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Kroger Albertsons merger report_Oct2022_2.jpg Kroger/Albertsons

FTC files lawsuit to stop Kroger, Albertsons merger

Nine attorneys general join the effort to block the merger

The Federal Trade Commission filed a lawsuit Monday to block Kroger’s $24.6 billion proposed purchase of Albertsons, calling it an “anticompetitive” deal that would create a “monopoly.” 

Nine attorneys general have joined the lawsuit from Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming. AGs in Washington state and Colorado have already filed lawsuits independently to block the merger. 

The FTC statement asserts that the acquisition the biggest ever seen in the U.S. grocery industry — would “eliminate fierce competition between Kroger and Albertsons, leading to higher prices for groceries and other essential household items for millions of Americans.” 

Shortly after the announcement, Albertsons released a statement saying the acquisition would “expand competition, lower prices, increase associate wages, protect union jobs, and enhance customers’ shopping experience.”

Kroger released a statement in response to the lawsuit saying that blocking the merger would “actually harm the very people the FTC purports to serve: America’s consumers and workers.” The grocer said it has reduced prices every year since 2003, which amounts to $5 billion invested from the company and a 5% reduction in its own gross margin. 

“The FTC’s decision makes it more likely that America’s consumers will see higher food prices and fewer grocery stores at a time when communities across the country are already facing high inflation and food deserts. In fact, 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,” the Kroger statement said. 

Kroger has previously said it would invest $500 million to cut prices if the deal goes through. It also said it would invest $1.3 billion to improve Albertsons stores across the country. 

An FTC press release added that if the merger were to go through, it would also lead to lower quality products and services and narrow the options for shoppers on where to shop. Competition for workers would also be hurt by the acquisition, impacting their ability to secure higher wages, benefits and working conditions, the FTC said.

“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,” said Henry Liu, director of the FTC’s Bureau of Competition, in the press release. “Essential grocery store workers would also suffer under this deal, facing the threat of their wages dwindling, benefits diminishing, and their working conditions deteriorating.”

According to a statement from Albertsons,  blocking the merger is ultimately a win for retail behemoths  like Amazon and Walmart.

“If the Federal Trade Commission is successful in blocking this merger, it would be hurting customers and helping strengthen larger, multi-channel 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.

“In contrast, Albertsons Cos.’ merger with Kroger will ensure our neighborhood supermarkets can better compete with these mega retailers, all while benefiting our customers, associates, and communities,” the statement from Albertsons noted. “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.” 

FTC’s opposition comes in the form of an administrative complaint and an authorized lawsuit in federal court. 

The FTC announcement noted that a merger of the two companies would mean Kroger would run more than 5,000 stores, roughly 4,000 retail pharmacies, and would employ almost 700,000 workers in 48 states. 

The commission took issue with the grocer’s proposal to divest more than 400 stores to C&S Wholesale Grocers, which currently runs just 23 supermarkets and one retail pharmacy. 

“The FTC’s administrative complaint alleges that Kroger and Albertsons’ inadequate divestiture proposal is 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,” the FTC said in a statement. 

The FTC argues that C&S faces substantial obstacles “stitching together the various parts and pieces from Kroger and Albertsons into a functioning business — let alone a successful competitor against a combined Kroger and Albertsons.” 

“The proposal completely ignores many affected regional and local markets where Kroger and Albertsons compete today. In areas where there are divestitures, the proposal fails to include all of the assets, resources, and capabilities that C&S would need to replicate the competitive intensity that exists today between Kroger and Albertsons,” the FTC press release noted. “Even if C&S were to survive as an operator, Kroger and Albertsons’s proposed divestitures still do not solve the multitude of competitive issues created by the proposed acquisition ...”

Kroger argued that C&S is up to the task, calling the grocery chain an “industry leader in wholesale grocery supply and supply chain solutions, with a strong track record as a successful grocery retailer.”

“Kroger and Albertsons Cos. took considerable steps to position C&S to continue to successfully operate divested stores as part of its comprehensive plan. This includes providing C&S with strong teams, a cohesive network of stores supported by two regional headquarters, beloved banners and private label brands, and a robust operational infrastructure,” Kroger said in a statement. 

The FTC added that Kroger and Albertsons are the two largest union employers in the industry and that they compete against one another for labor, frequently working to poach employees from one another. Most of them are represented by the United Food and Commercial Workers union.

While one branch of the union, the United Food and Commercial Workers Union Local 555, which represents 30,000 mostly grocery workers in the Pacific Northwest, recently endorsed the merger, the national UFCW, which represents more than 1.2 million workers across the country, has rejected the proposal. 

The UFCW released a statement following the FTC announcement, once again objecting to the acquisition. 

“The FTC’s decision reflects clear concerns over the impact such a megamerger could have on workers, food prices, and millions of customers. As our delegates made clear last year at our International Convention, the UFCW stands — and will continue to stand — in opposition to any merger that would negatively impact our hundreds of thousands of hard-working members who work at Kroger and Albertsons,” the union said.

The union said any grocer looking to purchase stores “must first and foremost honor our collective bargaining agreements and be committed to protecting these essential jobs now and in the years ahead.”

The FTC argues that the acquisition would give Kroger that upper hand on workers and unions, empowering the grocer to offer “subpar terms on grocery workers that slow improvements to wages, worsen benefits, and potentially degrade working conditions.”

“In some regions, such as in Denver, the combined Kroger/Albertsons would be the only employer of union grocery labor. Union grocery workers’ ability to leverage the threat of a boycott or strike to negotiate better CBA terms would also be weakened,” the FTC said in the press release.

Kroger said it would invest $1 billion to increase wages and benefits for its employees under the merger. 

“This builds on the incremental $1.9 billion Kroger invested to improve wages and comprehensive benefits since 2018. To provide the best holistic support for each associate, the company will also extend continuing education and financial literacy benefits to all associates following the merger close,” the company said. “As union membership continues to decline nationwide, especially in the grocery industry, this merger is the best way to secure union jobs.

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