The Kroger Co., et al.; Analysis To Aid Public Comment

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