FTC sues to block Kroger-Albertson grocery store deal

The Federal Trade Commission and nine state attorneys general sued Monday to block Kroger, the supermarket giant, from completing its $24.6 billion acquisition of the Albertsons grocery chain, saying the deal would harm competition in the field.

The agency said the deal, which would be the largest supermarket merger in U.S. history, would also likely result in higher grocery prices for consumers and, with fewer supermarkets, reduce store employee capacity food companies to negotiate higher wages and better working conditions. .

“This mega supermarket merger comes as American consumers have seen the cost of groceries rise steadily over the past few years,” Henry Liu, director of the FTC’s Bureau of Competition, said in a press release. “Kroger’s acquisition of Albertsons would lead to further increases in the prices of everyday goods, further exacerbating the financial strain consumers across the country face today.”

The attorneys general of Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, Wyoming and the District of Columbia joined the FTC’s federal lawsuit.

The lawsuit is the latest move by the Biden administration to take a tougher stance on mergers. It has tackled several big deals in recent years, including drugmaker Amgen’s $27.8 billion acquisition of drug company Horizon Therapeutics; JetBlue’s proposed $3.8 billion purchase of Spirit Airlines; and Microsoft’s $70 billion acquisition of video game maker Activision Blizzard.

But in many cases the FTC has lost in court, including in its attempts to block the Microsoft merger. Kroger said in a statement that the FTC’s move to block the merger would actually harm 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 company said.

Albertsons echoed these sentiments in its own statement. He added that if the FTC successfully blocked the merger, it would “harm customers and help entrench larger, multi-channel retailers like Amazon, Walmart and Costco – the same companies the FTC claims it is reining in – by allowing them to continue increasing their growing dominance in the food sector.”

Both chains have said they look forward to making their case for the merger in court.

In the 16 months since Kroger announced plans to acquire Albertsons, the proposed merger has faced opposition. Executives at the supermarket giants – two of the largest grocery store chains in the United States – argued that the merger was necessary to compete with big retailers such as Walmart, Costco and Amazon. These retailers, executives said, use their size to negotiate better prices with manufacturers and suppliers, which allows them to sell cereals, yogurt, pasta 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 more than $200 billion in revenue and about 5,000 stores, including recognized chains such as Ralphs, Safeway and Vons. .

As inflation continues to drive up food prices, critics say, the proposed merger would give shoppers in some regions little or no choice in where to buy essential goods. Others warned that with less competition, the merger would lead to higher food prices and potential layoffs.

“This decision shows that the FTC understands how the enormous power of large retailers is harming the entire food system,” said Stacy Mitchell, co-executive director at the Institute for Local Self-Reliance, a nonprofit supporter of independent businesses. “These two giants have already exercised their power as dominant buyers of food and goods, forcing suppliers to give them discounts and benefits that they don’t offer to smaller food retailers.”

Marc Perrone, president of the United Food and Commercial Workers International Union, said the guild would continue to oppose “any merger that would negatively impact our hundreds of thousands of hard-working members who work at Kroger and Albertsons.”

In an effort to lessen some of the concerns about the merger, Kroger and Albertsons plans announced last 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 proposed split created a hodgepodge of unrelated stores and brands that had been lumped together and failed to create a stand-alone business that could compete with Kroger and Albertsons combined.

The FTC also argued that quality would likely decline even at a combined supermarket giant. Currently, the two stores compete with each other by offering fresher produce, flexible store and pharmacy hours, and home pickup services. In the event of a merger, the incentive to compete by improving product quality and customer service would diminish, the FTC said.

Critics have also painted the proposed merger as a big gain for Albertsons’ private equity owners. Early last year, after surviving a legal challenge brought by the Washington state attorney general, Albertsons made a special dividend payment of $4 billion to its shareholders. The biggest beneficiaries of that dividend, financed through a combination of cash and debt added to Albertsons’ balance sheet, were Albertsons’ private equity owners, including Cerberus, which, at the time, owned 73% of the company.