[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

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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