The Kroger Co.

Kroger is the United States number one standalone grocery retailer. While the company is smaller than Wal-Mart's grocery division, more than $60 billion in annual sales is nothing to laugh at. The company's location in the South and Midwest occurred by no accident. The company has repeatedly tried to compete in western Pennsylvania but has been unsuccessful due to a series of management missteps, local competition, and labor difficulties.

Kroger runs a series of grocery stores that don't particularly attempt to compete on price. Rather, the company has succeeded in convincing numerous consumers to pay significantly more for cleaner stores with more employees.

Ironically, Kroger's strength in the Midwest is actually more of a liability than an asset in the near term due to continuing economic weakness there. Kroger's southern stores have been repeated out-competed by H-E-B, most notably in San Antonio, and Wal-Mart.

Kroger is not a particularly good value for its customers and investors should look elsewhere for profits in this sector. Wal-Mart is certainly more than a grocery store, but the rest of the company is a better bet for future growth than Kroger's stale, over-priced brands. If you're looking for a pure play on the grocery market, consider Whole Foods Markets. Impending strikes throughout California will give Whole Foods' labor-unfriendly business model a competitive advantage.

FTC Spikes Whole Foods Merger

Dow Jones reports that the Federal Trade Commission has moved to block Whole Foods Market Inc.'s purchase of its smaller competitor Wild Oats Markets Inc. The complaint that the FTC advanced is primarily concerned with the reduced competition in the natural foods grocer market as a result of the deal.

Whole Foods responds quite reasonably that the relevant market segment is really the entire supermarket industry as opposed to the natural goods niche within it. Conventional supermarkets are currently in a period of especially robust competition now that Walmart and Costco have moved into the segment to compete with traditional grocers.

The deal between Whole Foods and Wild Oats is probably sunk for good and at the very least won't be able to go forward in the near term. The larger truth revealed in this episode is the general overuse of antitrust laws in the United States. The only good case for breaking otherwise valid contracts on antitrust grounds occurs when a conglomerate can effectively dominate an enormous part of the economy. Only if every supermarket in the country was somehow acquired by Walmart would the price of food in the United States be significantly impacted by the structure of the supermarket industry.

Competition is certainly a force that lowers prices for consumers, but if it gets out of hand entire industries can become unprofitable. No particular evidence exists that the government is capable of setting "reasonable" rates of competition and profitability. The power of the market itself is the only solution that will ensure consumers are best protected. As long as the government allows anyone who follows basic standards of cleanliness to open a supermarket, no competitor will be able to overcharge consumers. There are lots of industries with much more significant barriers to entry than supermarkets, and if the government is this concerned about the natural foods niche under such a business-friendly administration we can all look forward to even more government manipulation in the future.

Are Labor Unions going Extinct?

The NYT reports that the National Labor Relations Board charged that Starbucks, everyone's favorite coffee joint, broke the law 30 times as it tried to discourage union activity at four locations in Manhattan. But the story is not about an evil corporation taking advantage of hapless workers. Rather, the focus of attention is the overwhelming anti-union sentiment at private businesses in general and do-gooder concerns like Starbucks and Whole Foods in particular. Anecdotal evidence seems to suggest that "accusations of union-busting and poor pay" simply don't matter in one of the most liberal cities in America.

Business owners aren't just expressing a mild preference for fewer unions. Whole Foods' CEO John Mackey is extremely hostile to unionization. He has gone so far as to say that unions are "highly unethical and self-interested".

Why is a socially conscious leader like Mackey getting away with being so down on unions? The easy answer is that most people are opposed to unions these days. The last twenty years have witnessed a collapse in organized labor. And if government workers are excluded from calculations, less than 8% of employees belong to a union.

The article credits the trend toward political activism via conspicuous consumption that has brought us such wonders as the Prius and compact fluorescent light bulbs. And while this cultural movement no doubt has some impact, other factors seem more significant. The trend toward the service sector at the broad expense of manufacturing, fewer government restrictions on anti-union efforts, increased competition from abroad, and better market institutions all seem more likely to negatively influence unions more.

But unions will likely be fixtures in certain sectors of the economy for many years to come. For example, Hollywood, grocery stores, and professional sports are all likely to remain highly unionized for the foreseeable future.

The real question mark is the fate of unionized automakers. In a very real sense, the Big Three automakers are tied to unions in a manner their foreign competitors will never be. If GM, Ford, and Chrysler continue to crash and burn while Toyota and the other Asian automakers grow without significant union presence, it could spell the end of unions in their most high-profile instantiation.

Today, things don't look good for the unions.