FTC Sues to Block Kroger-Albertsons Merger

The US Federal Trade Commission has sued to block the merger between grocery-store chains Kroger Co. and Albertsons Cos. Inc.. According to FTC, the merger 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 also joining the complaint against the $24.6 billion deal, which the FTC said would be the biggest supermarket merger in the nation’s history.

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 consumers. Further, the loss of competition will also lead to lower quality products and services, while also narrowing consumers’ choices for where to shop for groceries.

FTC said the proposed deal would immediately erase aggressive competition for workers, threatening the ability of employees to secure higher wages, better benefits and improved working conditions.

“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. “Essential grocery store workers would also suffer under this deal, facing the threat of their wages dwindling, benefits diminishing and their working conditions deteriorating.”

Kroger operates thousands of stores across 36 states, which includes regional banners such as Fred Meyer, Fry’s, Harris Teeter, King Soopers, Kroger and Quality Food Centers (QFC). Albertsons also operates thousands of stores across 35 states under regional names including Albertsons, Haggen, Jewel-Osco, Pavilions, Safeway, and Vons. If the merger were completed, Kroger and Albertsons would operate more than 5,000 stores and approximately 4,000 retail pharmacies and would employ nearly 700,000 employees across 48 states.

Executives for both Kroger and Albertsons have acknowledged that the two supermarkets are direct competitors, forcing each other to aggressively compete for customers by lowering prices and for employees by providing better pay and benefits across the country. Similarly, executives for both supermarket chains have conceded that Kroger’s acquisition of Albertsons is anticompetitive. According to the FTC, one executive reacted candidly to the proposed deal: “you are basically creating a monopoly in grocery with the merger.”

Inadequate Divestiture Offering

To try to secure antitrust approval of their merger, Kroger and Albertsons proposed to divest several hundred stores and select other assets to C&S Wholesale Grocers (C&S), which today operates just 23 supermarkets and a single 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 says the proposed divestitures are not a standalone business, and C&S would face significant 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. 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, according to the complaint.

Harm to Consumers

In addition to raising grocery prices, the FTC alleges that Kroger’s acquisition of Albertsons would also diminish their incentive to compete on quality. Today, Kroger and Albertsons compete to improve their stores in many ways, including offering fresher produce, higher quality products, improved private label offerings, a broader array of in-store services, flexible store and pharmacy hours, and curbside pickup services.

The FTC charges that the deal would eliminate head-to-head price and quality competition, which have driven both supermarkets to lower their prices and improve their product and service offerings. If the merger takes place, grocery prices will increase, and Kroger and Albertsons’ incentive to improve product quality and customer service will decrease, further harming customers.

Harm to Workers

The FTC notes that Kroger and Albertsons are the two largest employers of union grocery labor in the US. They actively compete against one another for workers. The two companies also try to poach grocery workers from each other, especially in local markets where they overlap. Currently, most workers for both supermarket chains are members of the United Food and Commercial Workers (UFCW) union.

Today, UFCW and other unions leverage the fact that Kroger and Albertsons are separate and competing companies. Unions push for both supermarket chains to negotiate better employment terms for union grocery workers, especially when negotiating over collective bargaining agreements (CBAs).

A combined Kroger/Albertsons, however, would gain increased leverage over workers and their unions—to the detriment of workers, the FTC alleges. 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. 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 Commission vote to issue the administrative complaint and authorize staff to seek a temporary restraining order and preliminary injunction in federal district court was 3-0. The federal court complaint and request for preliminary relief will be filed jointly with the state attorneys general in the US District Court for the District of Oregon.

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