FTC sues to block Kroger’s acquisition of Albertsons

The Federal Trade Commission sued to block the largest proposed supermarket merger in U.S. history—Kroger Company’s $24.6 billion acquisition of the Albertsons Companies, alleging that the deal is anticompetitive.

The FTC charges that the proposed deal will eliminate fierce competition between Kroger and Albertsons, leading to higher prices for groceries and other essential household items for millions of Americans. The loss of competition also will lead to lower quality products and services, while also narrowing consumers’ choices for where to shop for groceries. For thousands of grocery store workers, Kroger’s proposed acquisition of Albertsons would immediately erase aggressive competition for workers, threatening the ability of employees to secure higher wages, better benefits, and improved 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,” said Henry Liu, director of the FTC’s Bureau of Competition. “Essential grocery store workers would also suffer under this deal, facing the threat of their wages dwindling, benefits diminishing, and their working conditions deteriorating.”

The organization issued an administrative complaint and authorized a lawsuit in federal court to block the proposed acquisition pending the Commission’s administrative proceedings. A bipartisan group of nine attorneys general is joining the FTC’s federal court complaint.

The FTC said that Kroger operates thousands of stores across 36 states, which includes regional banners such as Fred Meyer, Fry’s, Harris Teeter, King Soopers, Kroger and Quality Food Centers. Albertsons also operates thousands of stores across 35 states under regional names including Albertsons, Haggen, Jewel-Osco, Pavilions, Safeway and Vons. If the merger were completed, Kroger and Albertsons would operate more than 5,000 stores and approximately 4,000 retail pharmacies and would employ nearly 700,000 employees across 48 states.

In addition, the government organization added that executives for both Kroger and Albertsons have acknowledged that the two supermarkets are direct competitors, forcing each other to aggressively compete for customers by lowering prices and for employees by providing better pay and benefits across the country. Similarly, executives for both supermarket chains have conceded that Kroger’s acquisition of Albertsons is anticompetitive, with one executive reacting candidly to the proposed deal: “you are basically creating a monopoly in grocery with the merger.”

[Read more: Washington State AG Bob Ferguson files lawsuit to block Kroger-Albertsons merger]

To try to secure antitrust approval of their merger, Kroger and Albertsons have proposed to divest several hundred stores and select other assets to C&S Wholesale Grocers, which today operates just 23 supermarkets and a single retail pharmacy. The FTC’s administrative complaint alleges that Kroger and Albertsons’s inadequate divestiture proposal is a hodgepodge of unconnected stores, banners, brands and other assets that Kroger’s antitrust lawyers have cobbled together and falls far short of mitigating the lost competition between Kroger and Albertsons.

The FTC says the proposed divestitures are not a standalone business, and C&S would face significant obstacles stitching together the various parts and pieces from Kroger and Albertsons into a functioning business—let alone a successful competitor against a combined Kroger and Albertsons. The proposal completely ignores many affected regional and local markets where Kroger and Albertsons compete today. In areas where there are divestitures, the proposal fails to include all of the assets, resources and capabilities that C&S would need to replicate the competitive intensity that exists today between Kroger and Albertsons. Even if C&S were to survive as an operator, Kroger and Albertsons’s proposed divestitures still do not solve the multitude of competitive issues created by the proposed acquisition, according to the complaint.

In addition to raising grocery prices, the FTC alleges that Kroger’s acquisition of Albertsons would also diminish their incentive to compete on quality. Today, Kroger and Albertsons compete to improve their stores in many ways, including offering fresher produce, higher quality products, improved private label offerings, a broader array of in-store services, flexible store and pharmacy hours, and curbside pickup services.

The FTC charges that the deal would eliminate head-to-head price and quality competition, which have driven both supermarkets to lower their prices and improve their product and service offerings. If the merger takes place, grocery prices will increase, and Kroger and Albertsons’ incentive to improve product quality and customer service will decrease, further harming customers.

Kroger and Albertsons are the two largest employers of union grocery labor in the United States. They actively compete against one another for workers. The two companies also try to poach grocery workers from each other, especially in local markets where they overlap. Currently, most workers for both supermarket chains are members of the United Food and Commercial Workers union.

Today, UFCW and other unions leverage the fact that Kroger and Albertsons are separate and competing companies. Unions push for both supermarket chains to negotiate better employment terms for union grocery workers, especially when negotiating over collective bargaining agreements.

A combined Kroger/Albertsons, however, would gain increased leverage over workers and their unions—to the detriment of workers, the FTC alleges. The combined Kroger and Albertsons would have more leverage to impose subpar terms on union grocery workers that slow improvements to wages, worsen benefits and potentially degrade working conditions. In some regions, such as in Denver, the combined Kroger/Albertsons would be the only employer of union grocery labor. Union grocery worker's ability to leverage the threat of a boycott or strike to negotiate better CBA terms also would be weakened

The Offices of the Attorneys General of Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming are joining the Commission’s federal lawsuit.

The Commission's vote to issue the administrative complaint and authorize staff to seek a temporary restraining order and preliminary injunction in federal district court was 3-0. The federal court complaint and request for preliminary relief will be filed jointly with the state attorneys general in the U.S. District Court for the District of Oregon.

Albertsons issued the following statement from a spokesperson today: 

“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. In contrast, Albertsons Cos.’ merger with Kroger will ensure our neighborhood supermarkets can better compete with these mega retailers, all while benefitting our customers, associates, and communities. We are disappointed that the FTC continues to use the same outdated view of the U.S. grocery industry it used 20 years ago, and we look forward to presenting our arguments in Court."

Kroger issued the following statement: 

Contrary to the FTC’s statements, blocking Kroger’s merger with Albertsons Companies will harm the very people the FTC purports to serve: America’s consumers and workers.

Kroger’s business model is to take costs out of the business and invest in lowering prices for customers. Kroger has reduced prices every year since 2003, resulting in $5 billion invested to lower prices and a 5% reduction in gross margin over this period. This business model is immediately applied to merger companies. Kroger has a proven track record of lowering prices so more customers benefit from fresh, affordable food, and our proposed merger with Albertsons will mean even lower prices and more choices for America’s consumers.

The FTC’s decision makes it more likely that America’s 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. This decision only strengthens larger, non-unionized retailers like Walmart, Costco and Amazon by allowing them to further increase their overwhelming and growing dominance of the grocery industry.

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 to C&S Wholesale Grocers.

Customers will benefit from lower prices and more choices following the merger close. The company committed to investing $500 million to begin lowering prices day one post-close, and an additional $1.3 billion to improve Albertsons Cos.’ stores.

This commitment builds on Kroger’s long track record of reducing prices every year, with $5 billion invested to lower prices since 2003. Kroger’s work to deliver better value to customers over the last 20 years has reduced its gross margins by 5%. In the same timeframe, competitors like Amazon, Ahold Delhaize, Walmart and Dollar General have increased their gross margins by 22%, 4%, 1% and 2%, respectively. Kroger’s track record includes the years following past mergers, as it invested more than $125 million to lower prices following its merger with Harris Teeter and more than $100 million to lower prices after it merged with Roundy’s. Additionally, Kroger invested $2.5 million and $2.4 million in capital per Harris Teeter and Roundy’s store, respectively, to enhance the customer experience in the three years following each merger.

Customers will also have access to more favorite items from their own communities, as the company committed to increasing the number of local products in its stores by 10 percent post-close. As large retailers continue to squeeze suppliers and raise prices, this merger creates more opportunities for families to access the fresh, affordable foods they love.

[Read more: Kroger to lower prices following merger with Albertsons]

As a combined company, Kroger committed to investing $1 billion to raise wages and comprehensive benefits. This builds on the incremental $1.9 billion Kroger invested to improve wages and comprehensive benefits since 2018. To provide the best holistic support for each associate, the company will also extend continuing education and financial literacy benefits to all associates following the merger close. As union membership continues to decline nationwide, especially in the grocery industry, this merger is the best way to secure union jobs. Kroger has added more than 100,000 good-paying union jobs since 2012.

The proposed merger will allow the combined company to invest more deeply to end hunger in communities across America. In 2023, Kroger committed to donating 10 billion meals to families across the U.S. by 2030. Bringing these companies together provides one more step toward achieving communities that are free from hunger and food waste.

The anticipated divestiture plan with C&S builds on the benefits of the merger and fulfills the commitments Kroger set out in its original merger agreement in October 2022. C&S Wholesale Grocers is an industry leader in wholesale grocery supply and supply chain solutions, with a strong track record as a successful grocery retailer. Kroger and Albertsons Cos. took considerable steps to position C&S to continue to successfully operate divested stores as part of its comprehensive plan. This includes providing C&S with strong teams, a cohesive network of stores supported by two regional headquarters, beloved banners and private label brands, and a robust operational infrastructure.

In addition to ensuring no store closures as a result of the merger, the divestiture plan will extend a competitor to new geographies and will maintain all current collective bargaining agreements, which include industry-leading healthcare and pension benefits, bargained-for wages, and ensuring frontline associates remain employed.

The merging parties look forward to litigating this action in court so we can deliver the benefits of this merger to communities across America—lower prices, more choices, and more good-paying union jobs for decades to come.