The US Federal Trade Commission, eight states and Washington DC sued to block Kroger Co.’s $24.6 billion acquisition of Albertsons Cos. Monday, arguing the tie-up would lead to lower wages for workers and higher prices for groceries.
In a complaint filed in federal court in Portland, Oregon, the FTC said the combination of the two largest US supermarket chains would unduly concentrate the market, despite a proposal by the companies to sell off stores to Piggly Wiggly chain owner C&S Wholesale Grocers Inc. The bipartisan group of states includes California and Wyoming.
Albertsons rose 0.5% to $21.54 following the announcement, narrowing the spread between the stock price and Kroger’s $27.25 offer to $5.71. That showed investors weren’t surprised by the FTC suit, which was expected. Kroger shares were down about 1.6 % at 1:42 p.m. in New York.
The merger would be the biggest US grocery deal in history if it goes through, according to the FTC and data compiled by Bloomberg. Bloomberg Intelligence analyst Jennifer Rie gave the companies about a 50% chance of prevailing against the FTC in court.
Together, Kroger-Albertsons would have nearly 5,000 stores across the country, merging the banners of Kroger, Ralphs, and Harris Teeter with Albertsons, Safeway, Acme and Jewel-Osco, among others. The supermarket chains say the deal is needed to better compete with Amazon.com Inc. and Walmart Inc.
The complaint alleges that the deal would harm consumers by eliminating competition on prices and quality, making the combined firm less likely to improve its services by offering flexible hours and pickup services. It also would give the grocers increased leverage over workers, slowing wage growth and worsening benefits, according to the complaint.
An Albertsons spokesman said the company is disappointed that the FTC continues to use the same outdated view of the US grocery industry and that it looks forward to presenting its arguments in court.
“If the Federal Trade Commission is successful in blocking this merger, it would be hurting customers and helping strengthen larger, multichannel retailers such as Amazon, Walmart and Costco — the very companies the FTC claims to be reining in — by allowing them to continue increasing their growing dominance of the grocery industry,” he said. The Kroger-Albertsons merger will help their stores compete better while benefiting their customers, workers and communities.
A Kroger spokeswoman said blocking the merger will harm consumers and workers. The company has reduced prices every year since 2003 and will apply the same model to the combined company, she said. She added that the FTC’s ruling makes it more likely that US consumers will see higher food prices and fewer grocery stores and that it would further strengthen the growing dominance of larger, non-unionized retailers Walmart, Costco and Amazon.
A C&S spokeswoman said the company has a strong background in food retail and distribution and the financial ability to invest in the business. C&S has been an FTC-approved buyer in previous grocery deals and its proposed acquisition of stores will benefit workers, consumers and communities, she added.
The suit is the latest example of stepped up antitrust enforcement by the Biden administration, which has seen regulators take a more aggressive approach to mergers, suing to block JetBlue Airways Corp.’s acquisition of Spirit Airlines Inc. and Microsoft Corp.’s deal to buy Activision Blizzard Inc., among others.
Kroger and Albertsons, which announced their proposed tie-up in late 2022, have said they would invest $500 million to cut prices and $1 billion to raise worker wages and benefits, in addition to $1.3 billion to improve Albertsons stores. The supermarket operators have said the deal would give them more leverage in negotiations with suppliers, improve their technology and increase their market share.
The companies agreed to divest 413 stores to C&S in a bid to stave off antitrust concerns. But the FTC said that remedy wouldn’t solve the problem given a history of failed divestitures in the supermarket industry. The proposed divestiture to C&S would be inadequate, enforcers said, since Kroger and Albertsons have offered a “hodgepodge of unconnected stores, banners, brands, and other assets.” C&S today operates only 23 stores and one retail pharmacy, the FTC said.
‘Basically creating a monopoly in grocery’
The FTC’s complaint cites internal documents from Albertsons executives expressing surprise about the deal. “You are basically creating a monopoly in grocery with the merger,” an executive wrote, according to the FTC.
Competition across the US grocery sector has intensified over the years, as more companies recognize the value of selling food — essentials that people buy frequently. Aldi Inc. and other European discounters have expanded with a no frills approach. Dollar and drugstores are growing their food footprint to attract more shoppers.
Kroger and Albertsons each trace their roots back to a single store in Ohio and Idaho, respectively, and also operate pharmacies and gas stations today. The companies have pursued M&A to gain scale, buying chains like Harris Teeter and Safeway. They have also diversified their businesses beyond retail, entering advertising and other areas that grow faster and bring in more profits. E-commerce has been another area of focus in recent years, as more consumers buy groceries online.
The merger would beef up Kroger’s presence across the US, including in areas like Northern California where it has a smaller footprint, and make it a more formidable competitor to Walmart and Amazon. Albertsons, on the other hand, is no stranger to M&A. The grocer unsuccessfully tried to go public in 2015 then called off a merger with drugstore operator Rite Aid Corp. three years later, before going public during the pandemic.
Deal discussions have been a long journey for the grocers. Albertsons said in February 2022 that it was exploring strategic options, including a sale, less than two years after going public. Kroger and Albertsons engaged in talks in April of that year about a potential merger, according to filings, and talks became serious the summer before they signed the deal. Private equity firm Cerberus Capital Management LP has a 26% stake in Albertsons.
Since then, the companies have been working on integration planning while defending their proposed merger. Gary Millerchip, former chief financial officer of Kroger, announced a surprise departure in February to rival Costco Wholesale Corp. Millerchip was viewed as an executive who could become the No. 2 at the new grocery giant after Rodney McMullen, Kroger’s CEO, should the deal go through. Yael Cosset, Kroger’s chief information officer, now oversees planning with Albertsons.
Lawmakers and unions including the Teamsters and United Food and Commercial Workers International have opposed the merger, arguing it would lead to job cuts and reduced wages.
Eight attorneys general that signed on to the complaint are Democrats while one — Wyoming Attorney General Bridget Hill — is a Republican.
In a press conference about the case, California Attorney General Rob Bonta said the merger was a “rotten deal” for consumers and workers. California is among the states most impacted by the deal: Kroger and Albertsons have about 800 stores in the state and had proposed divesting 66 of them to C&S.
Brian Schwalb, attorney general for Washington DC, said the proposed merger would restrict residents’ access to food and other critical resources and “further consolidate an already hyper-concentrated market.”
The lawsuit comes weeks after Colorado sued in Denver court and a month after Washington state sued in its own state court seeking to block the deal.
