Ever heard of C&S Wholesale Grocers? In 2021, Forbes listed it as the eighth largest privately held company in the United States, but if the answer is no, we’d hardly be surprised.
That’s because C&S is primarily a wholesale supplier to retail grocers, supplying mainly independent supermarkets, many of those located outside of urban markets. And although it owns the Piggly Wiggly brand, an amusing fixture in Southern mouths, the region where those stores mainly are located, even that name is almost entirely licensed to other operators with only a few stores under actual C&S ownership.
In other words, the retail grocery business is something of a sideline for C&S.
But as part of the pending merger of Kroger (the owner since 2015 of the brand known as Mariano’s Fresh Market) and Albertsons (the owner of Jewel-Osco since 1999), first announced in 2022, C&S and its licensees will have a major influence on Chicagoans’ options when it comes to going to the supermarket if this merger goes through.
The merging pair offered to divest hundreds of stores to try to satisfy federal antitrust regulators, and C&S is the main buyer. Across the country, it has agreed to buy over 500 of the stores belonging to one of the two companies. The list of stores in Chicago and its suburbs, and elsewhere in Illinois, is long enough that we wager most local readers will have sought milk or bread in at least one of them. In some so-called food deserts, the stores are the best (arguably, the only) option for many blocks.
One notable example is the massive Mariano’s in Bronzeville. That store is a true linchpin for a growing neighborhood that has few other options that can compare or compete. That part of the South Side has a major stake in the outcome of this deal, and no doubt there are many more similarly stark situations present throughout the country.
And the Bronzeville situation hardly is our only concern about C&S.
Will the stores be clean and well run? Will employees be treated appropriately? Will they give back to the communities they serve? Will prices be competitive and an effort made to well serve all the neighborhoods in which they are located?
On a macro basis, there’s a lot of partisan nonsense spoken about supermarkets at present. So let’s be clear on a few points.
First, a lot of politicians who want to be seen as doing something about food prices in America, a real problem, conveniently focus merely on retail operations because those are price stickers most voters see. In reality, supermarkets are a famously high-volume, low-margin business and their price increases are downwind from wholesale price increases with those flowing from suppliers with increased costs. And the retail operations have their own costs, dominated by the price of labor, which has seen hefty increases in recent years.
Second, the Mariano’s brand, as defined and beloved by many Chicagoans for its fusion of supermarket, cocktail bar and restaurant, disappeared before the pandemic and was not returning regardless of any merger. In fact, that chic combo, initially seen as the wave of the future, has proved to be a bust; it turns out we’d rather go to a dedicated restaurant than pay for a meal with a rotisserie chicken under our left arm. The failure of Dom’s Market, a small-scale attempt to bring back the more luxe Mariano’s, offered further evidence of that reality.
Supermarkets do make heftier profits on items from the cheese counter, deli and organic produce sections; Amazon’s Whole Foods Market, which emphasizes those categories, enjoys larger profit margins than Kroger’s and Albertson’s. But supermarket sales in poorer neighborhoods tend to skew away from those items and more toward essentials like bread and milk. This is one of the many problems with attempts to impose price controls on those crucial family items.
Supermarkets in rich areas can make back that loss on milk by elevating the price of brie. Supermarkets in poorer areas are more likely just to close.
Price controls are a terrible idea when it comes to grocery stores, as in so many other categories. History teaches us that unintended consequences result. Often with catastrophic macroeconomic results.
The trial over the deal — the companies are fighting the government’s efforts to scotch the tie-up on antitrust grounds — began Monday. The situation is a mixed shopping bag. On the one hand, there’s no question that Kroger and Albertson’s competed on price in many markets, including those in Illinois. On the other, warehouse clubs like Costco have seen explosive growth, including in inner-city neighborhoods.
Small footprint chains like Trader Joe’s and, especially, the famously low-cost, in-and-out Aldi have made significant inroads. The mainstream supermarkets, once the locus of weekly get-all-you-need runs, in many areas have been replaced by multiple destinations: Costco or Sam’s Club for staples, say, and Trader Joe’s or Aldi for cheap frozen meals. And when it comes to price, both the major chains have had to worry more about Aldi than competition from each other.
Add in the larger number of Target and Wal-Mart stores selling food now, not to mention the expansion of food offerings at the Dollar stores, and we are far from convinced that the evidence is there to show the merger of those two mid-market companies will make the shoppers’ experience significantly more expensive. They’ve already been squeezed by competitors on both sides and an argument could be made that shoring their middle-market position up by allowing them to consolidate will help them survive.
We’re also opposed to the Justice Department argument that fewer owners will make it harder for union workers to negotiate for higher wages and thus should be halted on those grounds. The irony here is that high wages contribute to higher prices for consumers, even if you would not have seen much mention of that basic economic truth at the Democratic National Convention. That’s not a reasonable, or even logical, argument to make at the same time as warning of price increases.
In fact, Costco famously pays hourly workers far more, on average, than either of the two merging entities, and it does so not due to governmental requirement but because it has wisely determined that it is good for business to have a loyal staff that provides excellent customer service and does not switch jobs. Its profits, and resultant explosive stock price, are clear to see.
But that brings us back to C&S. If this merger goes through, Illinois will need those stores to play their competitive part.
We would like to hear more details of their plans.
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