Kroger, FTC spar in court over proposed merger

Whether a proposed merger between two of the nation’s largest grocery store retailers will happen could be decided soon, as a federal judge hears arguments from the Federal Trade Commission and Kroger Company on the company’s proposed $24.6 billion acquisition of the Albertsons Companies Inc.

The FTC is seeking to block the merger and has asked for a preliminary injunction to halt the acquisition.

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.

Spencer Waller, a professor at Loyola University of Chicago School of Law who specializes in antitrust law, said that it’s rare for a case like this to go beyond the initial trial if an injunction is granted or denied.

Waller said that, for Kroger, it would be difficult to appeal a court ruling and keep its proposed merger with Albertsons on hold for potentially another 18 months if FTC is granted an injunction to block the deal.

He said, based on his observations, the FTC’s case on why the proposed merger would be harmful to employees and consumers appears to be a solid argument in court.

“It seems like this is going pretty well for the government,” Waller said.

The Cincinnati Enquirer reported Sept. 10 that, during opening arguments, an attorney for Kroger said if the company lost the ruling, the merger “will not occur.”

U.S. District Court Judge Adrienne Nelson is presiding over the case and will rule whether to grant or deny the preliminary injunction.

Daniel Spungen, senior counsel at Amundsen Davis’ Indianapolis office, said one of the case’s more striking aspects to him is the FTC raising the issue of the proposed merger’s impact on employees and food prices, but excluding wholesale clubs like Costco and Sam’s Club and other emerging grocery retailers from its merger analysis.

“Those weren’t included because, frankly, that helps the FTC’s argument,” Spungen said.

Spungen added that the impact of higher inflation is also a factor in rising grocery prices.

Chicago’s ABC7 reported that Kroger and Albertsons insist the FTC’s objections don’t take into account the rising competition in the grocery sector. Walmart’s grocery sales totaled $247 billion last year compared to $63 billion in 2003, for example; Costco’s sales have grown more than 400% in the same period.

“Consumers are blurring the line of where they buy groceries,” Albertsons attorney Enu Mainigi said during opening arguments in August.

The Chicago station noted that an FTC attorney argued that Kroger and Albertsons currently compete in 22 states, closely matching each other on price, quality, private label products and services like store pickup.

Shoppers benefit from that competition, the attorney said, and will lose those benefits if the merger is allowed to proceed.

“This lawsuit is part of an effort aimed at helping Americans feed their families,” the FTC’s chief trial counsel Susan Musser said.

Background

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.

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.

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 company’s 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.”

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.” 

Supermarket News reported that If the merger is approved, the merged company would generate an estimated annual revenue of about $210 billion and have 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies, 2,015 fuel centers and 710,000 workers in 48 states and the District of Columbia. 

Will injunction be granted? 

A district court ruling on whether to grant the FTC’s motion for an injunction is expected soon.

Waller said he expects the judge’s ruling will possibly come before the November presidential election.

He said that if the deal ultimately dies, Kroger will have to figure out how to compete better against competitors like Walmart.

Waller said Kroger is a dominant company in many markets.

“There may be other acquisitions they could pursue,” Waller said.

Spungen said he thinks Kroger will appeal if the FTC’s injunction is granted.

He said a lot of what the FTC is relying on in its case comes from new merger guidelines the agency and the U.S. Department of Justice issued in December 2023.

The guidelines include consideration of when an Industry undergoes a trend toward consolidation and whether It Increases the risk a merger may substantially lessen competition or tend to create a monopoly.

If the district judge denies the injunction, Spungen said he also expects the FTC to appeal, especially given how much grocery store pricing has become such a prominent national issue.

Spungen said he expects a decision on the injunction before the end of the year. •