Colorado warns of price impacts if Kroger, Albertsons merge

Amanda Pampuro

DENVER (CN) — Without market competition, grocers face no incentive to keep prices affordable for consumers, argued Colorado’s assistant attorney general on Monday before a Denver judge tasked with deciding whether to allow supermarket giants Kroger and Albertsons to merge.

“The proposed merger of Albertson’s and Kroger is illegal and must be enjoined to protect Colorado residents,” Assistant Attorney General Arthur Biller said in opening statements Monday.

Kroger, which owns 2,719 grocery stores nationwide, announced a $24.6 billion plan in October 2022 to purchase 2,271 Albertsons stores. In Colorado, Kroger’s King Soopers and City Market stores dominate the landscape alongside Walmart and Albertsons’ Safeways.

Albertsons' attorney Enu Mainigi underscored the importance of the merger in an increasingly fractured grocery market where she said even Colorado’s attorney general cross-shops to optimize his shopping list.

“Albertsons is seeking this merger because there has been a seismic shift here in Colorado and nationwide,” Mainigi said. “We have come to recognize that the era of one-stop shopping is a thing of the past.”

Customers, Mainigi explained, grab milk and eggs from Target while shopping for school supplies, then pick up a rotisserie chicken from Costco during a paper towel run, and then go home to order forgotten items from Amazon or Instacart.

Mainigi additionally urged the court to reject the state's argument for Colorado’s narrow view of the relevant market, and to consider companies like Amazon and Costco as genuine competitors building growth strategies around doubling down on the grocery sector.

Biller said Walmart typically provides a floor on pricing while Albertsons draws the ceiling, and Kroger’s prices live in between. State attorneys urged the court to limit the relevant market to these three companies, arguing that other stores that sell groceries like Costco or Whole Foods fill very different market niches.

To maintain market competition, Albertsons agreed to divest assets to a third party, C&S Wholesale Group, including about 89 Colorado stores. The state is skeptical of the plan.

“What defendants are trying to do with this divestiture is not maintain competition. You do not take 90 successful stores and hand them over to a grocery liquidator,” Biller argued. “This is not competition, it’s a plan to close stores.”

If the court blocks the merger, Mainigi also cautioned that Albertsons will need to lay off employees and close stores to remain in the game.

Representing Kroger, attorney Matt Wolf insisted that C&S is being set up for success in gaining Safeway’s support infrastructure along with its stores, including executives, private label brands and nearly 9,000 employees statewide.

In his opening, Wolf described the state’s lawsuit as “a gross misunderstanding of the grocery industry in the modern world.”

The merger between Kroger and Albertsons would not only allow both companies to remain competitive against global behemoths Costco, Amazon and Walmart, Wolf claimed, the deal would also leverage the realities of today’s market to lower prices for consumers.

“The model of Kroger is to use non-grocery revenue from customer insights to drive down prices to bring more customers into the store, and drive down prices even more,” Wolf explained.

Customer insights, or behavioral data, can be collected through store loyalty programs and sold to retailers and marketing firms.

Currently, Albertsons customers pay about 10% more for groceries than Kroger customers, Wolf explained. Although Kroger has looked to cut costs, Wolf said the company hit a bottleneck around 3.24% above Walmart’s price lows.

“From day one, customers will see lower prices at the stores that Kroger now runs that used to be run by Albertsons,” Wolf argued.

In addition to improving consumer experience, Wolf promised employees will see higher wages, better flexibility to transfer stores and tuition reimbursement.

Colorado Attorney General Phil Weiser initially sued Kroger and Albertsons on Feb. 14, arguing the merger would stifle competition and raise prices. In July, Second Judicial District Judge Andrew Luxen granted a temporary injunction halting the deal pending the outcome of this month’s bench trial.

The state is additionally asking the court to fine each company $1 million for making an anti-competitive pact during a 2022 worker strike in which Albertsons agreed not to poach Kroger’s pharmacy customers or try to hire employees off the picket lines. The trial is scheduled to run through Oct. 18.

The Federal Trade Commission also sued the grocers in federal court on Feb. 26 aiming to halt the nationwide merger. U.S. District Court Judge Adrienne Nelson in the District of Oregon is expected to issue an expeditious decision on an injunction following a lengthy hearing held earlier this month. A third antitrust suit is pending in Washington state.