California-based Ralphs Grocery Co. announced today that it would close 10 of its stores as part of an ongoing downsizing program. According to the Sacramento Bee:
Most of the Ralphs stores being closed are older, smaller operations bought from Albertson’s Inc. in 1999, when it sold 145 Albertsons and Lucky stores to satisfy federal antitrust concerns, [Ralphs spokesman Terry] O’Neil said.
This refers to Albertson’s acquisition of American Stores Company. The Federal Trade Commission ganged up with the attorneys general of California, Nevada, and New Mexico, to force what the FTC deemed the “largest retail divestiture in Commission history.” Altogether, the FTC forced Albertsons to sell 144 grocery stores to competitors “pre-approved” by the government, incluing 40 stores to Ralphs. In a press release dated June 22, 1999, the FTC insisted that its rationing of grocery stores would out-perform the free market allocation of resources:
“Today’s joint action by the FTC and three state Attorneys General will ensure that consumers in California, Nevada and New Mexico will continue to receive the benefits of competition – lower prices and good quality and selection – from supermarkets in their communities,” said William J. Baer, Director of the FTC’s Bureau of Competition. “The agreement with Albertson’s and American Stores, the largest retail divestiture the Commission has ever obtained, will aid millions of consumers. The agreement also ensures that there will be a speedy divestiture of all 144 stores to strong, capable acquirers, so that there is no interruption in service to consumers.”
Yet six-plus years later, Ralphs found that some of its government-allocated stores couldn’t compete in a grocery market now dominated by Wal-Mart, a company that received no stores from the FTC’s Albertson’s bounty and that did not figure into the government’s market analysis.
The Sacramento Bee article further suggested that an over-abundance of grocery competition doomed the Ralphs stores:
Grocery analysts expressed few surprises at Ralphs’ moves in a state and region where millions of shoppers live just minutes from their food.“You are looking at a marketplace that has too many stores,” said George Whalin, consultant with San Marcos-based Retail Management Consultants. “If they can’t compete in that marketplace, you better get out.”
Whalin called it a sign of retail closings to come.
“The concept most markets operate under is flawed for today’s environment,” he said. “That was that you open as many stores as possible in as many neighborhoods as possible. … I think all these major supermarket chains do not need as many as they’ve had in the past.”
Whalin said the fate of the four affected shopping centers “depends on the quality of the center and kind of demographics around the center.”
“If it’s a good center with good demographics, they’ll have no trouble at all marketing the space,” he said. “If not, there will be some struggles. It might be food stores. It might be other kinds of stores.”
The FTC in 1999 reasoned that the number of grocery stores then in existence was somehow ideal, and that any change to the status quo was presumptively harmful to consumers. The Commission also pretended that grocery stores operated in a self-contained market where there were no competing uses for retail space. The FTC wanted consumers to believe that if an Albertson’s store closed, the resources devoted to that store would simply disappear from the market rather than be allocated to other uses. It is in this sense that the FTC, and antitrust advocates generally, view competition as a zero-sum game.
[Cross-posted to the Voluntary Trade Council Weblog.]
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