9910024

UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION

In the Matter of
THE KROGER CO.,
a corporation, and
FRED MEYER, INC.,
a corporation.

Docket No. C-3917
COMPLAINT

Pursuant to the provisions of the Federal Trade Commission Act and the Clayton Act, and by virtue of the authority vested in it by said Acts, the Federal Trade Commission ("Commission"), having reason to believe that respondent The Kroger Co. ("Kroger") has entered into an agreement to acquire all of the voting securities of respondent Fred Meyer, Inc. ("Fred Meyer"), all subject to the jurisdiction of the Commission, in violation of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45; that such acquisition, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45; and that a proceeding in respect thereof would be in the public interest, hereby issues its complaint, stating its charges as follows:

Definition

PARAGRAPH ONE: For the purposes of this complaint, the term "Supermarket" means a full-line retail grocery store with annual sales of at least $2 million that carries a wide variety of food and grocery items in particular product categories, including bread and dairy products; refrigerated and frozen food and beverage products; fresh and prepared meats and poultry; produce, including fresh fruits and vegetables; shelf-stable food and beverage products, including canned and other types of packaged products; staple foodstuffs, which may include salt, sugar, flour, sauces, spices, coffee, and tea; and other grocery products, including nonfood items such as soaps, detergents, paper goods, other household products, and health and beauty aids.

The Kroger Co.

PARAGRAPH TWO: Respondent Kroger is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Ohio, with its office and principal place of business located at 1014 Vine Street, Cincinnati, Ohio 45202.

PARAGRAPH THREE: Respondent Kroger, directly and through Dillon Companies, Inc., its wholly-owned domestic subsidiary, is, and at all times relevant herein has been, engaged in the operation of supermarkets in Alabama, Arizona, Arkansas, Colorado, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming. Kroger and its wholly-owned domestic subsidiaries operate approximately 1,410 supermarkets in these states under the Kroger, Fry's, Dillons, King Soopers, City Markets, and Gerbes trade names. Kroger had approximately $26.57 billion in total United States sales for the fiscal year that ended on December 27, 1997.

PARAGRAPH FOUR: Respondent Kroger is, and at all times relevant herein has been, engaged in commerce as "commerce" is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. 12, and is a corporation whose business is in or affecting commerce as "commerce" is defined in Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. 44.

Fred Meyer, Inc.

PARAGRAPH FIVE: Respondent Fred Meyer is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at 3800 S.E. 22nd Avenue, Portland, Oregon 97202.

PARAGRAPH SIX: Respondent Fred Meyer is, and at all times relevant herein has been, engaged in the operation of supermarkets in Alaska, Arizona, California, Idaho, Montana, Nevada, New Mexico, Oregon, Texas, Utah, Washington, and Wyoming. Fred Meyer operates approximately 800 supermarkets under the Fred Meyer, Smith's Food & Drug Centers, Ralph's, Quality Food Centers, Price Rite, Food 4 Less, Cala, Bell, and FoodsCo. trade names. Fred Meyer had $14.88 billion in total sales for the fiscal year that ended on January 31, 1999.

PARAGRAPH SEVEN: Respondent Fred Meyer is, and at all times relevant herein has been, engaged in commerce as "commerce" is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. 12, and is a corporation whose business is in or affecting commerce as "commerce" is defined in Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. 44.

Acquisition

PARAGRAPH EIGHT: On or about October 18, 1998, Kroger, Fred Meyer, and Jobsite Holdings, Inc. ("Jobsite"), a wholly-owned subsidiary of Kroger, entered into an Agreement and Plan of Merger pursuant to which Jobsite will merge with and into Fred Meyer and Fred Meyer will become a wholly-owned subsidiary of Kroger. The total value of the proposed merger is approximately $15 billion.

Trade and Commerce

PARAGRAPH NINE: The relevant line of commerce (i.e., the product market) in which to analyze the acquisition described herein is the retail sale of food and grocery products in supermarkets.

PARAGRAPH TEN: Supermarkets provide a distinct set of products and services for consumers who desire to one-stop shop for food and grocery products. Supermarkets carry a full line and wide selection of both food and nonfood products (typically more than 10,000 different stock-keeping units ("SKUs")) as well as a deep inventory of those SKUs. In order to accommodate the large number of food and nonfood products necessary for one-stop shopping, supermarkets are large stores that typically have at least 10,000 square feet of selling space.

PARAGRAPH ELEVEN: Supermarkets compete primarily with other supermarkets that provide one-stop shopping for food and grocery products. Supermarkets primarily base their food and grocery prices on the prices of food and grocery products sold at nearby supermarkets. Supermarkets do not regularly price-check food and grocery products sold at other types of stores and do not significantly change their food and grocery prices in response to prices at other types of stores. Most consumers shopping for food and grocery products at supermarkets are not likely to shop elsewhere in response to a small price increase by supermarkets.

PARAGRAPH TWELVE: Retail stores other than supermarkets that sell food and grocery products, such as neighborhood "mom & pop" grocery stores, convenience stores, specialty food stores (e.g., seafood markets, bakeries, etc.), club stores, military commissaries, and mass merchants, do not effectively constrain prices at supermarkets. None of these stores offers a supermarket's distinct set of products and services that enable consumers to one-stop shop for food and grocery products.

PARAGRAPH THIRTEEN: The relevant sections of the country (i.e., the geographic markets) in which to analyze the acquisition described herein are the areas in and near the following cities and towns:

a Prescott, Arizona;

b. Sierra Vista, Arizona;

c. Yuma, Arizona;

d. Cheyenne, Wyoming;

e. Green River, Wyoming;

f. Rock Springs, Wyoming; and

g. Price, Utah.

Market Structure

PARAGRAPH FOURTEEN: The Prescott, Arizona; Sierra Vista, Arizona; Yuma, Arizona; Green River, Wyoming; Rock Springs, Wyoming; and Price, Utah relevant markets are highly concentrated, whether measured by the Herfindahl-Hirschman Index (commonly referred to as "HHI") or by two-firm and four-firm concentration ratios. The acquisition would substantially increase concentration in each market. Kroger and Fred Meyer would have a combined market share of near or greater than 35% in each geographic market. The post-acquisition HHIs in the geographic markets range from 2,793 to 10,000.

PARAGRAPH FIFTEEN: The Cheyenne, Wyoming, relevant market is highly concentrated. The market will remain highly concentrated as a result of this acquisition, and will be significantly more concentrated than it would have been but for this acquisition.

Entry Conditions

PARAGRAPH SIXTEEN: Entry would not be timely, likely, or sufficient to prevent anticompetitive effects in the relevant markets.

Actual Competition

PARAGRAPH SEVENTEEN: Kroger and Fred Meyer are actual and direct competitors in and near Prescott, Arizona; Sierra Vista, Arizona; Yuma, Arizona; Green River, Wyoming; Rock Springs, Wyoming; and Price, Utah.

Actual Potential Competition

PARAGRAPH EIGHTEEN: Kroger is an actual potential competitor against Fred Meyer in and near Cheyenne, Wyoming. But for the acquisition, Kroger and Fred Meyer would have become direct competitors in the Cheyenne, Wyoming, relevant market. The acquisition will eliminate that competition.

Effects

PARAGRAPH NINETEEN: The effect of the acquisition, if consummated, may be substantially to lessen competition in the relevant line of commerce in the relevant sections of the country in violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, in the following ways, among others:

a. by eliminating direct competition between supermarkets owned or controlled by Kroger and supermarkets owned or controlled by Fred Meyer;

b. by eliminating actual potential competition between supermarkets owned or controlled by Kroger and supermarkets owned or controlled by Fred Meyer;

c. by increasing the likelihood that Kroger will unilaterally exercise market power; and

d. by increasing the likelihood of, or facilitating, collusion or coordinated interaction, each of which increases the likelihood that the prices of food, groceries or services will increase, and the quality and selection of food, groceries or services will decrease, in the relevant sections of the country.

Violations Charged

PARAGRAPH TWENTY: The Agreement and Plan of Merger between Kroger and Fred Meyer, pursuant to which Jobsite will merge with and into Fred Meyer and Fred Meyer will become a wholly-owned subsidiary of Kroger, violates Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, and the proposed acquisition would, if consummated, violate Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45.

WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this tenth day of January, 2000, issues its complaint against said respondents.

By the Commission, Commissioner Leary not participating.

Donald S. Clark
Secretary
SEAL: