Federal Trade Commission Files Lawsuit to Block Kroger-Albertsons Merger, Citing Potential Price Hikes for Consumers
On Monday, the Federal Trade Commission (FTC) took legal action to prevent the $25 billion merger between Kroger and Albertsons, which would combine the fifth and tenth largest retailers in the United States. The FTC’s concern stems from the belief that this historic merger, announced in 2022, would result in increased prices for consumers amid rising food costs.
Combining Forces: Kroger and Albertsons’ Ambitious Merger
The two giants in the grocery industry, Kroger and Albertsons, sought to merge their operations by bringing together their extensive portfolios of chains. Some of these include Safeway, Vons, Harris Teeter, and Fred Meyer. This union would result in a substantial workforce of 710,000 employees, over 5,000 stores, and sales exceeding $200 billion.
The Grocery Industry Amid Food Price Inflation
The proposed merger comes at a time when food prices have risen significantly. Since 2020, Americans have seen a 26% increase in their grocery spending, according to the Bureau of Labor Statistics. The portion of income spent on food is now at its highest point in the past 30 years.
The FTC’s Concern: Eliminating Competition and Potential Price Hikes
In a statement, the FTC expressed its concern that this merger would eliminate competition in the grocery industry. This could result in higher prices for consumers and lead to store closures, causing job losses. The FTC emphasized that both Kroger and Albertsons, which primarily employ unionized workforces, sought to merge to be more competitive against mostly non-union competitors, such as Walmart, Amazon, and Costco.
Unionized Competitors Facing Pressure from Discount Retailers
Kroger and Albertsons stated that the merger would enable them to be a more compelling alternative to larger, non-union competitors. They argued that they could achieve $500 million in cost savings from the deal and use these savings to reduce prices for shoppers, as well as tailor promotions and savings.
Addressing Antitrust Concerns: Divestitures and Store Sales
To address antitrust concerns related to local markets where their stores overlap, Kroger and Albertsons agreed to sell approximately 400 stores to C&S Wholesale Grocers. This agreement also included a provisional purchase of over 200 additional stores if the merger faced regulatory pushback. However, unions, small grocers, and a bipartisan coalition of lawmakers strongly opposed the merger from the start, arguing that it would harm competition and lead to higher prices and job losses.
A Precedent of Divestitures: Albertsons-Safeway Merger and its Aftermath
Albertsons’ previous $9 billion merger with Safeway in 2014 served as a precedent for regulators, including FTC Chair Lina Khan. In this previous deal, Albertsons and Safeway agreed to sell 168 of their stores to buyers approved by the FTC. However, Haggen, a small supermarket chain with just 18 locations at the time, bought 146 of these former Albertsons and Safeway stores. Despite regulatory approval, Haggen struggled to manage these newly acquired stores and ultimately filed for bankruptcy, closing some locations.
Lina Khan’s Skepticism towards Divestitures
Under Lina Khan’s leadership, the FTC has launched significant antitrust suits against Amazon and other tech giants. In a 2017 law review article prior to her tenure at the FTC, Khan criticized the agency’s handling of Albertsons’ deal with Safeway. She labeled this approval as “hard to fathom” and a “spectacular” failure due to the subsequent struggles faced by Haggen in managing these stores. This skepticism towards divestitures has shaped her approach as FTC Chair.
