The Federal Trade Commission and several state attorneys general sued Monday to block Kroger, the supermarket giant, from completing its $24.6 billion takeover of grocery chain Albertsons, saying the deal would harm competition in the industry .
The agency said the deal, which would be the largest supermarket merger in U.S. history, would likely lead to higher grocery prices for consumers and, with fewer supermarkets, reduce the ability of grocery store workers to they negotiate higher wages and better working conditions. .
“This major supermarket merger comes as American consumers have seen grocery costs rise steadily in recent years,” Henry Liu, director of the FTC’s Bureau of Competition, said in a news release. “Kroger’s acquisition of Albertsons would lead to additional increases in grocery prices for everyday items, further exacerbating the financial stress consumers across the country are currently facing.”
The FTC’s federal lawsuit was joined by attorneys general from Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, Wyoming and the District of Columbia.
The lawsuit is the latest move by the Biden administration to take a tougher stance on mergers. In recent years he has contested several large deals, including Amgen’s $27.8 billion acquisition of drug company Horizon Therapeutics. JetBlue’s proposed $3.8 billion purchase of Spirit Airlines. and Microsoft’s $70 billion acquisition of video game maker Activision Blizzard.
But on several occasions the FTC has lost in court, including its attempt to block the Microsoft merger. (The regulator appealed Microsoft’s decision.) Kroger said in a statement that the FTC’s move to block the merger would actually hurt shoppers and grocery store employees.
“The FTC’s decision makes it more likely that American 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,” the company said.
Albertsons echoed those sentiments in a statement of its own. He added that if the FTC were to successfully block the merger, “it would hurt customers and help bolster larger, multi-channel retailers like Amazon, Walmart and Costco — the very companies the FTC claims to rein in — by allowing them to continue to increase increasing dominance of the grocery industry.’
Both chains said they are looking forward to making their case for the merger in court.
In the 16 months since Kroger announced its plans to acquire Albertsons, the proposed merger has faced backlash. Executives at the supermarket giants — two of the largest grocery chains in the United States — argued that the merger was necessary to compete with big retailers like Walmart, Costco and Amazon. These retailers, executives said, use their size to negotiate better prices with manufacturers and suppliers, which allows them to sell cereal, yogurt, pasta and other staples to consumers at lower prices.
But a chorus of critics, including consumer advocates, politicians, labor unions and independent grocery chains, said the combination of Kroger and Albertsons would create a powerful giant with more than $200 billion in revenue and about 5,000 stores in 48 states and the District of Columbia. The chains have significant overlap in some markets, including Chicago, Dallas, Los Angeles and Seattle.
Cincinnati-based Kroger operates 2,750 grocery stores across the United States under banners that include Ralphs, Dillons and Harris Teeter. Albertsons, based in Boise, Idaho, operates 2,200 supermarkets under names such as Albertsons, Safeway and Vons.
Jon Donenberg, deputy director of President Biden’s National Economic Council, said in a statement that Mr. Biden believed that competition was the key to capitalism. “When large companies are not controlled by healthy competition, they too often fail to pass on cost savings to consumers and take advantage of their workers,” he said.
As inflation continues to drive food prices higher, critics said, the proposed merger would give shoppers in some areas little or no choice in where to buy household staples. Others warned that with less competition, the merger would result in higher grocery prices and possible layoffs.
“This decision shows that the FTC understands how the enormous power of large retailers hurts the entire food system,” said Stacy Mitchell, co-executive director at the Institute for Local Self-Reliance, a nonprofit that advocates for independent businesses. “These two giants already exercise their power as dominant buyers of food and goods by bullying suppliers into offering them discounts and benefits that they do not offer to smaller food retailers.”
Marc Perrone, president of the United Food and Commercial Workers International Union, said the union would continue to oppose “any merger that would adversely affect the hundreds of thousands of our labor members who work at Kroger and Albertsons.”
Kroger later said in a statement that it would invest $1 billion to increase wages and benefits and pledged to ensure there would be no layoffs or store closings related to the merger.
In an effort to ease some of the concerns about the merger, Kroger and Albertsons announced plans in September to sell 413 stores nationwide to C&S Wholesale Grocers for $1.9 billion. The sale is subject to approval of the Kroger-Albertsons merger.
But the FTC said the divestiture proposal created a slew of unrelated stores and brands that had been merged and fell far short of creating a standalone business that could compete with a combined Kroger and Albertsons.
The FTC also argued that quality would likely decline in a combined supermarket giant. Currently, the two stores compete with each other by offering fresher produce, flexible store and pharmacy hours, and curbside pickup. If they merged, the incentive to compete by improving product quality and customer service would be reduced, the FTC said.
Critics also characterized the proposed merger as a big payday for Albertsons’ private equity owners. Early last year, after surviving a legal challenge brought by the state attorney general in Washington, Albertsons paid a special dividend payment of $4 billion to its shareholders. The biggest recipients of that dividend, which was financed through a combination of cash and debt added to Albertsons’ balance sheet, were Albertsons’ private equity owners, including Cerberus, which, at the time, owned 73 percent of the company.
