The Federal Trade Commission on Monday sued to block the merger between grocery-store chains Kroger Co. and Albertsons Cos., saying the deal would stifle competition, raise grocery prices and harm workers and product quality.
Nine attorneys general — from Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, Wyoming and the District of Columbia — are joining the complaint against the $24.6 billion deal, which the FTC said would be the biggest supermarket merger in U.S. history.
Consumer advocacy groups and the union that represents most of the chains’ workers praised the agency’s move. Both grocery chains, when reached, disputed the allegations, saying the deal would actually bring prices down and deliver more choice to shoppers.
“I think it’s a pretty critical threat,” Brad Haller, senior partner in mergers and acquisitions at the digital consulting company West Monroe, said of the FTC’s suit. He added later: “This was the final hurdle, and the government gets the final say.”
Still, he said, lawyers for both chains likely expected the move by the FTC, and now it’s up to them to fight on both chains’ behalf in court.
Kroger’s
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stock fell 1.9% on the news. Shares of Albertsons
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were up 0.5%.
Henry Liu, director of the FTC’s Bureau of Competition, said in a statement that the merger deal would land on top of two years of higher grocery prices for shoppers.
“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,” he said. “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 FTC alleged that executives at both Kroger
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and Albertsons
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acknowledged the combined company’s potential dominance over the grocery industry, saying that one executive had stated: “You are basically creating a monopoly in grocery with the merger.” The combined company, the FTC said, would run more than 5,000 stores and 4,000 retail pharmacies with nearly 700,000 employees nationwide.
The FTC also alleged that the two chains’ effort to offload several hundred stores to appease regulatory concerns was insufficient.
The two chains want to divest those stores and other assets to C&S Wholesale Grocers, a company the FTC said runs 23 supermarkets and one retail pharmacy. The agency said C&S would face “significant obstacles” in bringing those stores and other properties into a sustainable business that could compete against the combined chain. Haller said that Albertsons and Kroger might have to exit other lines of business, like in-store pharmacies, to ease regulatory concerns.
The Biden administration, meanwhile, has taken a tougher stance on mergers overall.
“It’s two huge consumer names,” Haller said of the deal between Kroger and Albertsons. “It’s a relatively easy merger for people to understand. Because all people are buying groceries, they’re all familiar with those brand names. The administration is able to say, ‘We are fighting and watching out for the everyday consumer.’”
Kroger owns grocery chains like Ralphs, Dillons and Fred Meyer, along with its namesake stores. Albertsons owns stores like Safeway, Vons, Pavilions and its own Albertsons locations. Kroger and Albertsons first announced plans to combine in 2022.
But since then, concerns have emerged that the deal would result in store closures, hinder shopper access and widen so-called food deserts as grocery prices have spiked, driving food-industry profits higher. And since everyone has to eat, industry executives said at that time that they had leeway to keep prices higher amid strong demand.
Accountable.US, a government watchdog group, said that five companies control 60% of grocery sales and that “despite claims from the companies that the merger will lead to lower costs, recent history has shown Kroger and Albertsons cannot be counted on to prioritize consumers over their wealthy investors.”
Kroger and Albertsons both expressed disappointment with the FTC’s lawsuit. They said it would hand more control of the grocery-shopping landscape to nonunionized retailers like Walmart Inc.
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Costco Wholesale Corp.
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and Amazon.com.
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“The proposed merger with Albertsons Cos. will produce meaningful and measurable benefits for customers, associates and communities across the country,” a Kroger spokesperson said in a statement. “The combined company committed that no stores, distribution centers or manufacturing facilities will close as a result of the merger, including those divested to C&S Wholesale Grocers.”
The statement continued: “Customers will benefit from lower prices and more choices following the merger close. The company committed to investing $500 million to begin lowering prices day one post-close, and an additional $1.3 billion to improve Albertsons Cos.’ stores.”
An Albertsons spokesperson said: “We are disappointed that the FTC continues to use the same outdated view of the U.S. grocery industry it used 20 years ago, and we look forward to presenting our arguments in court.”
The FTC said that Kroger and Albertsons compete with each other to make their stores and grocery selections more attractive to consumers via fresher produce, better private-label offerings and more flexible hours, and that they compete for employees, as well. The merger, the FTC alleged, would give the much larger combined company less incentive to be better for both customers and workers.
“The combined Kroger and Albertsons would have more leverage to impose subpar terms on union grocery workers that slow improvements to wages, worsen benefits, and potentially degrade working conditions,” the FTC said.
Stacy Mitchell, co-executive director of the Institute for Local Self-Reliance, an advocacy group, said that blocking the merger was an important step in bringing back competition to grocery stores.
She said the combined company would have been able to further strong-arm food suppliers into giving it discounts, while threatening business for smaller stores, farmers and producers.
“This merger would have undoubtedly led to even more consolidation among processors and the closure of independent grocery stores, furthering the proliferation of food deserts in underserved rural and Black and brown communities across the country,” Mitchell said.
“Blocking this merger is a crucial step in restoring healthy competition to food retailing,” she said.
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