagree about whether Kroger is making a good business decision— the price they’ll pay, about $25 billion, is a lot of money. But everybody who’s been paying attention to the way Americans eat should agree that the FTC’s lawsuit to block the deal is ridiculous.
If this was nothing more than a story of a risky, complicated merger and a clueless, bumbling bureaucracy, there wouldn’t be much more to say. Cincinnati-based Kroger is trying to make a living in a low margin/high competition business. Mergers and acquisitions are just part of their life. Everybody knows that. The FTC has been filing silly cases since 1914. Everybody knows that, too.
But let’s think for a moment about what this soap opera on the business page reveals about the stunning transformation in the way we live our lives.
Start with FTC’s argument: Kroger and Boise-based Albertson’s are in the business of selling groceries. In certain parts of the country their markets overlap. If they merge, the FTC claims, there will be less competition and shoppers will end up paying higher prices.
That seems to make sense until you realize Kroger and Albertson’s aren’t in the business of selling groceries, at least in the way we used to think of as the business selling groceries. That means they don’t compete that much between each other.
To illustrate, go to Costco on Saturday and grab one of those hot dogs/soda combos, which sell for $1.50. Once you’ve added your complimentary relish, find a seat where you can see the check-out and count how many people come through with a rotisserie roasted chicken. You probably know this already, but lots of people like Costco chicken.
Whether Costco makes money selling chickens for $4.99 or whether they’re using them to get people into the store is beside the point. Costco, like any firm, is in the business of selling people what they need. They’ve figured out that people don’t just need TV’s, patio furniture and toilet paper. People need to get their families fed, out the door and on with their lives. If you’ve got a two-hour break between your daughter’s soccer game and your son’s t-ball practice, the Costco café and ready-to-eat dinner meals solve two big problems.
Kroger knows this, too. Sure, these places still sell milk, eggs and bread. But they’re increasingly in the business of “meal solutions.” That means Kroger, and Alberton’s don’t just compete against each other (and Walmart, and Whole Foods, and Target, and regional grocery store chains and delivery services, and …..). They’re competing against fast food places, take out places and casual dining.
What’s interesting about all of this is not so much the fact that the grocery business has changed, but why the grocery business changed. The answer depends on who you ask. Some people say it’s because Americans have become rich and lazy. Others say it’s because Americans have become rich and busy.
If you disagree, it’s probably because you don’t think you’re rich. Few of us do. But if someone 50 years ago could look at the way you live now, they’d think you’ve got it made. In 1970 personal income, after adjusting for inflation, was about $18,000. Now it’s about $50,000. What’s even more remarkable is that we can use all that extra money to buy things that were simply unavailable in 1970. Smartphones and computers are obvious examples, but Costco chickens weren’t available 50 years ago either.
You can decide for yourself whether we’ve become lazy or busy. Either way, though, if you’re a typical American, you’re spending less time in the kitchen than ever. (One recent survey found that people were spending less than half the time cooking than their parents did.)
It’s hard to predict the outcome of this case. (Which is another problem. Firms shouldn’t have to guess what’s allowed and what isn’t.) But whatever happens, it isn’t going to change the transformation that’s already swept the business of eating. Kroger is trying to adjust. The FTC is trying to obstruct.
Michael L. Davis is an economics professor at the Cox School of Business, SMU Dallas.
