Lately, I’ve been thinking more about grocery stores than I normally do. Credit for that goes to my colleague-in-arms (and beverages) Dave Infante, who recently published a piece on the news that Kroger (the second-largest grocery chain in the U.S.) would be buying Albertsons (the fourth-largest).

One line in particular caught my attention: “The American drinking public buys the vast majority of the beer it guzzles at grocery stores and supermarkets,” Dave writes. That prompted me to explore how much coffee folks buy in those spaces.

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Turns out it’s a lot—like, way more than I expected. Statista reports that 67% of people buy coffee from the supermarket. (It may be worth taking this figure with a grain of salt—Statista doesn’t share how it compiled these findings and it can be tricky to capture this data, since the government does not regulate coffee like beer and alcohol. But this is the information I have, so I’ll go with it.) In other words: Two-thirds of coffee consumers buy their beans, grounds, RTD drinks, and other coffee products at the grocery store.

Let’s not forget that many coffee shops also operate within grocery stores. Many supermarkets have barista kiosks, and some larger chains have partnerships with established coffee businesses. (Target, which controls 2.7% of the grocery market, has longstanding partnerships with Starbucks, while Whole Foods, which has 1.3% of the grocery market, bought Denver-based Allegro Coffee in 1997, and operates coffee stands in nearly every one of its stores.)

Simply put, grocery store news is coffee news.

10 Items Or Less

To understand the dynamics of the potential mega-chain merger, Dave published an interview with Benjamin Lorr, author of “The Secret Life of Groceries.” Lorr says of the merger:
“It’s a bad deal for consumers and workers, and a great deal for a new behemoth. They get to hammer suppliers, set national floors on things like slotting fees, and be a more powerful negotiator against unions — and I doubt any of that leverage will turn into lower prices in an inflationary environment with one less competitor.”

This quote speaks to why consolidation—through mergers, acquisitions, and continued purchases of small brands by a handful of powerful actors—is dangerous: the bigger a brand and the fewer competitors there are, the more power a brand has to negotiate lower wages for workers and demand lower prices for products.

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It’s hard to argue that a merger between Albertsons and Kroger would be good for most of us. Kroger experienced massive sales booms during the pandemic: The New York Times reported in February 2022 that Kroger “was expecting sales growth of at least 13.7 percent over two years. The company’s stock has risen about 36 percent over the past year.” At the same time, its workers—almost half a million people, according to the Times, making Kroger one of the top-five employers in the U.S.—suffered dearly.

A survey of about 10,000 Kroger workers across three states, done by the nonprofit organization Economic Roundtable, found that three-quarters would be classified as food-insecure. “About 14 percent said they were homeless or had been homeless in the previous year,” the Times continues, “and 63 percent said they did not earn enough money to pay for basic expenses every month.”

The article goes on to list a litany of offenses, most alarmingly the disparity in CEO pay versus workers’ compensation: “Rodney McMullen, Kroger’s chief executive since 2014, earned $22.4 million in 2020, while the median employee earned $24,617 — a ratio of 909 to 1. The average C.E.O.-to-worker pay ratio in the S&P 500 is 299 to 1, with grocery chains like Costco (193 to 1) and Publix (153 to 1) lower than that.”

Kroger has received a lot of bad press, and rightfully so. Many workers at its subsidiary stores have gone on strike due to low wages and unfair labor practices, and the Federal Trade Commission is understandably scrutinizing the potential merger. But when it comes to grocery stores and supermarkets, there’s not a lot you can do to stand with workers: 6.2% of people live in food deserts, or places where access to fresh food isn’t reasonably available or accessible, making boycotts difficult. Walmart commands nearly 20% of grocery store and supermarket revenues, and if Kroger and Albertsons merge, these three will account for one-third of all grocery stores in the United States. Even if you wanted to get away, you might have no other option.

A Full-Circle Moment

So how will this affect coffee? It’s hard to know yet. But we do know that many consumers buy coffee from grocery stores and supermarkets, and this merger could very well squeeze money from both consumers (who might face higher sticker prices) and roasters and supply partners (who’ll have less bargaining power due to a lack of competition).

I didn’t think that second point was too important, until I asked my colleagues on Twitter if they saw a financial benefit to being on a grocery shelf, even if they had to cut their wholesale prices to do it. Almost all the people who responded said yes.

Ashley Rodriguez @ashcommonname

There's a big grocery chain merger happening and I'm wondering for coffee folks: 1. Have you had to cut wholesale prices to get on a supermarket or grocery shelf? 2. Was it worth it?

Selling to grocery stores increases exposure, eliminates the need for a robust online presence (perhaps cutting down on shipping costs if your customers can simply go to the store and get your coffee) and supermarkets are relatively painless wholesale clients. In an industry where there are often steep equipment and education expectations (many wholesale accounts, especially cafes, have become used to expecting their wholesale coffee provider to give training and sometimes equipment at a steep discount or for free), having a grocery store client can provide an easier wholesale account to manage, even if you have to cut wholesale pricing to get on the shelf.

But will roasters be asked to drive down their prices even further if there’s a merger? As Lorr alludes to, the more powerful a grocery store chain gets, the more they can demand from suppliers. Suppose your only opportunity to get on the shelves of your local grocery store is to face up against an immensely powerful brand. In that case, you might have to risk making decisions that aren’t financially beneficial—or forego the access point.

There’s also a question of distribution and which distributors a grocery store chain works with. You might have more direct access to getting your stock on a shelf at a smaller, local grocery store, but large chains are much more regimented and work with distributors to stock most of their items (Kroger even owns its own distribution system). Grocery stores are a primary access point for many coffee consumers, and if they have more leverage to drive down prices, we might not see certain brands in particular stores.

But there are also structural lessons to learn. A few months ago, I wrote a piece about the consolidation of coffee. Over the last 10 years, many of the biggest brands in coffee were bought by even more giant conglomerates. In 2020, the Coffee Barometer concluded that eight brands were responsible for 35% of all roasted coffee, including Nestlé, JDE Peets (one of the many holdings under the JAB Holdings portfolio), and Starbucks. The point isn’t to say that being big means you’ll be bad (if you’re a person who loves reading comments, there are some interesting ones pushing back on the consolidation article I wrote, primarily about the oversimplification of consolidation being associated with poor outcomes—I don’t think this is the argument I made, but I can see where a reader might leave with that). Rather, the point is to look at what the evidence tells us, and look at examples in other industries.

Perhaps the most insidious thing consolidation does is eliminate options or perspectives beyond what is in the interest of those wielding power. While reading the New York Times article, I was struck by a quote from a Kroger representative, given in response to the study that showed 75% of its workers are food insecure: “Kristal Howard, a spokeswoman for Kroger, said the report was ‘one-dimensional and does not tell the complete story.’”

This quote also reminded me of something else I read this week. An article in Bloomberg revealed that Starbucks’ corporate employees are looking disfavorably at the company’s actions against union efforts. “52% said they ‘completely agree’ that Starbucks ‘behaves in an ethical and responsible manner,’... slightly fewer, 48%, said they completely agreed that they were ‘proud of the role Starbucks has in making a social impact.’”

These figures were shared with staff at a meeting on October 13. In response, May Jensen, VP of Partner Relations, said, “I actually find it heartbreaking that our mission and values are being questioned in the space of labor relations.” Chief Partner Officer Sara Kelly said at the meeting, “In the absence of information, our partners are looking to the media, and we know the media can be one-sided and sometimes misleading.”

In the face of statistics and feedback, those in power refuse to acknowledge a world where their decisions aren’t met with unquestioning acceptance. Even though 231 Starbucks locations have voted in favor of unionizing, only three have sat down with Starbucks leadership to bargain for their contract. Last year, Starbucks opened “net 302 stores” while continuing to announce closures of stores with union activity.

We’re left with businesses operating with unwavering confidence and a lack of accountability, all while consolidation means we have fewer and fewer alternatives.

“There is a race to the bottom that’s been going on for a while with Walmart and other large retail stores, and also restaurants, and to reverse that trend is not easy," said Daniel Fleming, the president of the Economic Roundtable, in that New York Times article. That’s why this question is important to analyze now, and why it’s important to look at the blueprint other industries have left us. Once we’re tumbling down to the bottom, it’s very hard to turn back.

Photo by Sonder Quest

BOSS BARISTA

Is Consolidation a Race to the Bottom?