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Supermarkets are merging again. What does that mean for your grocery bill?

The grocery market has been on something of a trading bender as of late. A couple weeks ago, supermarket giant Kroger announced it was buying Harris Teeter, the high-end chain centered in the Southeast, for $2.4 billion. A couple months earlier, Cerberus Capital Management bought five smaller chains including Albertson's. Just last week, Spartan Stores bought the military commissary outfit Nash Finch, the recently bankrupted A&P put itself on the market.

What's going on here? And what does the flurry of mergers and acquisitions have to do with the price of beans?

It's not always clear what happens when markets consolidate. On the one hand, they can achieve greater economies of scale, which might allow them to offer lower prices. On the other, when a lot of players aren't scrapping it out for customers, they might allow prices to creep upwards. Meanwhile, price drivers like commodities and labor costs muddy the waters, making it hard to figure out what's going on.

In this case, though, we have a model: The late 1990s, when the food retail industry went through its last wave of consolidation. Between 1996 and 2000, nearly 3,500 stores were purchased, representing more than $67 billion in annual sales. In 1992, the top four chains ate up 15.9 percent of total sales; in 1998 the share was 28.8 percent. It was in part a reaction to the overbearing force of Wal-Mart--the Krogers and Supervalus reasoned that only by combining forces could they compete against the supply-chain bending powers of Bentonville. At the same time, though, the Federal Trade Commission helped prevent chains from carving up whole markets amongst themselves, keeping enough players in a locality to maintain competition.

In the end, according to a 2010 study out of South Dakota State University, chains with a larger chunk of the national market did have lower prices. But they also tend to reduce the number of promotions they offer after a merger, making it harder on lower-income shoppers who might have put more effort into lowering their bills. Also, there is some evidence that fewer competitors in a given single market can drive up prices. (Overall, retail food prices have remained fairly constant over the past few decades).

The 2000s slowed the intense consolidation drive, as a healthy economy sent consumers to their neighborhood markets, rather than forcing them to drive to a Walmart for lower prices (though Walmart kept growing, and by 2009 the top four retailers accounted for 42 percent of U.S. grocery sales, according to a recent paper). A new recession, and new competition from dollar stores, means supermarket owners needed to look elsewhere for growth.

"I think they realized this business isn't growing that much," says food retail analyst Scott Mushkin, of Wolfe Research. "There's two ways to make yourself more profitable. You grow, or you consolidate."

Mushkin also thinks the supermarket business isn't that consolidated, relative to something like agribusiness, telecommunications, or healthcare. There are few truly national chains, and some regions are actually oversaturated with competitors, like Philadelphia, which means that any one store might not sell enough to offer really great service. Absent a merger, stores very rarely close, even when a lower priced option opens nearby.

Puzzled by this while doing a pricing survey of a grocery store near a new Walmart that was offering 22 percent lower prices, Mushkin asked a woman why she hadn't shifted over. "She goes, 'Well ok, but I've always shopped here, and I know where he stuff is.'" Mushkin remembers. "And she just walked right by and into the store. Unfortunately, humans aren't rational. It's because old stores are convenient, people are used to shopping there."

Which isn't to say that Walmart doesn't drive other grocery stores out of business. Just that as consumers cut back on food spending, the smaller guys might have a better chance to survive and serve customers as a collective, rather than competing over the scraps.