Kroger, which wants to take over Albertsons, raised milk and egg prices above inflation

Kroger Co. hiked prices on milk and eggs more than needed to account for inflation, the company’s top pricing executive testified during a court hearing on the U.S. government’s bid to block the grocery chain’s purchase of rival Albertsons Cos.

In a March 2024 email to his bosses, Andy Groff, Kroger’s senior director for pricing, acknowledged that the company had raised its prices more than required to adjust for higher costs.

“On milk and eggs, retail inflation has been significantly higher than cost inflation,” Groff wrote.

Groff testified about his email Aug. 27 as part of an antitrust challenge by the Federal Trade Commission and a group of states to block Cincinnati’s Kroger from buying the Albertsons chain based in Boise, Idaho. U.S. District Judge Adrienne Nelson in Portland — where Kroger’s Fred Meyer chain is based — is expected to rule on whether to stop the acquisition from moving forward.

Kroger and other grocers have benefited from periods of higher inflation as they passed down price increases to consumers. Supermarket operators raised retail prices instead of absorbing all increases, and higher food prices led to jumps in sales until shoppers pulled back on their spending.

Antitrust enforcers allege the Kroger-Albertsons deal would lead to higher consumer prices since the companies compete head-to-head in hundreds of markets across the U.S., including the Boise area, where Kroger operates Fred Meyer stores. The grocers say the acquisition would lead to lower prices and better position them to compete against retailers like Amazon and Walmart.

The 5 items whose prices Fred Meyer compares with Albertsons, others

The company’s goal is to “pass through our inflation to consumers,” Groff said in response to questions about his email.

Kroger seeks to be competitive on what it terms “everyday essentials” – five items that customers buy most: milk, eggs, sugar, bananas and iceberg lettuce, Groff said. Every week, Kroger benchmarks its prices on those items against those of three other food retailers: Walmart, Aldi Inc. and a traditional retailer in the market. Albertsons is the “key traditional retailer” in every market where Albertsons competes with Kroger, Groff said.

Egg prices hit record highs in early 2023 in the U.S. because of an avian influenza that killed tens of millions of birds and curtailed supply.

What the sale would mean to Albertsons stores

Kroger, the nation’s largest traditional grocery company, wants to buy Boise’s Albertsons, the second-largest, in a merger that would create a supermarket colossus under Kroger’s control.

One reason the two companies cite for uniting is to gain more leverage over suppliers to lower costs. Albertsons has said that it must pay more for some products wholesale than Walmart, a much larger grocery retailer, charges at retail.

Kroger agreed in 2022 to pay $34.10 per share for Albertsons stock, a price that valued Albertsons at $24.6 billion.

To pass antitrust muster, the companies propose to sell 579 stores under assorted banners to to C&S Wholesale Grocers LLC, a little-known, New Hampshire business led by billionaire Rick Cohen that has operated primarily as a wholesaler so far.

The stores include 10 Albertsons supermarkets in Idaho, including six in Boise, one in Meridian and one in Nampa, the Idaho Statesman reported.

Albertsons is Idaho’s largest company and a Boise icon, the Statesman reported. It has $79 billion in yearly sales, 285,000 employees nationwide and more than 5,000 employees in Idaho, making it the Gem State’s fourth-largest employer. It has more than 2,200 retail food and drug stores under 24 banners in 34 states. Those include 37 in its native state, all operating under the Albertsons banner.

With assistance from Jaewon Kang. Idaho Statesman Business and Local Government Editor David Staats contributed.

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This story was originally published September 5, 2024 at 3:00 AM with the headline "Kroger, which wants to take over Albertsons, raised milk and egg prices above inflation."