The Federal Trade Commission’s multistate lawsuit against Kroger’s proposed $24.6 billion acquisition of Albertsons began Monday in U.S. District Court in Portland, Ore., with attorneys for both sides making opening arguments on the deal.
The FTC’s lawsuit, supported by nine state attorneys general, argues that the merger, which would be the largest in the history of the grocery industry, would lead to higher prices and less competition and would also deprive union members of their bargaining power.
Kroger and Albertsons’ legal teams argued that the FTC and other opponents of the merger would overlook the competition the two supermarket chains face from outside the traditional grocery industry – retailers such as Walmart, Costco, Amazon and others.
The two grocers also said the merger would have the opposite effect of critics’ predictions, namely lower prices for consumers, strengthening union membership and increasing competition.
“This multibillion-dollar deal would result in Kroger swallowing Albertsons and eliminating the competition between these two companies that shoppers and union members depend on,” said FTC Deputy Chief Counsel Susan Musser.
Musser argued that competition in the grocery industry impacts communities at the local level, pointing out that in some cities such as Corvallis, Oregon, and Santa Fe, New Mexico, the merger would result in Kroger and Albertsons together controlling about 60 percent of the grocery market.
“During the hearing, the court will consider evidence from data collected by the parties showing that Kroger’s banners in overlap areas account for 79% of Albertsons’ primary grocery competitor,” Musser said.
Matthew Wolf, a Kroger attorney and partner at the law firm Arnold & Porter, argued that Kroger’s acquisition of Albertsons would have the opposite effect by cutting prices and maintaining union obligations.
Wolf said the FTC and state attorneys general “fail to recognize the tectonic shift that has occurred in the grocery industry over the past 20 years. They refuse to acknowledge that if traditional grocers do not act, the dominance of Walmart, Costco, Amazon and the like will only grow, with the inevitable and unfortunate impact on shoppers, choices, inner-city communities, local farmers and union jobs…”
Wolf added that Walmart has grown rapidly over the past two decades and its share of the grocery market has grown even faster. In 2003, Walmart operated about 3,400 stores and its grocery sales were about $63 billion, he said. By 2023, the retail giant’s store count will have grown to about 5,300 and its grocery sales will have increased to $247 billion, Wolf said.
“I think the Wall Street Journal summed it up best last year – supermarkets are losing this battle for food, and who are they losing it to? Walmart, Costco and Amazon, to name a few,” Wolf said in court on Monday.
Lawyers on both sides of the case also discussed Kroger and Albertsons’ plan to sell 579 of the two companies’ stores to C&S Wholesale Grocers, but Musser argued that the small grocery chain “has never operated even 110 retail stores at one time” and was not prepared to make such a large purchase at once.
“In the past, C&S has closed low-revenue retail stores and sold others to independent operators under wholesale supply agreements. After the divestiture, the company has ample incentive to do the same,” she said.
The FTC argues that C&S will have difficulty attracting, retaining and serving supermarket customers during the transition period.
“One of these areas is the redesign of acquired stores where C&S is neither the owner nor the licensee of the banner currently displayed in the store,” Musser said. “C&S will need to reprint hundreds of stores. Redesigning a supermarket may mean not only changing the brand name on the store front, but also the layout and product assortment to match the brand identity.”
She added that the reorientation of 286 stores within three years was “unprecedented”.
Enu Mainigi, a lawyer for Albertsons, argued that C&S was able to successfully purchase and operate the stores because of its nationwide wholesale network.
“C&S has something that neither Kroger nor Albertsons currently has – it has a nationwide presence. And it specifically has a distribution network that serves 7,500 stores across the country,” she said. “And that means if those stores need frozen foods, cereal or any other product category, C&S is the one sourcing it, and C&S is the one getting it into the stores.
“With the support of 7,500 grocery stores, C&S is currently actually larger than Kroger and Albertsons combined from both a distribution and purchasing perspective,” Mainigi said.
She said C&S will get exclusive permanent licenses for the Albertsons and Safeway banners in some states. “And that’s important because those are names that customers know and have positive associations with today. And C&S will be able to use those banners to retain and grow its customers,” she said.
In addition to the stores, C&S will also acquire rights to several private labels such as Open Nature, Signature Select and O Organics, Mainigi said.
While testimony today largely focused on opening arguments, Kroger also released a public statement ahead of the hearing reiterating its claims that the merger “will mean lower prices for more customers, higher wages for employees and improved access to groceries in more communities,” according to Tim Massa, chief human resources officer for The Kroger Co.
“Our merger will secure the long-term future of union jobs by building on Kroger’s track record of creating 100,000 union jobs since 2012, while union membership in the grocery industry has declined by hundreds of thousands of members,” Massa said. “Kroger, Albertsons and C&S are committed to honoring all current collective bargaining agreements, wages and benefits, and ensuring there are no layoffs of service workers or store closures as a result of the merger.”
Unions opposed to the deal also voiced their opposition to the merger. Before the hearing, the Stop the Merger Coalition, which consists of members of United Food and Commercial Workers International Union (UNWIL) unions 7, 324, 400, 770, 1564 and 3000, held a press conference calling the proposal “anti-competitive, anti-worker and anti-community.”
“We are fighting back because we know the proposed mega-merger between Kroger and Albertsons would likely result in job losses, store closures, pharmacy and grocery deserts, and higher prices, hurting working families in rural and urban communities across the country,” Kim Cordova, vice president of UFCW International and president of Local 7, which represents workers in Colorado and Wyoming, said in a press release. “Kroger and Albertsons claim the merger is necessary to compete with Walmart and Amazon, but their real goal is to consolidate their power and increase their profits at the expense of workers and customers.”
The hearing is scheduled to take place in the next few weeks and will include dozens of witnesses, including Kroger and Albertsons CEOs Rodney McMullen and Vivek Sankaran. The merger is also being challenged by two separate lawsuits filed by attorneys general in Colorado and Washington.
