In October 2022, two of the largest grocers in the country announced plans to become one. A supermarket marriage, if you will, the hard launch of a power couple built to thrive in the highly lucrative, highly cutthroat world of grocery retail. From the first, the engagement was poorly received. Despite sending out save-the-dates and detailed plans for a shared future, things have not improved since. Journalists, industry insiders, and federal lawmakers have used words like “preposterous,” “harm[ful],” and “a bad idea” to describe the wedding. Earlier this month, attorneys general in two states sued to block the romance; earlier this week, the Federal Trade Commission did, too.

Those two crazy kids billion-dollar corporations, Kroger and Albertsons, just might make it even so. But if ever there was a time for the American craft beer business to root against a marriage, it’d be this one, and right now.

As Benjamin Lorr, author of 2020’s “The Secret Life of Groceries,” told me 18 months ago when the deal was first announced, “If you’re a craft brewer, I don’t understand how this could possibly benefit you in a million years.” It can’t. It won’t. For many small, independent craft breweries, Kroger-Albertsons would be a match made in hell.

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For those of you who haven’t followed this forbidden love affair like Donald Trump did Robsten, here’s a VinePair Vows recap on the Big Grocery courtship. The deal would see Kroger — the second-largest grocer in the country behind Walmart — acquire fellow top-five firm Albertsons for a staggering $24.6 billion to form a 5,000-store juggernaut. In an effort to make the deal more palatable to the FTC’s antitrust enforcers, the companies have vowed at various points to divest around 400 of those stores, and have promised the merged firm would make $1.8 billion worth of investments in lowering prices and improving customer experience. In a successful effort to enrich Wall Street, Albertsons paid out a “special dividend” of $4 billion to its shareholders, including $1 billion to a single private-equity firm in January 2023. Eleven months later, Kroger told the feds it had fulfilled all the criteria for approval, apparently trying to will the deal across the finish line.

Any visions of a quick elopement and quiet honeymoon have been recently and repeatedly dashed upon the rocks of trust-busting reality. Both Washington and Colorado filed lawsuits to block the deal on antitrust grounds in February, with the latter also alleging that nine months prior to the merger announcement, the two grocers had engaged in a “nefarious bargain” to bamboozle some 13,000 union workers at their respective Mountain West subsidiaries, or “banners.” (A Kroger spokesperson denied that allegation to me via email, claiming Colorado’s attorney general had “mischaracterize[d] the facts.” They declined to elaborate further.) On Monday, the FTC followed suit — ahem — with a complaint in federal district court in Oregon that aims to break up the deal over its implications for customers, labor, and competition in the $1.5 trillion American grocery marketplace. Nine attorneys general (including a Republican one!) joined the feds’ lawsuit.

To consummate this corporate tryst, Kroger will have to overcome all three of those legal challenges. I’ll be following those cases for updates. But in the meantime, let’s talk a bit about what Kroger-Albertsons merger means for the American beer industry — or, to put it another way, what its annulment would forestall.

Depending on how you slice it, around 30 to 40 percent of all the off-premise beer sales in the country happen in supermarkets these days. It’s a crucial retail channel where price, package, and placement matter far more than quality. Notwithstanding any marketing paeans to artisanal and wholesome foodstuffs, commodities are the lifeblood of supermarkets. The bigger they get, the less variety they want, and at lower costs.

“One of the great advantages of size is uniformity,” Lorr, who spent five years embedded in various parts of the grocery supply chain to research his book, tells Hop Take via text message this week. “The more the market concentrates the more incentives there will be to deal with bigger and bigger players offering ever yet more streamlined offerings.”

This is not a new problem. The U.S. grocery market has already consolidated tremendously over the past few decades, with smaller and independent retailers being acquired or outgunned by bigger conglomerates. By one oft-cited estimate from industry watchdog Food & Water Watch, there were 30 percent fewer stores at the end of last decade than there were in the mid-’90s, and just four mega-corporations produced more than two-thirds of the goods sold in them. (Kroger has stated that no stores will close as a result of the proposed deal, a notoriously difficult and costly promise to enforce.) A December 2023 letter from six congressional Democrats to the FTC asking the enforcer to block the deal noted that it “would result in a duopoly with Walmart, with the two corporations controlling more than 70 percent of the grocery market in over 160 cities across the country.”

Lorr forecasts that a merged entity would logically flex its pricing power, which may or may not result in customer savings but certainly would result in thinner margins that would cull smaller producers with more differentiated products. Getting squeezed on margin is unpleasant for major suppliers (e.g., Constellation Brands) and distributors (e.g., Reyes Beer Division), but it “will stress the small guys considerably,” as he puts it.

Thus, a terrifying prospect for craft breweries that lack the economies of scale to capture sufficient top-line savings in production: Bigger grocers mean bigger bites out of bottom-line profitability. If allowed, the Kroger-Albertsons deal would create a newer, stronger “power buyer” with tremendous leverage over small breweries and the wholesalers that carry their beer — and fewer alternative routes to market to take if they don’t like the terms.

“Our folks are going to have faced the hard choice of eating margin” or pulling back from the channel, says Marc Sorini, general counsel for the Brewers Association, predicting that the also-consolidating middle tier would only be willing to share the burden of a merger-induced margin loss with larger brewers that can demand such a concession. For the vast majority of the BA’s constituents that produce under 10,000 barrels of beer a year, “they’re passing it right off.”

The unique nature of beer sales compared to, say, potato chips, exacerbates this effect. “In a lot of grocery, you have, at least for the bigger players, a direct-to-retail model,” says Sorini. But because the middle tier is itself a gateway beer must pass through on its way to drinkers, there’s a “double-funnel effect” that forces craft breweries into fierce competition for space in a wholesaler’s portfolio just for the chance to give more margin away to grocers with control of the beer aisle. This dynamic, coupled with supermarket chains’ preference to deal with fewer, bigger distributors for efficiency’s sake, means a merger like Kroger-Albertsons could dramatically narrow craft brewers’ already tough routes to market.

The National Beer Wholesalers Association, for its part, is playing this situation close to the vest. “NBWA supports enforcement of federal antitrust laws and looks forward to efforts by this Administration to ensure fair competition and access to market for large and small suppliers at retail,” spokesperson Erin Donar tells me via email. Which, fair enough: While a multi-state distributor like Reyes would be likely to hold its own across the table from a merged Kroger-Albertsons, and might even stand to benefit from increased volume, influence, and attention in their stores, thousands of independent wholesalers across the country would likely find themselves losing out in kind. NBWA represents both.

(The Beer Institute, the trade organization through which Big Beer’s heaviest heavyweights project their influence on the industry, did not provide a comment before deadline.)

Sorini says the BA is “pleased” that the FTC finally dropped the hammer, and views the move as of a piece with the Biden Administration’s 2021 direction to the Treasury Department to protect the “vibrancy” of the American beer business from undue consolidation. “I think this administration has exhibited a better understanding of the particular market dynamics that make things a little bit different than sometimes more challenging” with the “competitive puzzle” of alcohol sales, he says.

What shakes out from the suits is beyond your humble Hop Take columnist’s pay grade to predict, but some antitrust experts are already calling the Kroger-Albertsons deal dead in the water. We’ll see. If the $24.6 billion corporate marriage does indeed crumble beneath the weight of its mega-grocery ambitions, craft brewers across the country will have reason to celebrate — or at least, to breathe a sigh of relief.

🤯 Hop-ocalypse Now

Anheuser-Busch InBev was able to cut a last-minute deal with the Teamsters to avoid a 5,000-worker strike on all 12 of its American breweries. And man, the union projected a whole lotta confidence down the homestretch. To wit: The Teamsters’ official Instagram account spent the final week of negotiations trolling the macrobrewer with pro-union riffs on classic Budweiser ads like “Whassup?!,” “Real Men of Genius,” and the famous frogs. Imagine trying to explain any part of that last sentence to August Busch III, who helmed the company back in 1976 — the last time the Teamsters walked out en masse.

📈 Ups…

Congratulations to Nike exec Michael Spillane for his new job as Boston Beer Co.’s chief executiveTruly? Bright spots?! The struggling hard seltzer brand’s “lightly flavored” varietals and 24-ouncers were both up a smidge in Q4 2023… Not only does Troy Aikman’s beer brand Eight Lager still exist, it’s expanding from Texas into Oklahoma

📉 …and downs

Despite Trump’s tepid support and a new (bad) ad, Modelo Especial beat out Bud Light on off-premise sales during Super Bowl week… Starbucks relented on its union-busting ways, agreeing to negotiate a master contract for all its organized stores… PepsiCo is shutting down its Blue Cloud Distributing arm and shifting Hard Mtn. Dew (et al.) to Boston Beer Co.’s wholesale network… Glutwatch 2K24 continues apace as the BA’s Bart Watson warns of a growing hop surplusLagunitas is down more than 33 percent in chain retail sales since 2020, yeesh…

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