News Feb 27, 2024 12:25 AM EST

US Blocks Merger of Kroger and Albertsons, Citing Price Concerns

By April Fowell

The $24.6 billion agreement would remove competition and raise costs for millions of Americans, according to the Federal Trade Commission, which filed a lawsuit to stop the proposed merger between grocery titans Kroger and Albertsons.

(Photo : by ELIJAH NOUVELAGE/AFP via Getty Images)
The $24.6 billion agreement would remove competition and raise costs for millions of Americans, according to the Federal Trade Commission, which filed a lawsuit to stop the proposed merger between grocery titans Kroger and Albertsons.

An administrative law judge at the FTC will review the administrative complaint the agency filed against the corporations on Monday. In addition, it sued the United States. Oregon District Court seeking a temporary order to halt the merger. The attorneys general of eight states as well as the District of Columbia joined that action.

Two of the biggest grocery stores in the country, Kroger and Albertsons, decided to combine in October 2022. The corporations said that a combination would enable them to more effectively take on major competitors like Costco, Walmart, and Amazon. According to J.P. Morgan, Walmart holds a 22% share of the U.S. grocery industry, while Kroger and Albertsons together account for around 13%. Ken Goldman, an analyst at Morgan. Following the FTC's announcement, both businesses said they would take the agency to court.

With 2,750 locations in 35 states and the District of Columbia, Cincinnati, Ohio-based Kroger is home to popular brands like Ralphs, Smith's, and Harris Teeter. With 2,273 locations throughout 34 states, Albertsons, a company headquartered in Boise, Idaho, is home to brands like Safeway, Jewel Osco, and Shaw's. Roughly 700,000 people are employed by the enterprises combined.

Though the merger was announced during a period of sharply rising food prices, regulatory scrutiny was certain to be severe. According to official data, the average annual increase in U.S. food costs for food consumed at home is 2.5%; however, in 2022, prices increased by 11.4%, and in 2023, prices increased by an additional 5%. Cooling, although gradually, is inflation.

Additionally, the Biden administration has indicated that it is prepared to fight large mergers in court. The Justice Department filed a lawsuit against Spirit Airlines and JetBlue Airways last year in an attempt to halt their planned merger. Last month, a federal court barred the merger, siding with the government. Airlines have filed an appeal.

The White House stated that it had no opinion on ongoing legal matters, so it remained silent on Monday. Yet according to Jon Donenberg, the National Economic Council deputy director, Biden is in favor of "fair and vigorous antitrust enforcement."

If the merger isn't permitted to go forward, Kroger and Albertsons warned that customers will probably face increased food costs and store closures.

Read Also: Record National Debt Raises Concerns, But Average Impact on Individuals May Be Nuance

FTC Challenges Largest Grocery Merger in U.S. History

The planned merger, according to the Federal Trade Commission (FTC), would be the biggest grocery merger in American history. The FTC further claimed that it would eliminate worker competition, endangering their rights to better working conditions, higher salaries, and benefits.

The United Food and Commercial Workers union, which represents 835,000 supermarket workers in the United States and Canada, is attended by the majority of employees at Albertsons and Kroger. Due to the firms' alleged lack of transparency about the merger's possible effects on employees, the union decided to vote against it last year.

A $4 billion dividend to Albertsons shareholders that was disclosed as part of the merger agreement drew criticism from the union as well. Several states, claiming that the payment would hurt Albertsons financially, attempted in vain to stop it in court, including California and Washington.

The FTC's move comes after lawsuits to stop the merger were launched earlier this year in Colorado and Washington. Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming, as well as the District of Columbia, joined the FTC complaint on Monday. Of those attorneys general, eight are Democrats and one is a Republican, from Wyoming.

Attorney General Brian Schwalb of the District of Columbia declared that Harris Teeter, owned by Kroger, and Safeway, controlled by Albertsons, must now fight for consumers in the city. At a time when many consumers are already struggling, taking away that competition will limit their options, he claimed.

After the purchase is complete, Kroger has committed to investing $500 million to cut prices. When it combined with Harris Teeter in 2014 and Roundy's in 2016, it claimed to have also made price reduction investments. As part of the agreement, Kroger also committed to spending $1.3 billion on store upgrades at Albertsons.

In locations where the shops of the two firms overlapped, last year C&S Wholesale Grocers agreed to buy 413 stores and eight distribution centers that Kroger and Albertsons agreed to sell. C&S promised to abide with all labor collective bargaining agreements.

Although C&S is primarily a supplier to grocery stores rather than an operator, the FTC deemed the store divestiture deal to be "inadequate" and claimed that C&S would not be a strong competitor to Kroger and Albertsons and was ill-prepared to handle the "hodgepodge of unconnected stores, banners, and brands" it would receive as part of the deal.

On Monday, C&S announced that it had the experience and financial stability to keep investing in the grocery stores it would buy, noting that it has previously been an FTC-approved buyer in food store transactions.

Earlier in the year, Kroger and Albertsons had intended to finalize the agreement. However, the two businesses declared in January that it was more likely to close during Kroger's fiscal year's first half. Kroger's second fiscal quarter concludes on August 17.

On Monday, Kroger's stock dropped by about 2%. Albertsons' stock increased by over 1%.

Related Article: Retail Rebound or Bubble Burst? December Surge Hides Underlying Inflation Concerns

Copyright ©

Real Time Analytics