[Federal Register Volume 64, Number 168 (Tuesday, August 31, 1999)]
[Notices]
[Pages 47505-47507]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-22575]
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FEDERAL TRADE COMMISSION
[File No. 991 0041]
The 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 November 1, 1999.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 600 Pennsylvania Ave., NW, Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: William Baer, FTC/H-374, 600
Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-2932 or Laurel
Price and Michael Rose, Federal Trade Commission, East Central Regional
Office, 1111 Superior Ave., Suite 200, Cleveland, OH 44114. (216) 263-
3417.
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 August 23, 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, NW, Washington, DC
20580, either in person or by calling (202) 326-3627.
Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW,
Washington, DC 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 To Aid Public Comment
The Federal Trade Commission (``Commission'') has accepted for
public comment from The Kroger Co. (``Kroger'') and The John C. Groub
Company, Inc. (``Groub'') (collectively ``the Proposed Respondents'')
an Agreement Containing consent order (``Order''). The Order, requiring
the divestiture of three supermarkets to Roundy's Inc., is designed to
remedy likely anticompetitive effects arising from Kroger's acquisition
of substantially all of the assets of Groub.
Kroger is an Ohio corporation headquartered in Cincinnati, Ohio. It
is the largest supermarket firm in the United States, with 1997 fiscal
year sales in excess of $26 billion. Kroger operates more than 2,200
supermarkets and convenience stores in 37 states. Kroger operates 89
supermarkets in Indiana. Two Kroger supermarkets directly compete with
four Groub stores subject to this transaction.
Groub, an Indiana corporation headquartered in Seymour, Indiana,
operates 30 retail supermarkets in southern and central Indiana under
the names ``Jay C,'' ``Foods Plus,'' and ``Ruler.'' Groub sales for the
1997 fiscal year were approximately $252,000,000.
The proposed 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 one-stop shopping 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
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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.
Kroger and Groub are direct competitors in the retail sale of food
and grocery items in supermarkets in Columbus and Madison, Indiana.
Columbus has a population of approximately 34,000 people; Madison's
population is around 40,000. According to the proposed complaint, the
Columbus and Madison 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.\1\ The
acquisition would substantially increase concentration in each market.
Kroger and Groub would have a combined market share in the geographic
markets of Columbus and Madison of near or greater than 66% and 54%,
respectively. The post-acquisition HHIs would be 5,254 in Columbus and
4,262 in Madison. According to the proposed complaint, entry is
difficult and would not be timely, likely, or sufficient to prevent
anticompetitive effects in the relevant geographic markets.
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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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According to the proposed complaint, Kroger's acquisition of Groub
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 Groub;
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.
To remedy the antitrust concerns in these markets, under the terms
of the Order, the Proposed Respondents must divest three supermarkets
in the relevant markets. The Proposed Respondents must divest: (1) one
Groub ``Jay C'' and one Groub ``Foods Plus'' in Columbus, Indiana, and
(2) one ``Kroger'' in Madison, Indiana, to Roundy's, Inc.
(``Roundy's''). Roundy's is one of the largest food wholesalers in the
United States and an operator of company-owned supermarkets.
These divestitures include every Kroger supermarket or every Groub
supermarket in each relevant market. Roundy's 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 Roundy's are:
1. Groub store no. 92 operating under the ``Foods Plus'' trade
name, which is located at 1343 North National Road, Columbus, Indiana
47201 (Bartholomew County)
2. Groub store no. 89 operating under the ``Jay C'' trade name,
which is located at 2540 Eastbrook Plaza, Columbus, Indiana 47201
(Bartholomew County); and
3. Kroger store no. 304 operating under the ``Kroger'' trade name,
which is located at 748 Jefferson Court, Madison, Indiana 47250
(Jefferson County).
From the time Kroger acquires substantially all of the assets of
Groub 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 Order, which was executed on July 13, 1999, specifically
requires that the divestitures occur no later than 20 days after Kroger
acquires substantially all of the assets of Groub or four months after
the proposed Respondents signed the Order, whichever is earlier. The
Order also requires Kroger and Groub to include rescission provisions
in their up-front buyer agreements that allow them to rescind the
transaction(s) if the Commission, after the comment period, decides to
reject any up-front buyer(s). If Kroger divests the supermarkets to be
divested prior to the date the Order becomes final, and if, at the time
the Commission decides to make the Order final, the Commission notifies
Kroger or Groub that the up-front buyer is not an acceptable acquirer
or that any of the up-front buyer agreements is not an acceptable
manner of divestiture, then Kroger or Groub must immediately rescind
the transaction in question and divest those assets within three months
after the Order becomes final. At that time, Kroger or Groub 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.
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 acquisition, the Commission requires the 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 purchaser presented by the parties is
well qualified to run the divested stores and that divestiture to that
purchaser poses no separate competitive issues.
For a period of 10 years from the date the 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,
Bartholomew or Jefferson counties, Indiana. 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; nor does it restrict Kroger from
leasing facilities not operated as supermarkets within the previous six
months.
For a period of 10 years, the 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 July 13, 1999, to operate a supermarket at that
site if such a supermarket was formerly owned or operated by the Kroger
in Batholomew or Jefferson counties, Indiana. In addition, Kroger may
not remove fixtures or equipment from a store or property owned or
leased in
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Bartholomew or Jefferson counties, Indiana, that is no longer in
operation as a supermarket, except (1) prior to 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 Order within 30 days following the date
on which they signed the consent agreement and every 30 days thereafter
until the diversitures are completed: and Kroger must report annually
for a period of 10 years from the date the proposed order becomes
final. The obligations of Group under the Order will terminate upon the
date it becomes final.
The 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 Order final.
By accepting the Order subject to final approval, the Commission
anticipates that the competitive problems alleged in the compliant will
be resolved. The purpose of this analysis is to invite public comment
on the Order, including the proposed sale of supermarkets to Roundy's,
in order to aid the Commission in its determination of whether to make
the Order final. This analysis is not intended to constitute an
official interpretation of the Order nor is it intended to modify the
terms of the Order in any way.
By direction of the Commission.
Benjamin I. Berman,
Acting Secretary.
[FR Doc. 99-22575 Filed 8-30-99; 8:45 am]
BILLING CODE 6750-01-M
