In October 2022, I shared a big announcement in the retail world: Two massive, U.S. grocery store chains, Kroger and Albertsons, had agreed to merge, in a deal worth nearly $25 billion:
CNBC:
Rival grocers Kroger and Albertsons on Friday announced plans to team up.
The companies said Kroger agreed to buy Albertsons for $34.10 a share in a deal valued at $24.6 billion. Albertsons shares had closed Thursday at $28.63 after surging on reports that a deal was imminent.
Kroger is the second-largest grocer by market share in the United States, behind Walmart, and Albertsons is fourth, after Costco. Together, Kroger and Albertsons would be a closer second to Walmart.
Both companies’ boards unanimously approved the agreement, which will also need regulatory approval.
It can’t be exaggerated how massive this new, “Frankenstein” monster of a food chain would be–and how it would affect how many Americans shop across the country. Here are the stats for both companies, via the AP:
Kroger, based in Cincinnati, Ohio, operates 2,800 stores in 35 states, including brands like Ralphs, Smith’s and Harris Teeter. Alberstons, based in Boise, operates 2,273 stores in 34 states, including brands like Safeway, Jewel Osco and Shaw’s. Together the companies employ around 710,000 people.
BACKGROUND: Two Massive, US Grocery Chains Could Be Headed for Merger
Tucked in the fine print of the news stories I read, though, was the foreshadowing of a potential snag in the companies' plans ... in the form of federal regulators filing a lawsuit. Now, that's come to pass. The Federal Trade Commission (FTC) and nine state attorneys general filed a lawsuit Monday in federal court meant to block the merger of Kroger and Albertsons:
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.
It .... 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.
In a press release, the agency explained why it chose to file the suit:
The FTC charges that the proposed deal will eliminate fierce competition between Kroger and Albertsons, leading to higher prices for groceries and other essential household items for millions of Americans. The loss of competition will also lead to lower quality products and services, while also narrowing consumers’ choices for where to shop for groceries. For thousands of grocery store workers, Kroger’s proposed acquisition of Albertsons would immediately erase aggressive competition for workers, threatening the ability of employees to secure higher wages, better benefits, and improved working conditions.
Its suit also argued that the companies' proposed divestiture of hundreds of stores a piece to a third-party chain was "inadequate," and would fail to maintain the competition between the chains that keeps prices low and wages high--especially for union workers and their unions:
Kroger and Albertsons are the two largest employers of union grocery labor in the United States. They actively compete against one another for workers.[...]
Currently, most workers for both supermarket chains are members of the United Food and Commercial Workers (UFCW) union.
The FTC added that the suit will give an FTC administrative judge time to review its concurrently filed administrative complaint against the grocers. The attorneys general who signed on to support the legal move represent eight states (Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming), and the District of Columbia.
Henry Liu, Director of the FTC’s Bureau of Competition, said in a statement:
This supermarket mega merger comes as American consumers have seen the cost of groceries rise steadily over the past few years. 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. Essential grocery store workers would also suffer under this deal, facing the threat of their wages dwindling, benefits diminishing, and their working conditions deteriorating.
The companies responded to the suit, countering the agency's charges that a merger would harm shoppers and union workers:
The companies have argued that together they could better face stiffening competition from Amazon, Walmart, Costco and even dollar stores. In fact, Kroger on Monday argued the FTC's rejection of the merger would lead to higher food prices and fewer grocery stores.
"This decision only strengthens larger, non-unionized retailers like Walmart, Costco and Amazon by allowing them to further increase their overwhelming and growing dominance of the grocery industry," a Kroger spokesperson said in a statement.
Albertsons shared a similar statement, adding that the FTC's view of the grocery industry is "outdated" and it looked forward to presenting its views in court. The case is likely to go to trial in the coming months.
"The fact of the matter is, people are not shopping at Amazon as a substitute for going to their local grocery stores," Rahul Rao, deputy director of the FTC's Bureau of Competition, told NPR. "The other store formats don't actually compete on a day-to-day basis" with Kroger and Albertsons.
But as my colleague Bob Hoge wrote on big-box retailers' woes in the era of Bidenomics, the government might have a slight point about the differences between what traditional stores and outlets like Walmart and Amazon Fresh do. He wrote in February 2023:
The retail world continues its downward spiral, as holiday sales failed to meet expectations and wary consumers are keeping their wallets in their pockets due to rampant inflation and soaring interest rates.[...]
The end result: over 800 big-box stores are slated to shut down across the country in 2023.
Bed Bath & Beyond, Walmart, Gap, and Party City are among the big names who will be downsizing.[...]
Macy’s, Big Lots, JCPenny, and even Amazon Fresh grocery stores also have plans to shutter locations.
But an argument can be made that the dip in consumer spending has also hit Kroger and its competitor, Albertsons. Hoge wrote:
Unfortunately, this is not a new trend. CVS, Rite-Aid, Kroger, Nordstrom, and Best Buy have also been quietly culling their stores over the last several years.
Both Kroger and Albertsons say they will challenge the FTC's suit. We'll see where this lawsuit lands in a few months. Stay tuned.
You can read the pdf of the FTC's complaint here.
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