Spy Tactics Help Price Groceries --- Price checks, store visits fuel U.S.'s case against merger of Kroger, Albertsons

"The price of bananas, a dozen eggs or a loaf of bread at neighborhood supermarkets is set in part by a not-so-subtle process of spying.

Grocery-store operators scrutinize the websites and promotions of rivals and send managers to walk through competitors' stores to help establish what shoppers will pay for items. Companies commonly use rivals' prices as a benchmark in setting their own, but these tactics have gained attention from government antitrust lawyers seeking to block a $20 billion merger between Kroger and Albertsons, the respective largest and second-largest U.S. supermarket chains by sales.

Federal Trade Commission attorneys argued that Kroger won't have the same incentive to lower prices in its stores without Albertsons. Price checks can provide a ceiling for what grocers charge shoppers, an argument made by lawyers at the FTC and state attorneys general to emphasize the importance of competition.

Lawyers for Kroger said the purchase of Albertsons gives the company enough scale to match or beat prices from Walmart and other low-price grocers. Kroger and Albertsons also said they price check against a number of different competitors in a given area, including Walmart, Target and Amazon.com's Whole Foods Market.

A federal judge is expected to decide in the coming weeks whether to block the deal.

Todd Broderick, an Albertsons executive who oversees Safeway stores in Denver, routinely monitors one of his company's top rivals in the area. In visits to Kroger-owned King Soopers locations, he checks how busy and clean the stores are and how prices compare with those at Safeway. Broderick and his colleagues also pore over print advertisements that Kroger mails to local shoppers.

"If our price is lower, we'd say we won," he said in a federal courtroom in Portland, Ore., in September.

Food prices in America are under heavy scrutiny as consumers now spend more of their income on food than they have in decades. Consumer advocates and government officials have blamed corporate greed for food-price inflation. It has been a hot issue on the presidential campaign trail, with Republican Donald Trump blaming his Democratic opponent, Kamala Harris, for fueling inflation while serving as vice president. Harris has called for banning price gouging in food and groceries.

Industry executives have said a number of factors go into the price of food, from surging labor costs to commodity price swings.

Large grocery companies, which typically operate with razor-thin margins, use their leverage with suppliers to push down prices and get more shoppers through their doors. Competitors then have to adjust their prices to avoid being labeled as the more expensive store in town.

"It's about the perception of price in your store," said James McCann, the former chief executive of grocery chains Ahold USA, which runs Stop & Shop, and Carrefour France, about checking competitor store prices. "If you are expensive, a lot of customers will migrate to other places."

It is common to send an employee across the street to a competitor three times a week to check prices on about 30 items. Neighboring stores might even recognize the rival price checker, but won't stop them or throw them out because it is so common, McCann said. "If you kick them out, they'll kick you out," he said.

Kroger CEO Rodney McMullen has said he commonly walks competitors' stores, checking prices and store qualities and chatting with shoppers. In court testimony last month, he said Kroger checks Walmart frequently and tries to get its prices closer to those of the Bentonville, Ark., retailer through in-store promotions.

The ability to extract and analyze data from websites has helped grocers become savvier about how rivals are pricing items, said Ben Reich, CEO of Datasembly, an analytics company that compiles online grocery-pricing data.

Grocers use Walmart as the most-common reference point for prices, he said, but if a nearby store has lower prices, then that is the one they would care most about. Walmart works to offer the lowest everyday prices across its stores. The retailer also has regional managers visit competitors and its buyers pressure suppliers to offer lower wholesale prices if managers find items sold cheaper elsewhere, people familiar with the process said.

Employees at QFC, another Kroger-owned supermarket chain, conduct a weekly "Safeway scrape" to collect price information from Safeway's website, a Kroger executive said in a Washington state court in September.

The executive -- Kroger's senior director for pricing, Andy Groff -- said that when Safeway lowered egg prices several years ago, Kroger's QFC followed suit.

At times, grocery executive Neil Stern finds his larger peers selling a product at a cheaper price than his company can. He uses the information to go back to his supplier to negotiate a better price, give it a less prominent location on store shelves or drop the product altogether.

"I could go out of business" if stores tried to match the lowest price on every item, said Stern, the CEO of Good Food Holdings, which owns the Bristol Farms and Lazy Acres Natural Market chains." [1]

1. Spy Tactics Help Price Groceries --- Price checks, store visits fuel U.S.'s case against merger of Kroger, Albertsons. Thomas, Patrick.  Wall Street Journal, Eastern edition; New York, N.Y.. 18 Oct 2024: B.1.