FTC, states challenge Kroger’s $25 billion grocery merger with Albertsons
The lawsuit is the latest move by the Biden Administration aimed at boosting the power of consumers and workers.
The Federal Trade Commission and attorneys general in eight states, including California, Arizona and Wyoming, as well as the District of Columbia, filed a lawsuit to block the $24.6 billion tie-up between grocery store chains Kroger and Albertsons, the agency said on Monday.
In a complaint filed in U.S. District Court in Oregon, the FTC and states said the deal will raise prices, lower quality, limit choices for shoppers and harm the companies’ workers. They added that a plan by the two grocery giants to sell more than 400 stores to C&S Wholesale Grocers, a move to make the deal more palatable to antitrust regulators, is inadequate to remedy their concerns, according to the lawsuit.
The Biden administration has made confronting corporate power a key part of its domestic economic policy, particularly around kitchen table issues including food, health care and fuel costs. The FTC led by Chair Lina Khan along with her counterparts at the Justice Department’s antitrust division are leading the charge. The government has successfully blocked deals including JetBlue’s takeover of Spirit Airlines and Illumina’s takeover of cancer test-maker Grail, but has faltered other cases including deals by UnitedHealth Group, Microsoft and Meta.
A copy of the complaint is not yet publicly available, pending redactions. In a statement the FTC said the deal would lead to higher prices for a host of consumer staples and services including fresh produce and pharmacy services. It also said the deal would lead to fewer jobs and depressed wages for workers. Both the International Brotherhood of Teamsters and United Food and Commercial Workers, labor unions representing grocery workers, have opposed the deal.
The deal would also give Albertsons and Kroger “increased leverage over workers and their unions—to the detriment of workers,” the FTC said, potentially leading to lower wages, fewer benefits and subpar working conditions. The FTC, which must convince a federal judge to block the deal, will have to prove that companies’ fix is not enough.
“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,” Henry Liu, the FTC’s director of the Bureau of Competition said in a statement. Furthermore, “essential grocery store workers would also suffer under this deal, facing the threat of their wages dwindling, benefits diminishing, and their working conditions deteriorating.”
“Contrary to the FTC’s statements, blocking Kroger’s merger with Albertsons Companies will actually harm the very people the FTC purports to serve: America’s consumers and workers,” said Kroger spokesperson Erin Rolfes. “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,” Rolfes said.
“Albertsons Cos. merging with Kroger will expand competition, lower prices, increase associate wages, protect union jobs, and enhance customers’ shopping experience,” an Albertsons spokesperson said in a statement. “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.”
Spokespeople for Amazon, Walmart and Costco did not immediately respond to requests for comment.
The companies are already facing state court lawsuits filed by the attorneys general in Washington and Colorado, and met with the three FTC commissioners last week in an unsuccessful final bid to avoid a lawsuit.
With around 800 stores between the two companies, California is among the states most impacted by the deal. “This megamerger is bad for workers, for agricultural producers, and for California communities,” Attorney General Rob Bonta said in a statement. “In some markets in Southern California, Kroger-Albertsons is expected to be the only one-stop grocery option.”
Announced in the fall of 2022, the deal would be the largest grocery store merger ever. It would bring together the nation’s two largest traditional grocery retailers, creating a combined company with more than 5,000 stores, in 48 states, with household names like Safeway, Harris Teeter and Ralphs. The combined company would also operate some 4,000 pharmacies and employ nearly 7,000 workers, according to the FTC.
The controversial deal would create a dominant national grocery chain, reducing competition at a time when food inflation is already high, critics say. Antimonopoly groups and labor unions have also warned that the merger could further consolidate pharmacies, driving up prices for prescription drugs as well as lead to wage declines. Democratic members of Congress have urged the FTC to block the deal, and hauled the companies’ CEOs in to testify before a Senate committee in November 2022.
The companies have argued that it allows them to offer a wider variety of products at better prices. Kroger, Albertsons and C&S have pledged not to close stores and to honor existing union agreements. Rolfes, the Kroger spokesperson, said blocking the deal “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.”
But Colorado and Washington questioned those commitments in their lawsuits, saying C&S was hesitant to commit to not close stores and also that Kroger and Albertsons had agreements to not hire each others’ workers during a 2022 strike.
In expressing skepticism on the divestiture of hundreds of stores, the FTC and states say a bulked up C&S would be unable to compete against a combined Albertsons and Kroger. In their state the FTC says the plan would create 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.”
“C&S acquiring these stores will benefit associates, customers, consumers, communities and our wholesale customers,” its spokesperson Laura La Bruno said in a statement. “C&S has an experienced management team with an extensive background in food retail and distribution and has the financial strength to continue investing in associates and the business.”
Critics of the deal have also pointed to the failure of a similar plan in the 2015 merger between Albertsons and Safeway. The buyer of those divested stores quickly failed, and Albertsons bought back some of the stores it initially sold to appease the FTC.
The White House declined to comment directly on the lawsuit, but “President Biden has made clear that competition is key to capitalism,” Jon Donenberg, deputy director at the National Economic Council said in a statement. “When large corporations are not checked by healthy competition, they too often do not pass cost savings on to consumers and exploit their workers.” The White House has been particularly focused on inflation and grocery prices, and the issue is expected to come up in next week’s State of the Union address.
Nick Niedzwiadek contributed to this report.