Kroger-Albertsons Merger Takes Major Hit From The FTC, Is It The End?

The Federal Trade Commission (FTC) sued to block the proposed $24.6 billion acquisition of Albertsons by KrogerKR, alleging that the deal is anticompetitive. Attorney Generals of nine states including Arizona, California, District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming have joined the FTC complaint. Washington State and Colorado have sued individually to block the deal previously.

Originally published on Forbes.com

Kroger and AlbertsonsACI, two of the nation’s largest supermarket chains agreed to merge in October 2022. Since then there has been much discussion about whether the Federal Trade Commission Chair Lina M. Khan would block the merger, which would leave the chain with over 5,000 stores. Setting the stage for concern was her coauthored paper in 2017, published in the Harvard Law and Policy Review, Market Power and Inequality: The Antitrust Counterrevolution and its Discontents in which she criticized how Albertsons handled its acquisition of SafewaySWY and how the merger resulted in a spinoff of 146 stores to the 18 store grocery chain Haggen, which filed for bankruptcy: and sold off the bulk of the stores it acquired.

Earlier today, The Federal Trade Commission (FTC) sued to block the proposed $24.6 billion acquisition of Albertsons by KrogerKR, alleging that the deal is anticompetitive. Attorney Generals of nine states including Arizona, California, District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming have joined the FTC complaint. Washington State and Colorado have sued individually to block the deal previously.

Over the past 16 months both chains, especially Kroger, has positioned the merger as beneficial for shoppers, promising to lower prices, increase services and training and produce efficiencies that would result in lower operating costs. They also said that by amalgamating Kroger’s and Albertsons’ operations and distribution consumers would have more access to a more extensive range of products and services. Combined the two chains would have approximately 35,000 store brands, which typically sell for 15-25 percent lower than national brands. Key to the Kroger-Albertson’s position is that the merger would be a formidable competitor to AmazonAMZNAMZN and WalmartWMT (who according to KeyBank Capital Markets now represents more than one in four grocery dollars in the US.) and would offer consumers more choice. Kroger and Albertsons point out that their competitors like Walmart, Costco and Amazon are not unionized which makes competing with them more difficult. Most of Kroger and Albertsons workers are members of the United Food and Commercial Workers Union, which has also challenged the merger stating that it is concerned that such a deal would harm their ability to negotiate for their unionized members.

The FTC charges that the merger would actually lead to higher prices for consumers as the two chains are, according to the FTC, “fierce” competitors which keep prices lower and without that competition, prices would rise. The charge also says that the loss of competition will lead to lower quality products and services, which I find to be a dubious claim at best. The supermarket industry has over the past decade seen a monumental shift in the quality and assortment of store brand products including the development of organic, better-for-you and higher quality foods. Since the pandemic sales of store brands have increased substantially and since they have become a chain’s proprietary calling card, it’s unlikely that any chain would lower their standards for these products.

The FTC is also questioning the ability of C&S Wholesale Grocers to operate the 413 stores and other assets including 8 distribution centers, that it has committed to acquire if the merger takes place in order to satisfy concerns about the lack of competition. The FTC complaint misstates that fact that C&S, who operates 160 stores under the Piggly Wiggly and Grand Union banners as well as supplying groceries to more than 7,500 independent supermarkets, chain stores, military bases, and institutions with over 100,000 products, “operates just 23 supermarkets.” Obviously, an incorrect statement meant to use the FTC Chair’s 2017 report as proof that the acquisition would not be successful.

The store divestiture plan should not be limited to C&S. Especially in California, where Kroger and Albertsons have major overlap, there are established chains including Raley’s, Gelsons, Bristol Farms, Sprouts, and others who would benefit from these prime locations. Amazon Fresh, who has been struggling with their brick-and-mortar supermarkets, and who has plenty of cash, could also be a worthwhile suitor who could easily pick up 100 (or more?) stores and finally fulfill Jeff Bezos’s dream to be a major player in the supermarket world. These other chains would bring more competition to each of the marketplaces and offer shoppers even more choices.

Giant mergers and acquisitions like this deserve scrutiny by the Federal Trade Commission, unions, stakeholders and of course consumers; but these deals are complex and to make good decisions all the facts must be known and verified.

Consumers are already frustrated and concerned about the highest prices ever seen on our supermarket shelves, which are unlikely to decline. The challenge for Kroger and Albertsons is to prove and commit to their promises that this merger will benefit shoppers and supermarket workers. The challenge for the FTC is to put aside irrelevant past mergers and acquisitions that didn’t work and help formulate a strategy that will be beneficial.