Unanticipated Entry and Expansion Since Issuance of Prior Order Make Anticompetitive Effects Unlikely
The investigation into the acquisition by The Kroger Company ("Kroger") of 18 supermarkets from Raley's Corporation in the Las Vegas, Nevada area has been closed.(1) The Commission staff's investigation concluded that it is unlikely that the transaction would be anticompetitive. Rather, consumers in this market have benefitted and are expected to continue to benefit from rivalry among at least the four remaining major competitors, including Wal-Mart.
I. Background on the Transaction
Earlier this year, Kroger and Raley's entered into an agreement by which Kroger would acquire 18 Raley's supermarkets in the Las Vegas, Nevada area. As the parties noted publicly, the Federal Trade Commission's Bureau of Competition opened an investigation. The parties deferred consummation of the transaction until completion of the investigation. During the investigation, the Bureaus of Competition and Economics collected and analyzed a significant amount of data, documents, and information from Kroger, Raley's, and other participants in the relevant market.
II. The Prior FTC Investigation in this Market
In June 1999, the Commission accepted for public comment a draft consent order regarding the proposed acquisition of American Stores Company (American Stores) by Albertson's Inc. (Albertson's). The accompanying draft complaint alleged that the effect of the proposed acquisition "may be substantially to lessen competition" for "the retail sale of food and grocery products in supermarkets" in 57 geographic markets in California, Nevada, and New Mexico.(2) The draft complaint alleged that entry into those geographic markets was difficult and would not be timely, likely, or sufficient (as required by the Horizontal Merger Guidelines) to prevent anticompetitive effects that might arise from the transaction. One of the markets of concern in Albertson's/American Stores was the Greater Las Vegas / Henderson, Nevada area.
The Commission entered an order requiring Albertson's and American Stores to divest 144 supermarkets. The Commission's order required Albertson's to divest 19 stores and one site in Las Vegas and approved the divestiture of those stores and site to Raley's, a California-based supermarket competitor. Those stores accounted for a significant share of the sales by supermarkets in the Las Vegas market at the time of the divestiture.
III. Substantial and Ongoing Entry and Expansion
At the time of the Albertson's/American Stores investigation, Wal-Mart had opened no Supercenters in Las Vegas. A Wal-Mart Supercenter is, roughly speaking, a combination of a Wal-Mart and a large supermarket. Since then, Wal-Mart has opened 5 Supercenters in Las Vegas. Wal-Mart's current share of supermarket sales in Las Vegas is significant and is likely to grow. Wal-Mart is not the only de novo entrant since 1999; for example, K-Mart has opened a Supercenter, and King Ranch has entered the market with three supermarkets and a fourth under construction.
Besides the entry of three new competitors, the major competitors existing in 1999 - Albertson's, Kroger, and Safeway Corporation (operating under the Von's name) - have added over 25 new supermarkets in Las Vegas. When accounting for both expansion and entry, the number of supermarkets in Las Vegas has grown by about 45% since the Albertson's/American Stores divestiture. Because Las Vegas is a rapidly growing city, the supermarket industry likely will continue to grow.
IV. Raley's Since 1999
Since 1999, Raley's has not opened any new stores in Las Vegas, and the competitive significance of the Raley's stores has materially declined. The share of supermarket sales accounted for by Raley's has been substantially reduced as new competitors have entered, and existing competitors have expanded their presence in the geographic market. The competitive significance of Raley's in Las Vegas likely would decline further in light of expected additional expansion.
The decision to close this investigation was based on the conclusion that the transaction is not likely to lead to adverse competitive effects in the Las Vegas/Henderson, Nevada market. This conclusion is supported by, and based on, consideration of several important facts: (i) concentration in the Las Vegas / Henderson geographic market has declined significantly since 1999, because of substantial entry and expansion by existing competitors; (ii) there has been a substantial reduction in Raley's share; (iii) the combined share and competitive significance of a Kroger/Raley's combination is too small, particularly in this rapidly growing market with four major competitors, to raise credible concerns of potential unilateral effects, and staff found no basis for a closest competitor theory; and (iv) the rapid growth of the market, along with the presence of four major competitors, vitiates any concern of potential coordinated interaction arising from the transaction. Similar factors have been considered in other recent Commission actions.(3)
Kroger, headquartered in Cincinnati, Ohio, is one of the largest supermarket chains in the United States. It operates 2,418 supermarkets under the "Kroger," "Smith's," "Food 4 Less," and several other banners in 32 states. Kroger's fiscal 2001 sales were over $50 billion. Kroger's Smith's division, based in Salt Lake City, Utah, operates the "Smith's" stores in Las Vegas, and Kroger's Food 4 Less Division, based in Los Angeles, California, operates the "Food 4 Less" stores in Las Vegas.
Raley's is a regional privately-held supermarket company headquartered in Sacramento, California. Raley's annual revenues are approximately $3.3 billion. It operates 149 supermarkets in Northern California, Nevada, and New Mexico under the "Raley's," "Nob Hill," "Bel Air," and "Food Source" banners. Raley's operates supermarkets in Las Vegas under the "Raley's" banner.
1. The Director of the Bureau of Competition has closed this investigation pursuant to delegated authority. Federal Trade Commission Operating Manual, §22.214.171.124.2.
2. In the Matter of Albertson's Inc. and American Stores Company (final order, Dec. 6, 2000) (Docket No. C-3986).
3. For example, at about the same time that the Commission accepted the Albertson's / American Stores order, it also accepted an order in another Kroger transaction. In May 1999, the Commission accepted for public comment a draft consent order and complaint requiring Kroger to divest supermarkets in 13 geographic markets in Arizona, Utah, and Wyoming. In the Matter of The Kroger Co. and Fred Meyer (final order, Jan. 10, 2000) (Docket No. C-3917). Evidence collected during that investigation suggested that relief was not necessary in certain other geographic markets, despite high concentration, because of recent and likely continuing entry and expansion by Wal-Mart and other firms.
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