The U.S. Federal Trade Commission on Monday filed suit in federal court to block the merger of supermarket giants Kroger and Albertsons, a union that regulators said would eliminate competition and threaten consumers’ access to affordable groceries.
“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, director of the FTC’s Bureau of Competition, said in a news release. “Essential grocery store workers would also suffer under this deal, facing the threat of their wages dwindling, benefits diminishing, and their working conditions deteriorating.”
The $24.6 billion consolidation has been under scrutiny since it was announced in October 2022. While Kroger and Albertsons claim that a merger is the only way to compete with retail giants Amazon and Walmart, state and federal regulators are raising concerns that it would have a ripple effect felt by customers, employees and suppliers across the country. Colorado and Washington state have already filed lawsuits in state courts to block the deal. Arizona, California, D.C., Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming are joining the FTC’s federal lawsuit.
In statements to The Washington Post, Albertsons and Kroger said the FTC’s lawsuit is hurting consumers and workers. “The FTC’s decision makes it more likely that America’s consumers will see higher food prices and fewer grocery stores,” a Kroger spokesperson said in a statement. “In fact, this decision 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.”
An Albertsons spokesperson said the company is “disappointed that the FTC continues to use the same outdated view of the U.S. grocery industry it used 20 years ago, and we look forward to presenting our arguments in court.”
A primary worry is that a combined Kroger-Albertsons behemoth would eliminate competition and reduce pressure to lower grocery prices while consumers are feeling especially vulnerable to soaring grocery bills, said Mark Cohen, director of retail studies at Columbia Business School. The category has outpaced inflation, surging 26 percent over the past four years, and history shows the price tags on most items won’t go back down.
Inflation has fallen. Why are groceries still so expensive?
From the FTC’s point of view, Cohen warned, a merger like this could threaten efforts aimed at “stopping the inflationary spiral.”
In a nod to potential blowback, Kroger announced earlier this month that it is committed to lowering grocery prices following the merger with Albertsons.
“The way to be America’s best grocer is to provide great value by consistently lowering prices and offering more choices,” Rodney McMullen, chairman and chief executive of Kroger, said in the announcement. “When we do this, more customers shop with us and buy more groceries, which allows us to reinvest in even lower prices, a better shopping experience, and higher wages.”
History shows these kinds of promises are ephemeral, said Christine Bartholomew, a professor of law and vice dean of academic affairs at the University at Buffalo School of Law. An FTC study on grocery mergers published in 2012 found “evidence that horizontal mergers in the supermarket industry can result in significant increases in consumer prices and thereby harm consumers.”
Beyond resulting in higher prices, the FTC warned, the merger would also “lead to lower quality products and services, while also narrowing consumers’ choices for where to shop for groceries.” There’s a high probability the merged company would shut down stores to avoid duplication in certain communities, a move that would push workers out of jobs, undermine labor unions, remove price competition for local suppliers and in some cases limit vulnerable communities’ access to fresh produce, Bartholomew said.
“There are lots of risks here: collusion, risks of market concentration, risk to employees, risk to access,” she said. “But at the end of the day, if it is just price increases, that’s enough to block it.”
If the merger were to go through, the combined grocery giant would operate more than 5,000 stores and about 4,000 retail pharmacies and employ almost 700,000 employees across 48 states, according to the FTC.
A successful sale would also mean a major payday for Albertsons’ shareholders, particularly private equity firm Cerberus, which is the company’s largest shareholder. In January, Albertsons reported it would pay $4 billion in dividends to its shareholders, paid for through cash on hand and borrowed funds.
“It’s typically shareholders and the senior executives involved who often see an extraordinary windfall as a result of a deal like this,” Cohen said. “It is often not true for the men and women in the trenches who will be facing possible store closures, either mandated by the FTC or mandated by the deal.”
The FTC’s suit is the latest effort by the Biden administration to crack down on megamergers. Earlier this year, a federal judge blocked JetBlue Airways’ $3.8 billion consolidation with Spirit Airlines. The FTC also went after Microsoft’s roughly $69 billion bid for video game company Activision Blizzard.
In an effort to pacify antitrust regulators, Kroger and Albertsons announced in September they would sell 413 stores to C&S Wholesale Grocers, a supplier to independent grocery stores and owner of 23 stores and one retail pharmacy under the Piggly Wiggly and Grand Union banners.
But critics are not confident a deal like this would succeed. In the Colorado lawsuit, Attorney General Philip J. Weiser pointed to the company’s lack of experience in running such a large roster of stores and its limited private-label selection — which is increasingly critical to extract higher margins on products while drawing in cost-cutting consumers. The Colorado complaint compared the proposed merger to a 2014 deal by Pacific Northwest-based grocery chain Haggen to purchase scores of stores to assuage antitrust scrutiny over the Albertsons-Safeway merger at the time.
That deal initially expanded the regional chain’s store fleet from 18 to 164 but eventually led Haggen to file for bankruptcy and sue Albertsons for $1 billion. It accused the retail giant of “anticompetitive conduct and alleged violations of the FTC’s divestiture order, attempted monopolization, breach of the purchase agreement … fraud, and unfair competition, among other claims,” the attorney general’s complaint said. The companies settled for $5.75 million.
The FTC’s complaint alleges the divestiture offering with C&S is an “inadequate” proposal and 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.”
During a November listening session in Denver, FTC Chair Lina Khan and Weiser heard from employees, community members and suppliers, who spoke of the devastating repercussions this merger would have on their livelihoods and down the supply chain. Many employees recounted the fallout from the Albertsons-Safeway merger and expressed their fear that the same scenario — but worse — could happen under the new merger.
Christine Martinez, a pharmacy technician at Ralphs, a subsidiary of Kroger in Valencia, Calif., said at the session that when she heard about the merger, it “brought back so many feelings of fear and anxiety,” and that her “immediate thought was: ‘Here we go again.’” In 2014, Martinez worked for a Pavilions store when it was divested to Haggen during the Albertsons-Safeway merger.
“They promised us that if we keep our jobs, that we would have better benefits and pensions from retiring, which meant a better life for my family,” she said. But within two months, they learned their store was closing.
“Many of my co-workers were facing financial ruin. They lost cars, we were behind in our house payments, and I couldn’t pay my bills,” she added. “I was able to eventually find work at Ralphs, but I remember to never to never trust these kinds of mergers again or any of these empty promises that the companies will tell you.”
Source link: https://www.washingtonpost.com/business/2024/02/26/ftc-kroger-albertsons-merger-lawsuit/