retail news in context, analysis with attitude

The Washington Post has a piece about how grocery industry consolidation could, quite literally, affect the price of beans for consumers.

"It’s not always clear what happens when markets consolidate," the Post writes. "On the one hand, they can achieve greater economies of scale, which might allow them to offer lower prices. On the other, when a lot of players aren’t scrapping it out for customers, they might allow prices to creep upwards. Meanwhile, price drivers like commodities and labor costs muddy the waters, making it hard to figure out what’s going on."

The story suggests that the lessons of the late 90s can provide some context for what may happen: "Between 1996 and 2000, nearly 3,500 stores were purchased, representing more than $67 billion in annual sales," the story says. "In 1992, the top four chains ate up 15.9 percent of total sales; in 1998 the share was 28.8 percent. It was in part a reaction to the overbearing force of Wal-Mart–the Krogers and Supervalus reasoned that only by combining forces could they compete against the supply-chain bending powers of Bentonville. At the same time, though, the Federal Trade Commission helped prevent chains from carving up whole markets amongst themselves, keeping enough players in a locality to maintain competition."

A study by researchers at South Dakota State University concluded, the Post writes, that "chains with a larger chunk of the national market did have lower prices. But they also tend to reduce the number of promotions they offer after a merger, making it harder on lower-income shoppers who might have put more effort into lowering their bills. Also, there is some evidence that fewer competitors in a given single market can drive up prices."
KC's View:
The difference between 2013 and 1998 is that e-commerce really wasn't much of a factor then. Today, even if economic power gets centralized among a few chains, there will be pressure from the likes of Amazon and other e-tailers not to let prices get out of hand.
Though, I don't think this really matters, because there also are enough value operators out there - think WinCo - that will make sure that some chains cannot drive prices up because of consolidation.