(Bloomberg) -- 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 US government’s bid to block the grocery chain’s purchase of rival Albertsons Cos.
In a March 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 as part of an antitrust lawsuit by the Federal Trade Commission and a group of states aimed at blocking Kroger from buying the Albertsons chain. US District Judge Adrienne Nelson in Portland, Oregon, is expected to rule on whether to stop the $24.6 billion acquisition from moving forward.
Higher Inflation
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 US. The grocers say the acquisition would lead to lower prices and better position them to compete against retailers like Amazon.com Inc. and Walmart Inc.
The company’s goal is to “pass through our inflation to consumers,” Groff said in response to questions about his email.
A Kroger spokesperson said: “This cherry-picked email covers a specific period and does not reflect Kroger’s decades-long business model to lower prices for customers by reducing its margins.”
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 three others: Walmart, Aldi Inc. and a traditional retailer in the market. Albertsons is the “key traditional retailer” in every market where they compete with Kroger, Groff said.
Dairy Plants
Kroger has pushed into the milk business over the years and today operates more than a dozen dairy plants. Egg prices hit record highs in early 2023 in the US due to an avian influenza that killed tens of millions of birds and curtailed supply.
In Illinois, where Kroger operates the Mariano’s chain, company executives create a weekly report on egg prices, comparing prices from Walmart, Meijer Inc. and Albertsons’ Jewel-Osco, said Matthew Marx, president of the Kroger division overseeing Mariano’s. The FTC walked Marx through several of the weekly egg reports from 2022 and 2023.
In May 2022, for example, both Walmart and Meijer dropped egg prices by 14 cents a dozen, but Mariano’s opted to keep its pricing the same to match the higher price at Jewel-Osco, Marx said.
A year later, in April 2023, as egg prices again soared, Mariano’s opted to keep its pricing near Jewel-Osco’s even as Walmart was lowering its own.
‘Match Jewel’
“We look at Jewel, Walmart and Meijer. We focus against Jewel,” another Kroger executive wrote in an email to Marx that recommended Mariano’s maintain its prices. The next month, Walmart and Meijer were lowering prices by 32 cents for a package of 18 eggs, while Jewel was dropping its price 20 cents to beat Mariano’s. “Please match Jewel,” Marx wrote to his colleagues.
Todd Kammeyer, president of Kroger’s Fred Meyer stores, also acknowledged that his stores in the Pacific Northwest and Alaska use Albertsons and its Safeway stores as a “ceiling” to benchmark on egg pricing. “We would not exceed” prices at Safeway and Albertsons, he said.
But, he said, they also might match Walmart pricing if it was lower.
During the Superbowl in 2023, Albertsons and Safeway offered a “shockingly low” retail price on beer that Fred Meyer stores matched, Kammeyer testified. He said that was a one-time instance because the Superbowl week offers the biggest beer sales of the year and customers often buy other products as well.“We felt it was in our best interest to do the same,” he said of price-matching Albertsons.
Still Groff pushed back on the idea that Kroger would hike prices after the acquisition, saying that Walmart would keep the combined grocers from charging customers more.
“No, we would not” change our pricing strategy, he said. If we raised prices, “we would lose customers. There’s no doubt in my mind that would happen.”
--With assistance from Jaewon Kang.
(Updates with Kroger spokesperson’s comment in eighth paragraph.)
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