Competition is Dying in America!

M&A is the acronym for Merger and Acquisitions.  It’s going on all the time.  The list compiled by CNN for just the last three days is astonishing.  It’s worth hundreds of millions of dollars.  This process is killing competition and raising prices for everything.

I will pick just two industries to demonstrate my point.  They are super markets and drug stores in the San Fernando Valley (metropolitan Los Angeles).  There are now 1.6 million people living in this area stretching from Burbank and Sylmar on the east to Calabasas and Chatsworth on the west.

THE SUPERMARKETS

Today there are only four major chains left in this area.  The number of independent stores is so small that most people do not know of their existence unless they are in the immediate neighborhood.  Most small markets do not have the resources to do the advertising of the chains.  Specialty markets like Whole Foods and Trader Joe’s do not offer a complete array of products.

The chains currently are Albertson’s, Ralphs (owned by Kroger), Von’s (owned by Safeway), Vallarta (catering to Hispanics and doing quite well), and Jon’s.  However 20 years ago the list included Albertson’s, Alpha Beta, Hughes, Lucky, Market Basket, Ralphs, Safeway, Thriftimart, and Von’s.  In addition there were many stand alone super markets that were big enough to advertise in the major newspapers.  They included the All American Market, Panorama, McDaniels, Alexander’s, and Gelson’s (now a chain in only the wealthiest neighborhoods).

There were others stores too but they were absorbed into the remaining chains thanks to Yucaipa Cos.

THE DRUG STORES

The list is not as long but the trend is obvious. In the past it was Rexall, Thrifty, Longs, and Sav-on chains and many independent stores.  Today the list is Rite-Aid, CVS, and Walgreen’s.  Both Sav-On and now Longs are part of CVS.  Although Walmart, Costco, and Target have pharmacies they are usually not convenient and have limited variety.

There are other industries that have seen consolidations including banks, department stores, and airlines.  Los Angeles used to be the home of many savings and loan associations (California Fed, Glendale Fed, Great Western, American) as well as many bank chains that have been absorbed by Bank of America or Wells Fargo (First Interstate, United California, Security First National).

The consequence of the reduced number of businesses in any industry ought to be obvious.  Imagine if your company was the only one offering a particular commodity or service.  You could charge what ever you wanted.  If there were only a few competitors rather than many, your pricing would be less flexible.  There are lots of house painters here in my neighborhood so pricing stays low.  Gasoline is available from only five companies within three miles from my home.  Remember when every major intersection had a gasoline station on all four corners?

So the loss of Longs Drugs, May Department Stores, and Linen and Things means that their competitors can earn more but all of us will pay more.