Pivotal Week Ahead in Kroger-Albertsons Case After FTC Lands Early Blows
Government lawyers have cited internal business documents to question whether deal would deplete competition in the grocery industry
Dave MichaelsSept. 3, 2024 at 8:00 am
Expert witnesses retained by the FTC will testify in the coming days that grocery prices for everyday Americans could rise if Kroger and Albertsons combine, because they are the two last traditional grocery operators competing head-to-head in markets across the country.
Last week, the FTC focused on attacking the companies’ proposed solution for any diminishment in competition: selling over 500 stores to a new would-be rival, C&S Wholesale Grocers.
FTC lawyers said New Hampshire-based C&S, which operates 23 stores today but supplies more than 7,000, is far from a sure bet to keep markets competitive.
Testimony so far has focused on obstacles that C&S would face to stand up new brands, technology systems and supply chains at the 579 stores it would acquire.
C&S would be able to operate some of the stores it acquires under their current names, such as Safeway in Colorado and Arizona. But C&S would have to change the name of 286 stores, applying new brands that are unknown to local shoppers.
In Oregon and Washington, for instance, C&S would have to rename more than 100 stores currently operating as Safeways.
The FTC claims that Albertsons and Kroger are each other’s major competitors and that combining them would cause consumers to pay more. Photo: Kyle Grillot/Bloomberg News
A C&S consultant estimated that sales at rebannered stores could fall by as much as 22%, according to testimony by Alona Florenz, C&S’s senior vice president for corporate development. C&S will have to stand up new customer loyalty programs and introduce new private-label brands, a major source of profit for grocery chains.
C&S’s executives have admitted some of the deal’s complications, according to internal communications introduced as evidence by the FTC. “Kroger gave us their worst chains,” C&S’s head of corporate development wrote last year, after a colleague noted that one of the chains it would acquire, QFC, has a bad reputation for high prices.
The FTC’s case has also raised questions about whether C&S plans to operate the stores long term, or is buying them to boost its wholesale business, which lost its biggest grocery customer in 2019. C&S has relatively little market penetration in the Rocky Mountain states and the fast-growing southwest, its executives testified. C&S would get 101 Albertsons-owned stores in Arizona and 91 in Colorado.
“Do we have to say that we won’t close stores?” a C&S board member asked the company’s current chief executive officer, Eric Winn, according to an email the FTC showed in court on Friday. The board member also asked, “Are we committed to this?”
C&S says it is committed to becoming a major supermarket operator. The company’s owner, Rick Cohen, is funding $500 million of the $2.9 billion deal. “This is a family’s wealth they have committed,” Winn said in testimony last week.
Kroger CEO Rodney McMullen and Albertsons CEO Vivek Sankaran testified about the proposed merger at a 2022 Senate subcommittee hearing. Photo: JONATHAN ERNST/REUTERS
The FTC told U.S. District Judge Adrienne Nelson that an earlier megamerger involving Albertsons posed the same risks—and backfired on everyone. The FTC in 2015 allowed Albertsons to buy Safeway on the condition that it sell 146 stores to Haggen, a small, West Coast grocery chain. Haggen went bankrupt eight months later, closing 83 stores in California.
Testimony last week revealed that even some Albertsons executives recall how bruised employees still feel by Haggen’s failure in 2015.
“There is still a tremendous amount of anxiety found in the 34,000 associates,” Kevin Curry, Albertsons’s president for southern California, wrote to a colleague weeks after the Kroger deal was announced.
The FTC says Kroger would have the ability to raise prices in many markets if the merger goes through. Kroger says it plans to lower prices by $1 billion if it completes the deal.
The company says it needs more scale to compete with Walmart and against a swarm of newer food retailers, including Trader Joe’s, discount chains such as Aldi and Lidl, and club stores such as Costco.
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Kroger CEO Rodney McMullen and Albertsons CEO Vivek Sankaran are likely to testify this week about their reasoning for the deal. Defense lawyers are also expected to call their own expert witnesses to rebut the FTC’s claim that Kroger and Albertsons are each other’s major competitors and that combining them would cause consumers to pay more.
Portland’s towering downtown courthouse, rarely the setting for major antitrust cases, has provided the backdrop for one of the FTC’s most important merger lawsuits in years. Nelson, an appointee of President Biden, hasn’t asked any questions that reveal her views on the case. Around town, the proceedings haven’t registered with many shoppers.
The Albertsons-owned Safeway brand is perceived to be more expensive in the city, said Sarah Finch, a public school teacher who sometimes stops at one in Portland’s funky Hawthorne neighborhood on her drive home from work. C&S would acquire the Safeway if the deal goes through, and would have to rename it.
Kroger operates in the area under the Fred Meyer brand, which it acquired in 1998. At one of its stores less than a mile from the Safeway, Kitleigh Clark, who works in homeowner association property management, said the chain some call Freddy’s remains a source of local identity. “I thought I could be a part of this community by coming here,” said Clark, who moved to Portland from the Bay Area 15 years ago.
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