Fight over Kroger-Albertsons merger heats up in federal court
Alan Riquelmy
PORTLAND, Ore. (CN) — Attorneys battling over the proposed merger of the Kroger and Albertsons supermarket chains painted drastically different pictures in federal court on Monday about what would happen if the two giants combined.
The Federal Trade Commission and several states oppose the merger of Kroger and Albertsons, leading them to seek a preliminary injunction in federal court to stop it. On Monday — the first day of an expected three-week hearing on that injunction — attorneys for both sides presented arguments to U.S. District Court Judge Adrienne Nelson in the District of Oregon.
Attorneys argued about how the acquisition of Albertsons by Kroger would affect the cost of goods, as well as what it would do to competition, union workers and the larger grocery market.
“These companies today are two of the largest supermarkets in the country,” said attorney Susan Musser, representing the commission.
Together, the supermarket giants have over 5,000 stores and some 710,000 employees.
Musser asked the judge to examine the impact of the acquisition. Families across the country depend on supermarkets, and competition within the sector benefits them through lower prices. According to Musser, over 100,000 people have emailed the commission expressing concern over the potential merger.
Kroger and Albertsons have overlap in communities across the country and competition among supermarkets is local. For example, in Corvallis, Oregon, Albertsons has 33% of the market share and Kroger has 27%. If the merger occurs, the new grocery giant would have 60% of that city’s market share, and own four of the six supermarkets, Musser said.
“This transaction will substantially lessen competition,” she added.
The direct cost of an item is only one way to compete. Supermarkets vie to have the freshest produce. They offer promotions that drive customer loyalty. And they offer various pick-up and delivery options, all of which benefit customers.
After the proposed merger goes through there is no incentive to compete, Musser argued.
Additionally, union negotiations at one supermarket can affect what union workers at the other supermarket can negotiate. That leads to a better deal for employees — a benefit that would disappear with a merger.
Musser said the FTC isn't asking the judge to block the merger. Instead, the commission is only asking the judge to pause the transaction by granting the preliminary injunction. This would give the commission time to start its proceeding on the merits of the merger.
Attorney Matthew Wolf, representing Kroger, argued the judge’s decision on the injunction would, in fact, decide the whole issue.
“This merger will not occur if this injunction is in place,” Wolf said. The FTC will take one to two years to get through its own probe during which time financing agreements will expire and the agreement will crumble, he added.
Wolf also fundamentally disagreed with Musser’s arguments about competition.
Prices will drop on the first day after the merger, he said. Three months afterward, customers will see price drops on 600 items. Kroger would invest $1 billion each year to reduce prices at Albertsons. A one-time expense of $1.3 billion would go toward improving the customer experience at Albertsons stores.
“All of this will only be possible if the merger goes through,” Wolf said.
Prices at Kroger currently are 10% to 12% lower than Albertsons. The competition isn’t between Kroger and Albertsons, but between supermarkets and stores like Walmart and Amazon, Wolf said.
And contradicting Musser, Wolf argued Kroger and Albertsons typically aren’t found near each other. It’s one reason why Kroger thought its acquisition was a good match. The merger would avoid redundancy in the supply chain, lower prices and bring food faster to these stores.
The merger includes the sale of over 400 stores and some brands to C&S Wholesale Grocers, called “divestment.” Wolf said the supermarkets realized divestment was necessary to make the deal work.
“C&S is not just getting stores. They’re getting people. Union jobs will be protected," Wolf said, adding later: “There is no reason to block this merger."
Attorney Enu Mainigi, representing Albertsons, said stopping the merger would negatively affect her client. Kroger’s prices already are lower than Albertsons. It currently can’t compete with the scale that a store like Walmart uses, and must merge with Kroger to remain viable.
“What does Albertsons look like if there is no merger?” Mainigi questioned.
Closing arguments are set for Sept. 13.