FTC SUES TO BLOCK MERGER
Colorado AG already sued to block move by parent companies of King Soopers, Safeway
The Federal Trade Commission sued to block a proposed merger between grocery giants Kroger and Albertsons, saying the $24.6 billion deal would eliminate competition and lead to higher prices for millions of Americans.
The FTC filed an administrative complaint against the companies Monday, which will be considered by an administrative law judge at the agency. It also filed a lawsuit with the U.S. District Court in Oregon requesting a temporary injunction blocking the merger. That lawsuit was joined by the attorneys general of eight states and the District of Columbia.
Kroger and Albertsons, two of the nation’s largest grocers, agreed to merge in October
2022. The companies said a merger would help them better compete with Walmart, Amazon, Costco and other big rivals. Together, Kroger and Albertsons would control around 13% of the U.S. grocery market; Walmart controls 22%, according to J.P. Morgan analyst Ken Goldman.
Both companies, immediately after the FTC announcement, said that they will challenge the agency in court.
Kroger, based in Cincinnati, Ohio, operates 2,750 stores in 35 states and the District of Columbia, including brands like King Soopers and City Market in Colorado, Ralphs, Smith’s and Harris Teeter.
Albertsons, based in Boise, Idaho, operates 2,273 stores in 34 states, including brands like Safeway, Jewel Osco and Shaw’s. Together the companies employ around 700,000 people.
In Colorado, Kroger owns 148 stores, which operate under the King Soopers and City Market banners. Albertsons operates 105 Safeway and Albertsons stores in the state.
United Food and Commercial Workers Local 7, which represents workers at the two chains in Colorado and Wyoming, has joined other local unions across the country to oppose the merger, saying that the consolidation of the two major grocery chains would erode union members’ bargaining power as well as local suppliers’ access to the marketplace and consumers’ choices.
“I’m ecstatic for my membership and our communities,” Kim Cordova, president of the UFCW Local 7, said of the FTC’S decision. “I think the FTC saw what we saw and has the same concerns.” Cordova believes the lawsuit filed Feb. 14 by Colorado Attorney General Phil Weiser to block the merger likely reinforced those concerns. The lawsuit said the merger would violate Colorado’s anti-trust laws and followed 19 listening sessions that Weiser held in 2023 across the state to get feedback on the two companies combining.
In a parallel action, Weiser said emails between the two grocers showed that Albertsons agreed not to hire any King Soopers employees during a 2022 strike against King Soopers and not to solicit any King Soopers pharmacy customers during the strike by union members.
Weiser is seeking $1 million in civil penalties from Kroger and Albertsons each.
After Weiser announced the claims, UFCW Local 7 filed a complaint with the National Labor Relations Board against King Soopers, Albertsons and their parent companies, saying such an agreement “constitutes a failure by the employers to bargain in good faith.”
Kroger and Albertsons have denied allegations of what Weiser called “a nopoaching” agreement on workers and a non-solicitation agreement regarding customers.
The FTC “recognizes what we heard from consumers, workers, and suppliers—the merger between Kroger and Albertsons harms competition,” Weiser said Monday in a post on the social media platform X. “Our case will move along in Colorado state court while the FTC challenge proceeds, both seeking to stop this merger.”
The merger, announced at a time of high food-price inflation, was bound to get tough regulatory scrutiny. U.S. prices for food eaten at home typically rise 2.5% per year, but in 2022 they rose 11.4% and in 2023 they rose another 5%, according to government data. Inflation is cooling, but gradually.
“Kroger’s acquisition of Albertsons would lead to additional grocery price hikes for everyday goods, further exacerbating the financial strain consumers across the country face today,” Henry Liu, the director of the FTC’S Bureau of Competition, said in a statement.
The FTC, which said the proposed deal would be the largest grocery merger in U.S. history, said it would also erase competition for workers, threatening their ability to win higher wages, better benefits and improved working conditions.
The Biden administration has also shown a willingness to challenge big mergers in court. Last year, the Justice Department sued to block a proposed merger between Jetblue Airways and Spirit Airlines. A federal judge agreed with the administration and blocked the merger last month. The airlines have appealed.
The White House didn’t comment Monday, saying it doesn’t weigh in on pending litigation. But Jon Donenberg, deputy director of President Biden’s National Economic Council, said that Biden supports “fair and vigorous antitrust enforcement.”
“When large corporations are not checked by healthy competition, they too often do not pass cost savings on to consumers and exploit their workers,” Donenberg said.
Kroger said customers will likely see higher food prices and store closures if the merger isn’t allowed to proceed.
“Albertsons Cos.’ merger with Kroger will ensure our neighborhood supermarkets can better compete with these mega retailers, all while benefitting our customers, associates, and communities.,” Albertsons said in a prepared statement. “We are disappointed that the FTC continues to use the same outdated view of the U.S. grocery industry it used 20 years ago.”
“This decision only strengthens larger, nonunionized retailers like Walmart, Costco and Amazon by allowing them to further increase their overwhelming and growing dominance of the grocery industry,” Kroger said.
The FTC, which said the proposed deal would be the largest grocery merger in U.S. history, said it would also erase competition for workers, threatening their ability to win higher wages, better benefits and improved working conditions.
The action by the FTC and the states follows lawsuits filed earlier this year in Colorado and Washington to block the merger. The states that joined the FTC lawsuit Monday are Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming.
Eight of those attorneys general are Democrats; one, Wyoming’s, is a Republican. Because it has already filed its own lawsuit, the Colorado attorney general’s office says it doesn’t have plans to join the FTC effort.
Kroger has promised to invest $500 million to
lower prices as soon as the deal closes. It said it also invested in price reductions when it merged with Harris Teeter in 2014 and Roundy’s in 2016. Kroger also promised to invest $1.3 billion in store improvements at Albertsons as part of the deal.
Last year, C&S Wholesale Grocers agreed to purchase 413 stores and eight distribution centers that Kroger and Albertsons agreed to divest in markets where the two companies’ stores overlapped. C&S said it would honor all collective bargaining agreements with workers.
But the FTC said called the store divestiture deal “inadequate,” The FTC said C&S — which is mainly a supplier to grocery stores and not an operator — is ill-equipped to deal with the “hodgepodge of unconnected stores, banners and brands” it would get as part of the deal and would not be a robust competitor to Kroger and Albertsons.
C&S noted on Monday that it has been an Ftc-approved buyer in prior grocery store sales, and said it has the experience and financial strength to continue investing in the stores it would acquire.
Still, the United Food and Commercial Workers union, which represents 835,000 grocery workers in the U.S. and Canada, voted last year to oppose the merger, saying Kroger and Albertsons had failed to be transparent about the potential impact of the merger on workers.
Cordova of the UFCW Local 7 said of particular concern is the grocery chains’ plan to sell some of the stores to C&S in an attempt to allay worries about lack of competition.
The union, which said 52 of the stores to be spun off are in Colorado, fears a repeat of what happened in 2015 when Albertsons acquired Safeway. As part of the divestiture arrangement, Haggen, a small supermarket chain based in Washington state, bought some of the stores. In less than a year, Haggen filed for bankruptcy.
Kroger has said C&S is a $30 billion company that is roughly 50 times the size of Haggen. Its subsidiaries include Grand Union and Piggly Wiggly supermarkets. However, union officials said C&S has more experience as a wholesale supplier and not as much experience managing retail stores and supermarket pharmacies.
The union was also critical of a $4 billion payout to Albertsons shareholders that was announced as part of the merger deal. Several states, including Washington and California, tried unsuccessfully to block the payment in court, saying it would weaken Albertsons financially.
Cordova expects Kroger to fight the FTC lawsuit and believes the case could go all the way to the U.S. Supreme Court. “They’ve been very outspoken at challenging any opposition to this.”
Christine Bartholomew, a professor at the University at Buffalo School of Law, also expects the companies to fight for the merger in court. She said it’s too early to say whether the case will end up in the Supreme Court.
“Both companies have expressed interest in continuing with the merger despite the elongated review process. And with antitrust issues, rulings can be unpredictable,” said Bartholomew, who practiced consumer protection and antitrust law.
Kroger and Albertsons had hoped to close the deal early this year. But the two companies announced in January that it was more likely to close in the first half of Kroger’s fiscal year. Kroger’s fiscal second quarter ends Aug. 17.
Kroger shares fell nearly 2% Monday. Albertsons shares rose nearly 1%.