Kroger, Albertsons get their day in court

The Federal Trade Commission’s multi-state lawsuit against Kroger’s proposed $24.6 billion acquisition of Albertsons got underway on Monday in the U.S. District Court in Portland, Ore., with legal teams on both sides making opening arguments on the deal.

The FTC’s lawsuit, backed by nine attorneys general, argues that the merger, which would be the largest in the history of the grocery industry, would result in higher prices, less competition, and would also strip union workers of their bargaining power. 

Legal teams for both Kroger and Albertsons argued that the FTC and others opposing the merger are overlooking the competition the two supermarket chains face from those outside the traditional grocery industry — retail players such as Walmart, Costco, Amazon, and others.

The two grocers also said the merger would have the opposite effect of predictions by its detractors via lowering prices for consumers, bolstering union employees, and increasing competition. 

“This multi-billion dollar deal would result in Kroger swallowing Albertsons and would eliminate the competition between these two companies that shoppers and union workers depend on,” said FTC Deputy Chief Trial Counsel Susan Musser.

Musser argued that grocery competition impacts communities on a local level, noting that in some cities, such as Corvallis, Ore., and Santa Fe, N.M., the merger would result in Kroger and Albertsons collectively controlling about 60% of the grocery market. 

“Throughout this hearing, the court will see evidence from data collected by the parties that show that Kroger’s banners account for 79% of Albertsons’ primary grocery competitor in overlap areas,” Musser said. 

Kroger attorney Matthew Wolf, a partner with the law firm Arnold & Porter, argued that Kroger’s purchase of Albertsons would have the opposite effect by lowering prices and maintaining union obligations.

Wolf said that the FTC and state AGs fail to recognize “the tectonic shift that has occurred In the grocery industry over the last 20 years, refusing to acknowledge that unless traditional grocers act, the dominance of Walmart and Costco and Amazon and their ilk will only grow with the inevitable and regrettable impact on shoppers, choices, downtown communities, local farmers and union jobs …”

Wolf added that Walmart has grown rapidly over the last two decades, and its share of the grocery market has grown at an even faster rate. In 2003, Walmart operated about 3,400 stores, and their grocery sales stood at about $63 billion, he said. By 2023, the retail giant’s store count had grown to about 5,300, and its grocery sales skyrocketed to $247 billion, Wolf said. 

“I think the Wall Street Journal summed it up best just last year – supermarkets are losing this food fight, and who are they losing it to? Walmart, Costco, and Amazon, among others,” Wolf said in court Monday

Lawyers on both sides of the case also discussed the plan by Kroger and Albertsons to divest 579 stores from the two companies to C&S Wholesale Grocers, but Musser argued that the small grocery chain, “has never even operated 110 retail stores at any one time,” and is unprepared to take on such a large purchase all at once. 

“Historically, C&S has closed underperforming retail stores and sold others to independent operators in connection with wholesale supply contracts. Post-divestiture, it has ample incentives to do the same,” she said. 

The FTC argues that C&S will struggle to attract, retain, and serve supermarket customers during the transition.

“One of those areas is re-bannering the acquired stores where C&S does not have ownership of or a license to the banner currently on the store,” Musser said. “C&S will need to re-banner hundreds of stores. Re-bannering a supermarket can mean not only changing the brand name on the storefront, but also the layout and the product assortment to correspond with the brand identity.” 

She added that re-bannering 286 stores in three years is “unprecedented.”

Albertsons attorney Enu Mainigi argued that C&S is positioned to successfully purchase and operate the stores because of its nationwide wholesale network. 

“C&S has something that neither Kroger nor Albertsons has right now – it has national scale. And specifically what it has is a distribution network that services 7,500 stores nationwide.” she said. “And what that means is when those stores want frozen food or cereal or some other product category, C&S is the one that acquires it, and C&S is the one that puts it in the store. 

“Now, by supporting 7,500 grocery stores, C&S is actually bigger than Kroger and Albertsons combined from both the distribution standpoint and a buying standpoint right now,” Mainigi said. 

She said C&S will receive exclusive perpetual licenses to Albertsons and Safeway banners in some states. “And this is important because these are names that customers know and have positive associations with today, and C&S will be able to use those banners to retain and grow their customers,” she said.  

Along with the stores, C&S will purchase rights to several private-label brands, such as Open Nature, Signature Select, and O Organics, Mainigi said. 

While most of the testimony today focused on opening arguments, Kroger also released a public statement prior to the hearing, reiterating its claims that the merger “will mean lower prices for more customers, higher wages for associates, and expanded food access in more communities,” according to Tim Massa, chief people officer of The Kroger Co.

“Our merger will secure the long-term future of union jobs by building on Kroger’s track record of adding 100,000 union jobs since 2012 while union membership in the grocery industry was declining by hundreds of thousands of members,” Massa said. “Kroger, Albertsons and C&S are committed to honoring all current collective bargaining agreements alongside bargained-for wages and benefits and ensuring zero frontline worker layoffs and no store closures as a result of the merger.”

Unions opposing the deal also voiced their opposition to the merger. Prior to the hearing, the Stop the Merger Coalition, made up of members of the United Food and Commercial Workers International Union locals 7, 324, 400, 770, 1564, and 3000, held press conference, calling the proposal “anti-competitive, anti-worker, and anti-community.”

“We’re fighting back because we know that the proposed mega-merger between Kroger and Albertsons would likely lead to job losses, store closures, pharmacy and food deserts, and higher prices, which would harm working families in both rural and urban communities across the country,” said Kim Cordova, UFCW International vice president and president of Local 7, representing workers in Colorado and Wyoming, in a press release. “Kroger and Albertsons claim the merger is necessary to compete with Walmart and Amazon, but their true goal is to consolidate power and increase profits at the expense of workers and customers.”

The hearing is expected to take place over the next several weeks and feature dozens of witnesses, including Kroger and Albertsons CEOs Rodney McMullen and Vivek Sankaran, respectively. The merger also faces two separate lawsuits by attorneys general in Colorado and Washington state.