[Federal Register Volume 64, Number 108 (Monday, June 7, 1999)]
[Notices]
[Pages 30329-30332]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14246]
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FEDERAL TRADE COMMISSION
[File NO. 9910024]
Kroger Co. et al.; Analysis To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the draft
complaint that accompanies the consent agreement and the terms of the
consent order--embodied in the consent agreement--that would settle
these allegations.
DATES: Comments must be received on or before August 6, 1999.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.
FOR FURTHER INFORMATION CONTACT:
Jill Frumin, FTC/S-2105, 601 Pennsylvania Avenue, N.W., Washington,
D.C. 20580, (202) 326-2758.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of
the Commission's Rules of Practice, 16 CFR 2.34, notice is hereby given
that the above-captioned consent agreement containing a consent order
to cease and desist, having been filed with and accepted, subject to
final approval, by the Commission, has been placed on the public record
for a period of sixty (60 days. The following Analysis to Aid Public
Comment describes the terms of the consent agreement, and the
allegations in the complaint. An electronic copy of the full text of
the consent agreement package can be obtained from the FTC Home Page
(for May 27th, 1999), on the World Wide Web, at ``http://www.ftc.gov/
os/actions97.htm.'' A paper copy can be obtained from the FTC Public
Reference Room, Room H-130, 600 Pennsylvania Avenue, N.W., Washington,
D.C. 20580, either in person or be calling (202) 326-3627.
Public comments is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Avenue, N.W.,
Washington, D.C. 20580. Two paper copies of each comment should be
filed, and should be accompanied, if possible, by a 3\1/2\ inch
diskette containing an electronic copy of the comment. Such comments or
views will be considered by the Commission and will be available for
inspection and copying at its principal office in accordance with
Section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR
4.9(b)6)(ii).
Analysis of the Proposed Consent Order and the Draft Complaint To
Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted for
public comment from The Kroger Co. (``Kroger'') and Fred Meyer Stores,
Inc. (``Fred Meyer'') (collectively ``the Proposed Respondents'') an
Agreement Containing Consent Order (``the proposed consent order'').
The Proposed Respondents have also reviewed a draft complaint
contemplated by the Commission. The proposed consent order is designed
to remedy likely anticompetitive effects arising from the merger of
Jobsite Holdings, Inc. (``Jobsite''), a wholly-owned subsidiary of
Kroger, with and into Fred Meyer (the ``Merger''), through which Fred
Meyer will become a wholly-owned subsidiary of Kroger.
II. Description of the Parties and the Proposed Acquisition
Kroger, an Ohio corporation headquartered in Cincinnati, Ohio,
operates over 1,400 supermarkets in 23 states. Kroger's supermarkets
operate under the ``Kroger,'' ``Fry's,'' ``Dillons,'' ``King Soopers,''
``City Markets,'' and ``Gerbes'' trade names. In the states where
Kroger competes with Fred Meyer, Kroger operates supermarkets in
Arizona under the ``Fry's'' trade name and in Utah and Wyoming under
the ``City Market'' and ``King Sooper'' trade names. Kroger has plans
to open a supermarket in Cheyenne, Wyoming, under the ``King Sooper''
trade name. Kroger had $26.57 billion in United States revenues for the
fiscal year that ended on December 27, 1997. Following the merger,
Kroger will remain the largest supermarket firm in the United States.
Fred Meyer, a Delaware corporation headquartered in Portland,
Oregon, operates approximately 800 supermarkets in 12 western states.
Fred Meyer's supermarkets operate under the ``Smith Food & Drug
Center'' trade name in Arizona, Utah, and Wyoming, as well as the
``Fred Meyer'' trade name in Arizona and Utah, and the ``Price Rite''
trade name in Arizona. Fred Meyer had $14.88 billion in total sales for
the fiscal year that ended on January 31, 1999.
Pursuant to the Merger proposed by Kroger and Fred Meyer, Jobsite
will merge with and into Fred Meyer and Fred Meyer will become a
wholly-owned subsidiary of Kroger. As a result of the Merger, Fred
Meyer's outstanding shares of common stock will be extinguished and the
holder of each such share will be entitled to receive
[[Page 30330]]
one newly-issued share of common stock of Kroger in exchange for each
extinguished share of Fred Meyer common stock. The total equity value
of the proposed merger is approximately $15 billion.
III. The Draft Complaint
The draft complaint alleges that the relevant line of commerce
(i.e., the product market) is the retail sale of food and grocery items
in supermarkets. 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.
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 other 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.
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. These
other stores operate significantly different retail formats. 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.
According to the draft complaint, the relevant sections of the
country (i.e., the geographic markets) in which to analyze the
acquisition 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.
Kroger and Fred Meyer are actual and direct competitors in and near
Prescott, Sierra Vista, Yuma, Green River, Rock Springs, and Price.
Kroger is an actual potential competitor against Fred Meyer in and near
the Cheyenne relevant market. But for the acquisition, Kroger and Fred
Meyer would become direct competitors in the Cheyenne relevant market.
The acquisition will eliminate that competition.
According to the draft complaint, the Prescott, Sierra Vista, Yuma,
Arizona; Green River, Rock Springs, Wyoming; and Price, Utah, relevant
markets are highly concentrated, whether measured by the Herfindahl-
Hirschman Index (commonly referred to as ``HHI'') \1\ 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.
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\1\ The HHI is a measurement of market concentration calculated
by summing the squares of the individual market shares of all the
participants.
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The draft complaint further alleges that the Cheyenne, Wyoming,
relevant market is also 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 the
acquisition.
According to the draft complaint, entry is difficult and would not
be timely, likely, or sufficient to prevent anticompetitive effects in
the relevant geographic markets.
According to the draft complaint, 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, may substantially lessen competition in the
relevant markets 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, by eliminating direct competition
between supermarkets owned or controlled by Kroger and supermarkets
owned or controlled by Fred Meyer; by eliminating actual potential
competition between supermarkets owned or controlled by Kroger and
supermarkets owned or controlled by Fred Meyer; by increasing the
likelihood that Kroger will unilaterally exercise market power; and by
increasing the likelihood of, or facilitating, collusion or coordinated
interaction among the remaining supermarket firms. Each of these
effects 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.
IV. Terms of the Proposed Consent Order
The proposed consent order will remedy the Commission's competitive
concerns about the proposed acquisition. Under the terms of the
proposed consent order, the Proposed Respondents must divest eight
specific supermarkets in the relevant markets. Five of the supermarkets
that the Proposed Respondents must divest are currently owned and
operated by Kroger ( of which two operate under the ``Fry's'' banner
and three operate under the ``City Market'' banner), and three of the
supermarkets are currently owned and operated by Fred Meyer (all of
which operate under the ``Smith's'' banner). The Proposed Respondents
must divest: (1) Two Fred Meyer ``Smith's'' in Cheyenne, Wyoming, to
Nash-Finch Company (``Nash-Finch''), one of the largest food
wholesalers in the United States and an operator of many company-owned
supermarkets; (2) one Kroger ``City Market'' in Price, Utah, to
Albertson's, Inc., one of the largest retail food and drug chains
operating in the United States; and (3) two Kroger ``Fry's,'' two
Kroger ``City Markets,'' and one Fred Meyer ``Smith's'' in various
locations to Fleming Companies, Inc. (``Fleming''), the second-largest
supermarket wholesaler in the United States and an operator of many
company-owned supermarket. These divestitures include every Kroger
supermarket or every Fred Meyer supermarket in each relevant market.
Each upfront buyer owns no supermarkets in the same market where it is
acquiring one or more divested supermarkets from the Proposed
Respondents. The specific supermarkets that the Proposed Respondents
must divest to Nash-Finch, Albertson's, and Fleming are listed below.
The two supermarkets that the Proposed Respondents must divest to
Nash-Finch in accordance with the agreement between Kroger and Nash-
Finch dated March 31, 1999, are:
1. Smith's store no. 175 operating under the ``Smith's Food & Drug
Centers'' trade name, located at 1600 E. Pershing Blvd., Cheyenne,
Wyoming 82001 (Laramie County); and
2. Smith's store no. 176 operating under the ``Smith's Food & Drug
Centers'' trade name, located at 3745
[[Page 30331]]
East Lincoln Way, Cheyenne, Wyoming 82001 (Laramie County).
The one supermarket that the Proposed Respondents must divest to
Albertson's in accordance with the agreement between Kroger and
Albertson's dated March 31, 1999, is:
1. Kroger store no. 27 operating under the ``City Market'' trade
name, located at 760 Price River Dr., Price, Utah 84501 (Carbon
County).
The five supermarkets that the Proposed Respondents must divest to
Fleming in accordance with the agreements between Kroger and Fleming
dated March 31, 1999, and April 7, 1999, are:
1. Kroger store no. 24 operating under the ``City Market'' trade
name, located at 401 N. Center, Rock Springs, Wyoming 82901 (Sweetwater
County);
2. Kroger store no. 23 operating under the ``City Market'' trade
name, located at 400 Uinta Drive, Green River, Wyoming 82935
(Sweetwater County);
3. Kroger store no. 9 operating under the ``Fry's'' trade name,
located at 1519 W. Gurley Street, Prescott, Arizona 86305 (Yavapai
County);
4. Smith's store no. 305 operating under the ``Smith's Food & Drug
Centers'' trade name, located at #85 South Hwy. 92, Sierra Vista,
Arizona 85635 (Cochise County); and
5. Kroger store no. 47 operating under the ``Fry's'' trade name,
located at 2600 W. 16th Street, Yuma, Arizona 85364 (Yuma County).
From the time Jobsite merges with and into Fred Meyer until the
divestitures have been completed, the Proposed Respondents are required
to maintain the viability, competitiveness, and marketability of the
assets to be divested, must not cause their wasting or deterioration,
and cannot sell, transfer, or otherwise impair their marketability or
viability.
The proposed consent order specifically requires that the
divestitures occur no later than twenty days after Jobsite merges with
and into Fred Meyer and Fred Meyer becomes a wholly-owned subsidiary of
Kroger or four months after the Proposed Respondents signed the
proposed consent order (April 29, 1999), whichever is earlier. The
proposed consent agreement also requires Kroger to include rescission
provisions in its upfront buyer agreements that allow it to rescind the
transaction(s) if the Commission, after the comment period, decides to
reject any of the upfront buyers. If Kroger divests the supermarkets to
be divested prior to the date the proposed consent order becomes final,
and if, at the time the Commission decides to make the proposed consent
order final, the Commission notifies Kroger that any of the upfront
buyers is not an acceptable acquirer or that any of the upfront buyer
agreements is not an acceptable manner of divestiture, then Kroger must
immediately rescind the transaction in question and divest those assets
within three months after the proposed consent order becomes final. At
that time, Kroger must divest those assets only to an acquirer that
receives the prior approval of the Commission and only in a manner that
receives the prior approval of the Commission. In the event that any
Commission-approved buyer is unable to take or keep possession of any
of the supermarkets identified for divestiture, a trustee that the
Commission may appoint has the power to divest any of the supermarkets
or properties in the markets alleged in Paragraph 13 of the complaint
that the Proposed Respondents own to remedy the anticompetitive effects
alleged in the complaint.
The Commission's goal in evaluating possible purchasers of divested
assets is to maintain the competitive environment that existed prior to
the acquisition. When divestiture is an appropriate remedy for a
supermarket merger, the Commission requires the merging parties to find
a buyer for the divested stores. A proposed buyer must not itself
present competitive problems. For example, the Commission is less
likely to approve a buyer that already has a large retail presence in
the relevant geographic area than a buyer without such a presence. The
Commission is satisfied that the purchasers presented by the parties
are well qualified to run the divested stores and that divestiture to
these purchasers poses no separate competitive issues.
For a period of ten years from the date the proposed consent order
becomes final, Kroger is required to provide notice to the Commission
prior to acquiring supermarket assets located in, or any interest (such
as stock) in any entity that owns or operates a supermarket located in,
Cochise, Yavapai, or Yuma counties, Arizona; Laramie or Sweetwater
counties, Wyoming; or Carbon County, Utah. Kroger may not complete such
an acquisition until it has provided information requested by the
Commission. This provision does not restrict Kroger from constructing
new supermarket facilities on its own; or does it restrict Kroger from
leasing facilities not operated as supermarkets within the previous six
months.
For a period of ten years, the proposed consent order also
prohibits Kroger from entering into or enforcing any agreement that
restricts the ability of any person that acquires any supermarket, any
leasehold interest in any supermarket, or any interest in any retail
location used as a supermarket on or after January 1, 1998, to operate
a supermarket at that site if such supermarket was formerly owned or
operated by Kroger in Cochise, Yavapai, or Yuma counties, Arizona;
Laramie or Sweetwater counties, Wyoming; or Carbon County, Utah. In
addition, Kroger may not remove fixtures or equipment from a store or
property owned or leased in Cochise, Yavapai, or Yuma counties,
Arizona; Laramie or Sweetwater counties, Wyoming; or Carbon County,
Utah, that is no longer in operation as a supermarket, except (1) prior
to a sale, sublease, assignment, or change in occupancy or (2) to
relocate such fixtures or equipment in the ordinary course of business
to any other supermarket owned or operated by Kroger.
The Proposed Respondents are required to provide to the Commission
a report of compliance with the proposed consent order within thirty
days following the date on which they signed the proposed consent and
every thirty days thereafter until the divestitures are completed.
Kroger is required to provide to the Commission a report of compliance
annually for a period of ten years. The obligations of Jobsite under
the proposed consent order will terminate upon consummation of the
proposed acquisition.
V. Opportunity for Public Comment
The proposed consent order has been placed on the public record for
60 days for receipt of comments by interested persons. Comments
received during this period will become part of the public record.
After 60 days, the Commission will again review the agreement and the
comments received and will decide whether it should withdraw from the
agreement or make the proposed consent order final.
By accepting the proposed consent order subject to final approval,
the Commission anticipates that the competitive problems alleged in the
complaint will be resolved. The purpose of this analysis is to invite
public comment on the proposed consent order, including the proposed
sale of supermarkets to Nash-Finch, Alberton's, and Fleming, in order
to aid the Commission in its determination of whether to make the
proposed consent order final. This analysis is not intended to
constitute an official interpretation of the proposed consent order nor
is it
[[Page 30332]]
intended to modify the terms of the proposed consent order in any way.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 99-14246 Filed 6-4-99; 8:45 am]
BILLING CODE 6750-01-M