The Federal Trade Commission and several state attorneys general sued Monday to block supermarket giant Kroger from completing its $24.6 billion acquisition of supermarket 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 result in higher prices for consumers and, with fewer supermarkets, reduce the ability of grocery store employees to negotiate wages. higher and better working conditions. .
“This supermarket megamerger comes as American consumers have seen the cost of food 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 result in additional price increases on everyday products, further exacerbating the financial stress facing consumers across the country today.”
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 questioned several major deals, including drugmaker Amgen’s acquisition of pharmaceutical company Horizon Therapeutics; JetBlue’s proposed $3.8 billion purchase of Spirit Airlines; and Microsoft’s acquisition of video game maker Activision Blizzard for $70 billion.
But in many cases the FTC has lost in court, including in its attempt to block the Microsoft merger. (The regulator appealed Microsoft’s ruling.) Kroger said in a statement that the FTC’s decision 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 agency said. company.
Albertsons echoed those sentiments in a statement of its own. He added that if the FTC successfully blocked the merger, it would “harm customers and help strengthen larger omnichannel retailers like Amazon, Walmart and Costco (the same companies the FTC claims to be controlling) by allowing them to continue growing their sales.” . growing dominance of the grocery industry.”
Both networks said they expected to present their arguments for the merger in court.
In the 16 months since Kroger announced its plans to acquire Albertsons, the proposed merger has faced opposition. Executives at the supermarket giants, two of the largest grocery chains in the United States, argued that the merger was necessary to compete against large retailers such as Walmart, Costco and Amazon. Those retailers, executives said, use their size to negotiate better prices with manufacturers and suppliers, allowing them to sell cereals, yogurts, pastas and other staples to consumers at lower prices.
But a chorus of critics, including consumer advocates, politicians, unions and independent grocery chains, said the combination of Kroger and Albertsons would create a powerful giant with revenues of more than $200 billion and about 5,000 stores. in 48 states and the District of Columbia. The chains have significant overlap in some markets, such as Chicago, Dallas, Los Angeles and Seattle.
Cincinnati-based Kroger operates 2,750 grocery stores across the United States under brands including Ralphs, Dillons and Harris Teeter. Albertsons, based in Boise, Idaho, operates 2,200 supermarkets with names such as Albertsons, Safeway and Vons.
Jon Donenberg, deputy director of President Biden’s National Economic Council, said in a statement that Biden believed competition was key to capitalism. “When large corporations are not controlled by healthy competition, they too often fail to pass on cost savings to consumers and exploit their workers,” he said.
As inflation continues to drive up food prices, critics said, the proposed merger would give shoppers in some regions little or no choice about 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 big box retailers is harming the entire food system,” said Stacy Mitchell, co-executive director of the Institute for Local Self-Reliance, a nonprofit that advocates for independent businesses. “These two giants already exert their power as dominant buyers of food and goods by bullying suppliers into giving them discounts and benefits that they do not offer smaller food retailers.”
Marc Perrone, president of the Food and Commercial Workers International Union, said the union will continue to oppose “any merger that could negatively impact our hundreds of thousands of hard-working 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 contingent on approval of the Kroger-Albertsons merger.
But the FTC said the divestiture proposal created a hodgepodge of disconnected stores and brands that had been cobbled together and were far from creating a standalone business that could compete against the 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 products, flexible store and pharmacy hours, and curbside pickup services. If they merge, the incentive to compete by improving product quality and customer service would be diminished, the FTC stated.
Critics also described 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 made a $4 billion special dividend payment to its shareholders. The largest recipients of that dividend, which was financed by 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. company.
