Kroger-Albertsons’ $25 Billion Merger Heads To Court
August 27, 2024Supermarket giants Kroger and Albertsons are facing off with the Federal Trade Commission (FTC) in a Portland, Oregon courtroom this week as they seek to defend their proposed $24.6 billion merger to create a massive new grocery operator. The combined Kroger-Albertsons would have sales of $200 billion across about 5,000 stores in 48 states.
The FTC sued to stop the merger from proceeding in February, citing the potential of higher prices for consumers and lower wages for workers. A bipartisan group of state attorneys general from Arizona, California, Washington D.C., Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming joined the suit, which aims to block the deal’s closure, pending the FTC’s administrative proceedings. Meanwhile, last week, Kroger countersued the FTC, claiming the agency’s in-house tribunal overseeing the matter is unconstitutional.
Both Kroger and Albertsons are major players in beverage alcohol across wide swaths of the country. Kroger carries some 4,000 unique spirits SKUs, with significant variance in selection from market to market, according to local laws. Albertsons sells spirits in 1,200 locations, wine in 1,800 locations, and beer in 2,000 locations—and where all three beverage alcohol types are sold, beverage alcohol comprises about 10% of total store sales.
Kroger and Albertsons have consistently maintained that the deal will result in lower prices and more choices for consumers, and said they’ll invest $1 billion to lower prices post-merger. Additionally, this spring, the two companies upgraded their divestiture plan—meant to address competition concerns—pledging to sell 579 stores across 19 states to C&S Wholesale Grocers—owner of Piggly Wiggly and Grand Union—for $2.9 billion, with the deal including an additional 166 stores compared with the initial divestiture proposal.
The FTC maintains that even the upgraded proposal is inadequate, because there are many markets it doesn’t address, adding that it considers C&S unlikely to become a true competitor in the category dominated by giants like Walmart, Costco, Kroger, and Albertsons, because its expertise is mostly in distribution rather than operating stores. If the merger goes through, the combined Kroger-Albertsons would have about a 13% share of the national grocery market, compared with Walmart’s existing 22% share.
The would-be partners maintain that supermarkets in general are under pressure from larger retail players like Walmart, Costco, and Amazon, and that the merger will provide a stronger measure of competition against those behemoths.
In the current preliminary proceedings, scheduled to last through September 13, the FTC is slated to roll out experts in grocery competition to make their case that the merger will result in higher pricing and less bargaining power for workers. Kroger and Albertsons are expected to counter with testimony from their respective chief executives. This hearing is only the first salvo in the court battle, with lawsuits by the attorneys general in Washington and Colorado also looming in the coming weeks.—Daniel Marsteller
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