What’s next in FTC lawsuit seeking to block Kroger’s acquisition of Albertsons

The proposed merger involving a grocery store chain with a sizable Indiana footprint is on hold for the moment, as the Federal Trade Commission seeks to block Kroger Company’s $24.6 billion acquisition of the Albertsons Companies Inc.

The FTC filed the lawsuit Feb. 26 to block what it called the largest proposed supermarket merger in U.S. history, alleging that the deal is anticompetitive.

Kroger, based in Cincinnati, Ohio, has 103 grocery stores across 54 cities in Indiana, according to the company. Albertsons, based in Boise, Idaho, has no locations in the state.

Kathy Osborn, Faegre Drinker Biddle & Reath LLP’s Indianapolis office leader and litigation partner, told Indiana Lawyer she was not surprised the FTC filed the lawsuit to block the proposed merger.

Osborn, who is not involved in the Kroger case but is an antitrust compliance attorney, said the FTC complaint’s focus on labor competition was unique.

“We haven’t seen that before,” Osborn said.

Traditional antitrust lawsuits have focused on the impact of mergers on consumers. 

Osborn said those lawsuits followed the idea that the more choices consumers have, the lower their prices will be.

She said, if the FTC protects collective bargaining in this case, then in theory that will increase prices for consumers.

The FTC noted that in some regions, such as in Denver, the merged Kroger/Albertsons would be the only employer of union grocery labor. The commission also makes the argument that union grocery workers’ ability to leverage the threat of a boycott or strike to negotiate better terms would also be weakened.

“If allowed, this merger would substantially lessen competition, likely resulting in Americans paying millions of dollars more for food and other essential household goods, as well as reducing the ability of hundreds of thousands of workers to secure better wages and benefits,” the FTC’s complaint stated.

The lawsuit also noted that consumers would not be the only ones impacted if the proposed acquisition is completed, but also “the hundreds of thousands of people who work for Kroger and Albertsons.”

The FTC noted that Kroger and Albertsons compete aggressively with one another to hire and retain grocery workers, principally through collective bargaining negotiations with local unions.

“This competition has resulted in higher wages, better benefits, and improved working conditions for employees. The proposed acquisition would eliminate this competition, threatening the ability of hundreds of thousands of grocery store workers to secure stronger contracts with improved wages and benefits,” according to the lawsuit.

“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, in a news release. “Essential grocery store workers would also suffer under this deal, facing the threat of their wages dwindling, benefits diminishing, and their working conditions deteriorating.”

In response to the FTC lawsuit, Kroger issued a statement that said blocking the proposed merger would “actually harm the very people the FTC purports to serve: America’s consumers and workers.”

The company emphasized that it has reduced prices every year since 2003, resulting in $5 billion invested to lower prices and a 5% reduction in gross margin over that 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,” part of the statement read.

Kroger alleges that blocking the merger would only strengthen larger, non-unionized retailers like Walmart, Costco and Amazon by allowing them to further increase what it described as “their overwhelming and growing dominance of the grocery industry.”

Spencer Waller, a professor at Loyola University of Chicago School of Law who specializes in antitrust law, said he was also not surprised the FTC is challenging the proposed merger.

“This is an industry with a history of mergers and consolidation,” Waller said.

Waller said the Kroger/Albertsons proposed merger was subject to intensive investigation before the FTC filed its lawsuit, with a lot of information subpoenaed from both parties.

He noted that attorneys general from nine states joined the FTC’s federal complaint.

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

The federal court complaint and request for preliminary relief were filed in the U.S. District Court for the District of Oregon.

Kroger’s divestiture proposal; FTC objections to merger

According to the FTC, 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 September 2023, Kroger and Albertsons disclosed that they had entered into an agreement with C&S Wholesale Grocers, LLC for the sale of select stores, banners, distribution centers, offices and private label brands in connection with their proposed merger, which was announced in October 2022.

According to Kroger, the divestiture plan includes 413 stores, along with QFC, Mariano’s and Carrs brand names. 

Stores currently under these banners that are retained by Kroger will be re-bannered into one of the retained Kroger or Albertsons Cos. banners following the close of the transaction. 

None of Kroger’s Indiana stores were mentioned in the plan.

The FTC noted that C&S today operates just 23 supermarkets and a single retail pharmacy.

Its 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 alleged 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. 

Osborn said the FTC allegations highlight the importance of business personnel limiting what they say about competitors, market shares and competition in emails, earnings calls and other communications. 

“For example, the FTC complaint leverages comments made by the parties about them being one another’s number one competitor,” Osborn said.

As an antitrust law expert, Waller said he knows what the FTC is concerned about, that no matter how many stores spin off and are bought by other grocery companies, there is still a consolidation of the market and decreased competition.

He said FTC is not comfortable with the proposed divestiture plan, in part due to the industry’s history with mergers..

“In the past, it hasn’t gone so well with supermarket mergers that got approved,” Waller said.

What’s next in court

A preliminary injunction hearing for the FTC lawsuit is set to begin on Aug. 26 in Portland, Oregon.

The parties were directed to confer and file a proposed briefing schedule for the preliminary injunction motion by March 15.

Osborn said Kroger and Albertsons will likely argue that Amazon and other big box stores are the top competitive threat to their businesses.

As far as a legal timeline, Osborn said she expects it to take several months to more than a year before the case is resolved in court.

She said that for preliminary injunctions to be granted, there needs to be shown that there’s a high likelihood of success for the lawsuit, which requires a lot of evidence.

If a judge grants a preliminary injunction, it is often the case that the parties abandon the merger, Osborn said.

Should the case go to trial, Osborn expects there will probably be a decision rendered in 2025.

Waller said he’s sure the companies are going to argue the market is not as concentrated as the FTC has alleged.

The grocers will pin their hopes on persuading a judge that their divestiture of stores is sufficient to allay concerns about the merger’s competitive effects, he said.

With the FTC seeking a preliminary injunction, Waller said the parties will need time to prepare and have the right to some discovery.

“I think it will go reasonably fast. The FTC has put in a lot of work on this,” Waller said

He added that every day that goes by will make it harder for the two companies to hold the merger together. •