The Federal Trade Commission today announced a settlement with The Stop & Shop Companies, Inc. that will keep supermarket prices low for consumers in the Boston metropolitan area, Cape Cod, the South Shore area, Bedford and Brockton. The FTC had alleged that the merger of Stop & Shop and Purity Supreme, Inc., which operate competing supermarkets in these five areas, would substantially reduce supermarket competition, possibly leading to higher prices and reduced quality and selection. Under the settlement, the combined firm would divest a total of 17 stores in the five areas to entities that will run them in competition with the combined firm's remaining stores. The FTC and the Massachusetts Attorney General's office worked in tandem in the investigation of this merger, and that office is announcing a settlement with identical divestiture requirements today.
"The FTC and Massachusetts Attorney General cooperated closely in achieving settlements that will benefit Massachusetts residents and the millions of tourists who visit there each year," said William Baer, Director of the FTC's Bureau of Competition. "This is a good example of how well antitrust enforcers at the state and federal levels can work together to protect consumers from anticompetitive mergers and, at the same time, avoid unnecessarily burdening business with repetitive investigations."
Stop & Shop, based in Quincy, Massachusetts, operates nearly 130 supermarkets in four northeastern states. It is controlled by New York City-based SSC Associates, L.P., an affiliate of Kohlberg, Kravis, Roberts & Co. Purity is based in North Billerica, Massachusetts, and currently operates more than 50 supermarkets in three northeastern states under the Purity or Heartland trade names.
According to the FTC complaint detailing the alleged antitrust law violations associated with this merger, supermarkets are in a distinct market -- "mom & pop" stores, specialty food stores or other types of food stores don't have a significant price-constraining effect on food and grocery products sold in supermarkets. Most consumers shopping for food and grocery products at supermarkets are not likely to shop elsewhere if their local supermarkets enact small price increases. In addition, the complaint states, supermarkets do not typically change their prices to meet those of other, non-supermarket, types of stores.
After determining that supermarkets don't signficantly compete with other types of retail grocery stores, the FTC then looked at the competitive situation among supermarkets in each of the areas and concluded that consumers would potentially face higher prices if Stop and Shop acquired Purity's stores in those areas. The complaint alleges it is unlikely that new competitors would enter the supermarket business in these areas, because there are few available sites, and it takes quite a long time to receive state and local regulatory approval for a new supermarket.
As a result, the merger of Stop & Shop and Purity Supreme would violate antitrust laws by eliminating direct competition between the two supermarket operators, increasing the likelihood that Stop & Shop will unilaterally exercise market power to raise prices, and increasing the chances of collusion or coordinated interaction among remaining firms.
The proposed consent agreement to settle these charges, announced today for public comment, is designed to restore competition by requiring Stop & Shop to divest the following supermarkets within nine months to Commission-approved acquirers:
- in the Boston metropolitan area: the Purity stores at 630 American Legion Highway in Roslindale, 400 Lynn Fells Parkway in Saugus, 2151 Mystic Valley Parkway in Medford, 525 Harvard Street in Brookline, 10 Pleasant Valley Street in South Weymouth, and the Stop & Shop store at 550 Arsenal Street in Watertown;
- on Cape Cod: the Purity stores at 137 Main Street in Falmouth, Mashpee Circle in Mashpee, 625 West Main Street in Hyannis, 1070 Iyanough Road in Hyannis, 1080 State Road in Yarmouth, 18 Sisson Road in Harwich, and at Cranberry Highway and West Road in Orleans;
- in the Brockton area: the Purity store at 240 East Ashland Street in Brockton;
- in the Bedford area: the Purity store at 170 Great Road in Bedford; and
- in the South Shore area: the Purity stores at 182 Summer Street in Kingston, and at Ocean and Webster Streets in Marshfield.
The proposed consent agreement requires Stop & Shop to divest the seven listed Purity supermarkets on Cape Cod to a single buyer.
Pending divestiture, Stop & Shop is required to keep the supermarkets in viable and marketable condition. If the divestitures are not completed on time, the settlement would permit the FTC to appoint a trustee to accomplish them.
In addition, the proposed settlement contains provisions designed to prevent Stop & Shop from restricting supermarket competition in these areas in the future. First, it would require Stop & Shop and SSC Associates to notify the FTC, for 10 years, before acquiring supermarket assets in eastern Massachusetts. The settlement also would prohibit them, for 10 years and with certain exceptions, from entering into or enforcing any agreement that restricts the ability of another entity to operate a supermarket that is (1) on a site in eastern Massachusetts that formerly was a Purity supermarket, or (2) on a Stop & Shop site on either Cape Cod or not more than two miles from any former Purity supermarket in eastern Massachusetts.
The settlement also contains various reporting requirements that would assist the FTC in monitoring their compliance.
The Commission vote to announce the proposed consent agreement for public comment was 5-0, with Commissioner Mary L Azcuenaga issuing a separate statement. In her statement, Commissioner Azcuenaga said, "I concur in the Commission's decision to accept a proposed consent order for public comment to the extent that the order requires divestiture of supermarkets on Cape Cod and the South Shore, but dissent to the extent that the order requires divestiture of stores in the Boston metropolitan area...Although a small geographic market theoretically may exist within a broad metropolitan area, at this time the record before the Commission does not contain sufficient evidence to support a finding of reason to believe" that other communities in the Boston metropolitan area are relevant antitrust markets. The proposed consent agreement will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $10,000.
Copies of the complaint, proposed consent agreement and an analysis of the agreement to assist the public in commenting are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov
(FTC File No. 951 0086)