The U.S. is suing to block the $25 billion Kroger-Albertsons merger

The Federal Trade Commission says the combination would not only lead to higher consumer prices, but set back workers’ bargaining prospects.

The Federal Trade Commission has filed a lawsuit to prevent a proposed $24.6 billion merger between Kroger and Albertsons, two of the largest grocery chains in the country.

The FTC says that the deal would limit competition, leading to higher prices at these stores, and make it harder for employees to negotiate better wages, benefits and working conditions. 

“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, director of the FTC’s Bureau of Competition, said in a news release. 

The watchdog agency argues that if Kroger acquires Albertsons, the combined company would operate more than 5,000 stores, including about 4,000 on-site retail pharmacies, and employ almost 700,000 people. Some of the subsidiaries currently under the Kroger or Albertsons umbrellas include Fred Meyer, Fry’s, King Soopers, Haggen, Safeway and Vons, among others.

The FTC’s move comes after both Colorado and Washington state sued to stop the merger. 

Although inflation has eased substantially, it soared during the early phase of the pandemic, reaching a 40-year high of 9.1% in June 2022. That year, U.S. consumers spent 11.3% of their disposable personal income on food, the most since 1991. 

The grocery store merger was agreed to in late 2022 and set to close early this year, but it was delayed amid antitrust concerns prior to the FTC’s lawsuit.

Marketplace reached out to Albertsons and Kroger for comment. An Albertsons Cos. spokesperson said:  

“Albertsons Cos. merging with Kroger will expand competition, lower prices, increase associate wages, protect union jobs, and enhance customers’ shopping experience. 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.” 

A Kroger spokesperson said:

“The proposed merger with Albertsons Cos. will produce meaningful and measurable benefits for customers, associates and communities across the country. The combined company committed that no stores, distribution centers or manufacturing facilities will close as a result of the merger, including those divested.” 

The merits of the FTC’s lawsuit

Douglas Ross, a professor at the University of Washington Law School, called the FTC’s complaint interesting because the agency not only brought up the issue of rising consumer prices — a traditional antitrust argument — but invoked a labor market argument against the merger.

“This particular administration at the Federal Trade Commission has a strong ideological bent to make these labor-focused arguments that have rarely been made before by Democrats or Republicans,” Ross said. 

Ross added that Chair Lina Khan, appointed by President Joe Biden, along with the other Democrat-appointed commissioners “seem very committed to making labor-side arguments in antitrust cases.”

“My own view is that argument is a very tough sell and that their much stronger argument is on the consumer side of things, not the labor side,” he said.

Ross said it’s hard to prove that workers at these stores would be deprived of alternatives. For example, checkers acquire skills that are generally transferable to other retail establishments, he said, while pharmacists could find work at traditional pharmacies.  

Will selling off stores address concerns about competition? 

The FTC said Kroger and Albertsons have proposed to divest, or sell, hundreds of stores and other assets to C&S Wholesale Grocers so they can get approval for their merger. C&S operates 23 supermarkets and one pharmacy.

But there are two questions Kroger and Albertsons will have to grapple with, Ross said.

“The first is: Are you spinning off enough stores to recreate the competition that was lost? And the second is: Who are you selling these stores to? And are they going to be an effective competitor?”

The FTC statement said basically that C&S is not qualified to do so, Ross said. 

The agency said Kroger and Albertsons are proposing to divest “a hodgepodge of unconnected stores, banners, brands, and other assets.” It will be a challenge, according to the FTC, for C&S to create a “functioning business” out of those assets, “let alone a successful competitor against a combined Kroger and Albertsons.” 

Ross pointed out that the state of Washington is making a similar argument in its effort to block the merger. Ross thinks it’s a good argument, but with the caveat that we have yet to see evidence from the Kroger-Albertsons side. 

Ross said most people following the case expected the FTC to try to block the merger. 

“In the past, the FTC has often been satisfied with divestitures as long as they felt the divestitures were sufficient. But something happened a few years ago that has understandably made the FTC a lot more reluctant to accept divestitures as a remedy,” he said.

Ross explained that Albertsons acquired Safeway in 2015, and the two were required to divest nearly 170 stores to merge. The grocery chain Haggen acquired most of them, but ended up in bankruptcy after struggling to run the outlets. 

“So the remedy was a disaster. The divestiture idea did not work. And with that unfortunate history, it’s perfectly understandable why the Federal Trade Commission is a lot more suspicious of a divestiture remedy today than they might have been in the past.”