Grocery Giants at a Crossroads: The Battle Over the Kroger-Albertsons Merger

The U.S. grocery industry witnessed a significant development with the proposed merger of two of its largest players: Kroger and Albertsons. Announced in October 2022, this merger aims to create a powerhouse capable of competing with giants like Walmart and Amazon. (Phil Lempert, Forbes). However, the Federal Trade Commission (“FTC”) pursued legal action to block Kroger's bid for Albertsons, citing concerns over potential harm to competition, which could lead to higher prices and lower wages. (Georgetown University). This article explores the FTC's challenge to the Kroger-Albertsons merger, detailing the FTC's competition concerns, Kroger’s perspective on the matter, strategic store divestitures, and the potential effects on the grocery industry and consumers.

On February 26, 2024, the FTC sued to block Kroger’s $24.6 billion bid for Albertsons, aiming to prevent the merger of these grocery industry giants. Id. The FTC's decision to sue stemmed from concerns that the merger would significantly reduce competition within the grocery industry, leading to higher food prices, reduced quality, and diminished bargaining power for union workers. (Georgetown University; Patrick Thomas & Dave Michaels, The Wall Street Journal). Henry Liu, the director of the FTC’s Bureau of Competition stated, “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.” (Patrick Thomas & Dave Michaels, The Wall Street Journal). The FTC's move against the merger reflects broader economic pressures. Food prices in the U.S. have risen 25 percent over the last four years, pushing the share of income Americans spend on food to its highest in thirty years. (David Shepardson & Chris Sanders, Reuters; Patrick Thomas & Dave Michaels, The Wall Street Journal). The Biden Administration has even voiced concern and pressed for lower grocery prices. (David Shepardson & Chris Sanders, Reuters). The FTC's action to block the Kroger-Albertsons merger highlights a critical effort to safeguard consumer interests and competition in a period of rising food costs and economic challenges.

The FTC evaluates mergers based on several criteria to determine their impact on competition. In December 2023, the FTC and the Department of Justice (“DOJ”) published new guidelines to evaluate mergers. (Fred Ashton, American Action Forum). These guidelines consist of 13 principles the FTC uses to determine whether a merger is anticompetitive. (Simon Lockard, USC Gould’s Business Law Digest). The guidelines that are the most relevant to the Kroger-Albertsons merger are as follows: “(1) the merger should not eliminate substantial competition between firms; (2) the merger should not further a trend towards concentration; (3) it must examine whether the merger will substantially lessen competition for workers and other sellers; (4) merger should not entrench or extend an already dominant position; and (5) merger should not tend to create a monopoly.” Id. Furthermore, William Kovacic, a former FTC chairman now at George Washington University, highlighted the increasing significance of labor considerations in antitrust analysis. (Patrick Thomas & Dave Michaels, The Wall Street Journal). The FTC and DOJ are now examining how mergers might give larger employers too much power over their workforce. Id. This examination of the Kroger merger reflects the FTC’s more aggressive approach to interpreting and enforcing antitrust laws.

While the merger has been heavily scrutinized, Kroger argues the merger with Albertsons is a strategic move to enhance efficiency, increase competitiveness, and better serve consumers. The company contends that combining resources would allow them to increase production while reducing costs. (Phil Lempert, Forbes). As a result, the company would be able to offer consumers a more extensive range of products and services. Id. Furthermore, in the Kroger, Albertsons, and C&S Wholesale Grocers (“C&S”) joint statement regarding the merger, Kroger stated that it would invest $500 million to reduce prices as well as an incremental $1 billion to raise wages and benefits for all associates. (Kroger). Kroger and Albertsons are eager to merge because they believe a merger would give them a competitive edge against retailers like Walmart, Costco, and Amazon. (Dee-Ann Durbin, PBS). The companies maintain that a merger would provide them with more leverage to negotiate prices and save on distribution and administration costs. Id. If the merger is successful, Kroger and Albertsons combined would control approximately 13 percent of the U.S. grocery market. Id.

To alleviate antitrust concerns and secure the FTC’s approval, Kroger and Albertsons have announced plans to sell off hundreds of stores. (Federal Trade Commission). Kroger and Albertsons proposed divesting at least 413 stores to C&S, which owns a small chain of supermarkets. (Danielle Kaye, Bloomberg). This strategic divesture is intended to maintain competition in markets where their combined presence would be too dominant. However, the FTC said that the divestiture fails to address anti-competitive concerns as C&S lacks the capabilities and sufficient resources to match the competition between Kroger and Albertsons. Id. Merging companies have employed this strategy in the past to relieve regulators’ concerns about monopoly power. In a 2015 deal between Safeway and Albertsons, Albertsons agreed to divest stores that subsequently went bankrupt. Id. Given the track record of failed divestitures, the FTC and DOJ are skeptical of these strategies. Id.

The FTC's lawsuit against the Kroger-Albertsons merger sets the stage for a legal battle that could have wide-ranging implications for the grocery industry and American consumers. If the merger is blocked, it could signal a tougher regulatory approach to mergers in critical sectors. This could potentially discourage future mergers and acquisitions. However, if the merger proceeds, it could lead to further consolidation within the industry, prompting competitors to seek similar deals to remain competitive. (Nathaniel Meyersohn, CNN). For the average American, the outcome of this case will likely have direct implications on their grocery shopping experience-- affecting prices, product availability, and service quality. (Simon Lockard, USC Gould’s Business Law Digest). While Kroger and Albertsons argue that the merger would allow them to better compete and serve consumers, the FTC's concerns highlight the balance between merging for efficiency and the need to maintain a competitive marketplace.

In conclusion, the Kroger-Albertsons merger controversy reflects the broader challenges facing the grocery industry as it adapts to new competitive pressures and consumer demands. The outcome of the FTC's lawsuit will not only determine the future of these two grocery giants but also set precedents for competition and consolidation in the industry, with significant implications for consumers nationwide.