Regulators sue to block merger of supermarket giants Kroger and Albertsons

The $24.6 billion consolidation has been under scrutiny since it was announced in October 2022. While Kroger and Albertsons claim that a merger is the only way to compete with retail giants Amazon and Walmart, state and federal regulators are raising concerns that it would have a ripple effect felt by customers, employees and suppliers across the country. Colorado and Washington state have already filed lawsuits in state courts to block the deal. Arizona, California, D.C., Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming are joining the FTC’s federal lawsuit.

A primary worry is that a combined Kroger-Albertsons behemoth would eliminate competition and reduce pressure to lower grocery prices while consumers are feeling especially vulnerable to soaring grocery bills, said Mark Cohen, director of retail studies at Columbia Business School. The category has outpaced inflation, surging 26 percent over the past four years, and history shows the price tags on most items won’t go back down.

From the FTC’s point of view, Cohen warned, a merger like this could threaten efforts aimed at “stopping the inflationary spiral.”

In a nod to potential blowback, Kroger announced earlier this month that it is committed to lowering grocery prices following the merger with Albertsons.

“The way to be America’s best grocer is to provide great value by consistently lowering prices and offering more choices,” Rodney McMullen, chairman and chief executive of Kroger, said in the announcement. “When we do this, more customers shop with us and buy more groceries, which allows us to reinvest in even lower prices, a better shopping experience, and higher wages.”

History shows these kinds of promises are ephemeral, said Christine Bartholomew, a professor of law and vice dean of academic affairs at the University at Buffalo School of Law. An FTC study on grocery mergers published in 2012 found “evidence that horizontal mergers in the supermarket industry can result in significant increases in consumer prices and thereby harm consumers.”

Beyond resulting in higher prices, the FTC warned, the merger would also “lead to lower quality products and services, while also narrowing consumers’ choices for where to shop for groceries.” There’s a high probability the merged company would shut down stores to avoid duplication in certain communities, a move that would push workers out of jobs, undermine labor unions, remove price competition for local suppliers and in some cases limit vulnerable communities’ access to fresh produce, Bartholomew said.

“There are lots of risks here: collusion, risks of market concentration, risk to employees, risk to access,” she said. “But at the end of the day, if it is just price increases, that’s enough to block it.”

If the merger were to go through, the combined grocery giant would operate more than 5,000 stores and about 4,000 retail pharmacies, according to the FTC. It would also employ almost 700,000 employees across 48 states.

Preemptive measures

In an effort to pacify antitrust regulators, Kroger and Albertsons announced in September they would sell 413 stores to C&S Wholesale Grocers, a supplier to independent grocery stores and owner of 23 stores and one retail pharmacy under the Piggly Wiggly and Grand Union banners.

But critics are not confident a deal like this would succeed. In the Colorado lawsuit, Attorney General Philip J. Weiser pointed to the company’s lack of experience in running such a large roster of stores and their limited private-label selection — which is increasingly critical to extract higher margins on products while drawing in cost-cutting consumers. The Colorado complaint compared the proposed merger to a 2014 deal by Pacific Northwest-based grocery chain Haggen to purchase scores of stores to assuage antitrust scrutiny over the Albertsons-Safeway merger at the time.

That deal initially expanded the regional chain’s store fleet from 18 to 164 but eventually led Haggen to file for bankruptcy and sue Albertsons for $1 billion. It accused the retail giant of “anticompetitive conduct and alleged violations of the FTC’s divestiture order, attempted monopolization, breach of the purchase agreement … fraud, and unfair competition, among other claims,” the attorney general’s complaint said. The companies settled for $5.75 million.

The FTC’s complaint alleges the divestiture offering with C&S is an “inadequate” proposal and a “hodgepodge of unconnected stores, banners, brands, and other assets that Kroger’s antitrust lawyers have cobbled together and falls far short of mitigating the lost competition between Kroger and Albertsons.”

During a November listening session in Denver, FTC Chair Lina Khan and Weiser heard from employees, community members and suppliers, who spoke of the devastating repercussions this merger would have on their livelihoods and down the supply chain. Many employees recounted the fallout from the Safeway-Albertsons merger and expressed their fear that the same scenario — but worse — could happen under the new merger.

Christine Martinez, a pharmacy technician at Ralph’s, a subsidiary of Kroger in Valencia, Calif., said at the session when she heard about the merger, it “brought back so many feelings of fear and anxiety,” and that her “immediate thought was ‘here we go again.’” In 2014, Martinez worked for Pavilions when it was divested to Haggen during the Albertsons-Safeway merger.

“They promised us that if we keep our jobs, that we would have better benefits and pensions from retiring, which meant a better life for my family,” she said. But within two months, they learned their store was closing.

“Many of my co-workers were facing financial ruin. They lost cars, we were behind in our house payments, and I couldn’t pay my bills,” she added. “I was able to eventually find work at Ralph’s, but I remember to never to never trust these kinds of mergers again or any of these empty promises that the companies will tell you.”