Kroger, Albertsons Propose Merger; FTC Sues to Block Deal

Image sourced from supermarketnews.com

Last month, the Federal Trade Commission (FTC) sued to block the proposed multibillion-dollar merger between grocery giants Kroger and Albertsons Companies, Inc.

The planned merger, which would be the largest between supermarkets in U.S. history, was first unveiled back in October. Kroger and Albertsons announced that the two retail companies had entered into an agreement for Kroger to acquire Albertsons. The acquisition would be worth approximately $24.6 billion, the total cost of Albertsons’ outstanding shares and debt.

At the time, Kroger CEO Rodney McMullen said the merger would “deliver superior value to customers, associates, communities and shareholders.” He elaborated, “This merger advances our commitment to build a more equitable and sustainable food system by expanding our footprint into new geographies to serve more of America with fresh and affordable food and accelerates our position as a more compelling alternative to larger and non-union competitors.”

However, the FTC wholly rejects those purported benefits.

In its lawsuit filed in federal court in February, the FTC alleges that allowing Kroger to acquire Albertsons would “substantially lessen competition, likely resulting in Americans paying millions of dollars more for food and other essential household goods.” It also argues that the merger would hurt workers by “leading to lower wages and reduced benefits, opportunities, and quality of workplace conditions and protections for thousands of [the companies’] employees.”

It is not difficult to see why the FTC argues that the merger would significantly reduce competition. According to Albertsons, in 2022 the two companies collectively employed more than 710,000 persons and operated a total of 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies and 2,015 fuel centers. Furthermore, Kroger already owns numerous supermarket chains across the country, including ones commonly found in Oregon, namely Fred Meyer and Quality Food Centers (QFC).

Meantime, Albertsons merged with Safeway in 2015. If the merger succeeds, grocery stores not owned by Kroger would be few and far between in Oregon.

In order to quell concerns over its consolidation of market power, Kroger reached an agreement to divest hundreds of its stores to C&S Wholesale Grocers, a grocery-only company. The deal stipulates that C&S purchase 413 stores from Kroger and Albertsons, including 49 Oregon stores, in the event that the mega-merger is approved. That deal, worth $1.9 billion, aims to position Q&S as a competitor to Kroger going forward, in place of Albertsons.

It is also important to note that support for the merger is not limited to the companies themselves.

The labor union UFCW Local 555, which represents over 30,000 workers in Oregon, Washington, Idaho, and Wyoming, has openly endorsed the merger. Ann Poff, vice president of Local 555, said that “Cerberus no longer wants to own Albertsons. It’s foolish to think that stopping this merger means everything will stay the same.”

Poff is referring to Cerberus Capital Management, the American investment firm that holds a majority stake in Albertsons. The position of the union is that the supermarket chain changing hands is inevitable – invariably that’s what investment firms look for – and when it does happen, a Kroger and C&S acquisition would be preferable to whatever outcome that might bring.