The Federal Trade Commission (FTC) today sued to block Kroger’s $24.6 billion acquisition of the Albertsons Companies, alleging that the deal is anticompetitive.

The FTC charges that the proposed deal, which is the largest proposed supermarket merger in U.S. history, will eliminate competition between Kroger and Albertsons, leading to higher prices for groceries and other essential household items for American consumers. The loss of competition will also lead to lower quality products and services, while also narrowing consumers’ choices for where to shop for groceries, the agency added.

Outside of what the merger would mean for consumers, the FTC said it would negatively affect thousands of grocery store workers as it would immediately erase aggressive competition for workers.

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

The FTC issued an administrative complaint and authorized a lawsuit in federal court to block the proposed acquisition pending the Commission’s administrative proceedings. The Offices of the Attorneys General of Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming are joining the Commission’s federal lawsuit.

The Commission vote to issue the administrative complaint and authorize staff to seek a temporary restraining order and preliminary injunction in federal district court was 3-0. The federal court complaint and request for preliminary relief will be filed jointly with the state attorneys general in the U.S. District Court for the District of Oregon.

Kroger operates thousands of stores across 36 states, which includes regional banners such as Fred Meyer, Fry’s, Harris Teeter, King Soopers, Kroger, and Quality Food Centers (QFC). Albertsons also operates thousands of stores across 35 states under regional names including Albertsons, Haggen, Jewel-Osco, Pavilions, Safeway, and Vons. 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.

According to the FTC, 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. Executive for the companies, the FTC said, have also conceded that Kroger’s acquisition of Albertsons is anticompetitive, with one executive reacting candidly to the proposed deal: “you are basically creating a monopoly in grocery with the merger.”

“Inadequate” divestiture offering

To try to secure antitrust approval of their merger, Kroger and Albertsons have proposed to divest several hundred stores and select other assets to C&S Wholesale Grocers (C&S), which today operates just 23 supermarkets and a single retail pharmacy. However, the FTC’s administrative 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 says the proposed divestitures are not a standalone business, and C&S would face significant obstacles stitching together the various parts and pieces from Kroger and Albertsons into a functioning business—let alone a successful competitor against a combined Kroger and Albertsons. Further, the proposal completely ignores many affected regional and local markets where Kroger and Albertsons compete today, the agency added.

"In areas where there are divestitures, the proposal fails to include all of the assets, resources, and capabilities that C&S would need to replicate the competitive intensity that exists today between Kroger and Albertsons. Even if C&S were to survive as an operator, Kroger and Albertsons’s proposed divestitures still do not solve the multitude of competitive issues created by the proposed acquisition, according to the complaint," the agency stated.

Consumer impact?

In addition to raising grocery prices, the FTC alleges that Kroger’s acquisition of Albertsons would also diminish their incentive to compete on quality. Currently, Kroger and Albertsons compete to improve their stores in many ways, including offering fresher produce, higher quality products, improved private label offerings, a broader array of in-store services, flexible store and pharmacy hours, and curbside pickup services.

The FTC charges that the deal would eliminate head-to-head price and quality competition, which have driven both supermarkets to lower their prices and improve their product and service offerings.

"If the merger takes place, grocery prices will increase, and Kroger and Albertsons’ incentive to improve product quality and customer service will decrease, further harming customers," the FTC stated.

Kroger issued a response following the FTC announcement, saying that contrary to the agency’s statements, blocking the merger will actually harm “the very people the FTC purports to serve: America's consumers and workers.”

Further, Kroger said the FTC's decision makes it “more likely that America's consumers will see higher food prices and fewer grocery stores at a time when communities across the country are already facing high inflation and food deserts.”

In fact, Kroger said the FTC’s decision only strengthens larger, non-unionized retailers like Walmart, Costco and Amazon by allowing them to further increase “their overwhelming and growing dominance of the grocery industry.”

“Kroger's business model is to take costs out of the business and invest in lowering prices for customers. Kroger has reduced prices every year since 2003, resulting in $5 billion invested to lower prices and a 5% reduction in gross margin over this period,” the company said. “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.”

During that same timeframe, Kroger pointed out that competitors like Amazon, Ahold Delhaize, Walmart, and Dollar General have increased their gross margins by 22%, 4%, 1%, and 2%, respectively.

“Kroger's track record includes the years following past mergers, as it invested more than $125 million to lower prices following its merger with Harris Teeter and more than $100 million to lower prices after it merged with Roundy's. Additionally, Kroger invested $2.5 million and $2.4 million in capital per Harris Teeter and Roundy's store, respectively, to enhance the customer experience in the three years following each merger,” the company said.

Since the merger was announced, the combined company has committed that no stores, distribution centers or manufacturing facilities will close as a result of the merger, including those divested to C&S Wholesale Grocers. Additionally, the company has also committed to investing $500 million to begin lowering prices day one post-close, and an additional $1.3 billion to improve Albertsons’ stores.

Customers will also have access to more favorite items from their own communities, as the company has committed to increasing the number of local products in its stores by 10% post-close.

Regarding company team members, Kroger has said it will invest $1 billion to raise wages and comprehensive benefits. This builds on the incremental $1.9 billion Kroger invested to improve wages and comprehensive benefits since 2018. The company will also extend continuing education and financial literacy benefits to all associates following the merger close.

“As union membership continues to decline nationwide, especially in the grocery industry, this merger is the best way to secure union jobs. Kroger has added more than 100,000 good-paying union jobs since 2012,” the company noted.

Kroger and Albertsons said they look forward to litigating this action in court “so we can deliver the benefits of this merger to communities across America - lower prices, more choices, and more good-paying union jobs for decades to come.”