Defending C&S Wholesale Grocers

CINCINNATI – For nearly a year and a half, Kroger and Albertsons have made sweeping promises of how their controversial, proposed $25 billion merger will benefit consumers, workers and their communities.

Weeks after regulators at the Federal Trade Commission sued to kill the deal, Kroger filed a response earlier this month defending the deal. As dueling attorneys trade barbs in filings, key issues in the legal battle are emerging – and the fine print behind bold promises is coming into sharper focus.

Here are the highlights of Kroger’s initial retort to regulators in court: as Aldi and Lidl; and competitors like Amazon, which not only owns the natural and organic chain Whole Foods but also sells tens of billions of dollars of groceries through its e-commerce platforms, including Amazon.com.”

Pledge to not close stores

In its response, Kroger repeated several promises it’s made about the deal to push back against the FTC’s claims it will hurt competition. The grocer said several times it will cut prices as a result of the merger and that it will be competing against the hundreds of stores it divests to New Hampshire-based wholesaler C&S Wholesale Grocers in a related transaction, so competition won’t be hurt.

But Kroger barely mentioned one promise made publicly several times: the pledge not to shutter stores. In the court filing, Kroger only alluded to the promise, in the past tense, once toward the end of the filing:

“Kroger admits that it, Albertsons and C&S (Wholesale Grocers) have stated there will be no store closures as a result of the merger,” the grocer said.

Kroger acknowledged the promise in response to a point made by the FTC in its complaint directly challenging the “no store closures” vow. In the regulators’ complaint, the agency cited internal C&S Wholesale Grocers communication by the outgoing CEO expressing a problem with the promise.

In the exchange between former CEO Bob Palmer and his successor, Eric Winn, Palmer asked: “Do we have to say that we won’t close stores? (the ‘all’ is a problem) – the trick is that they stay open as they transition but then what?

Are we committed to this?”

For its part, Albertsons in a separate response to the FTC pleaded ignorance of C&S Wholesale Grocers’ plans once they acquire the hundreds of divested stores:

Critical to Kroger’s quest for antitrust approval is the divestiture plan to C&S Wholesale Grocers, which will acquire at least 413 stores from the merged Kroger-Albertsons. Not surprisingly, Kroger defended the wholesaler as a strong company that will operate those stores and preserve competition.

The FTC is skeptical of C&S Wholesale Grocers’ ability to take over the divested stores and become a viable competitor to the enlarged Kroger.

Regulators cited C&S Wholesale Grocers’ small retail operation (23 stores and one pharmacy), its history of selling off retail operations and the “patchwork of assets cobbled together” as a recipe for failure.

Regulators also noted the unsuccessful 2015 divestiture of nearly 150 stores to small regional grocer Haggen as part of the $9.2 billion merger of Albertsons and Safeway that pushed Haggen into bankruptcy within months.

In its response, Kroger chided regulators for not considering the divestiture to C&S Wholesale Grocers a solution to concerns about maintaining competition. It also dismissed the demise of Haggen and its more than 165 stores (56 of which were repurchased by Albertons) as a “rare” incident.

“(The FTC) complaint frames the divestiture as irrelevant and bound to fail, citing a rare instance in which a divestiture buyer went bankrupt. But C&S is not a mom-and-pop operation ... it is a sophisticated, well-capitalized company with deep industry experience,” Kroger said. “The harm imagined by the FTC is fanciful not only because it ignores the nation’s largest grocery competitors, but also because it pretends that the divestiture package and C&S do not exist.”

‘Vague and ambiguous’ terms

Kroger isn’t conceding anything in the FTC’s case against it. In its response, the grocer sought to undermine the regulators’ case by accusing it (23 times) of using “vague and ambiguous” terms, like “supermarket,” “retail pharmacies” and “union grocery labor.”

The company also used the word “denies” 213 times in its response.

One FTC argument Kroger denied and said is based on “vague” notions is the proposed merger’s impact on the two companies’ union labor force. Regulators have argued that the merger will hurt union employees because they would not be able to play Kroger and Albertsons off one another. Part of that argument is claiming unionized grocers are a “market” for labor that should be protected.

Finally, Kroger claimed unions’ bargaining power would increase because more workers would be employed by the retailer.

Most of Kroger’s unions affected by the proposed merger, including the United Food and Commercial Workers International Union, are opposed to the deal. One local chapter, however, UFCW Local 555 in Oregon, supports the combination.