FTC Warns of Grocery Price Hikes in Kroger-Albertsons Merger Battle

The U.S. Federal Trade Commission (FTC) presented its case against the proposed $25 billion merger between Kroger and Albertsons in federal court on Monday, arguing that the deal could have significant negative repercussions for consumers. The trial, which began in Portland, Oregon, is part of a broader effort by the Biden administration to address rising grocery prices, a key issue in the upcoming presidential race.

According to Reuters, the FTC, along with several states, has initiated this legal battle to block the Kroger-Albertsons merger, contending that it would lead to higher prices for consumers and weaken the bargaining power of unionized grocery workers. In her opening statement, FTC Chief Trial Counsel Susan Musser emphasized the potential dangers of the merger, describing it as a move that would result in Kroger “swallowing” Albertsons.

“Stopping this multibillion-dollar deal will keep in place the vigorous competition that acts as a check on rising grocery prices and spurs improvements in quality and innovation,” Musser stated during the proceedings, which took place in a packed courtroom.

However, Kroger’s attorney, Matthew Wolf, argued that the merger would actually benefit consumers by lowering prices at Albertsons stores, which are currently 10-12% higher than those at Kroger. Per Reuters, Wolf criticized the FTC’s attempt to block the Kroger-Albertsons deal, asserting that the agency does not fully understand the grocery industry or the companies involved. He argued that the merger is essential for Kroger and Albertsons to effectively compete with retail giants like Walmart, Costco, and Amazon, which dominate the grocery market.

Read more: Kroger-Albertsons Merger Could Give Walmart Shoppers A Low-Cost Grocery Alternative

Albertsons’ lawyer, Enu Mainigi, echoed these sentiments, highlighting the challenges that Albertsons faces in competing with Walmart. According to her, the merger is crucial for Albertsons’ survival. “It could mean layoffs. It could include closing stores. It may include exiting certain markets altogether,” Mainigi warned, noting the potential consequences if the deal falls through.

The case is a significant test of FTC Chair Lina Khan’s broader initiative to use antitrust laws to enhance worker wages and mobility. Musser argued that unionized grocery workers could lose their leverage in negotiations if the merger proceeds, as it would reduce the ability to strike at one store and direct customers to a competitor. The FTC has also expressed concerns that the merger would harm workers in numerous labor markets.

The FTC trial, expected to last around three weeks, will delve into the competitive dynamics of the grocery industry. Kroger and Albertsons have maintained that the lawsuit overlooks the diverse range of options available to consumers, who often shop for food at big-box retailers like Target and discount stores such as Dollar Tree.

To address concerns about market concentration, Kroger has committed to selling 579 of the approximately 5,000 stores it would control post-merger. Part of the trial will examine whether C&S Wholesale Grocers, the prospective buyer, has the capacity to manage these stores effectively. Additionally, Kroger has pledged to lower grocery prices by $1 billion if the deal goes through, although details on how these reductions will be implemented remain unclear.

Musser, however, downplayed Kroger’s promise, pointing out that the $1 billion investment represents only a small fraction—0.5%—of the combined revenue of Kroger and Albertsons.

U.S. District Judge Adrienne Nelson is currently considering whether to temporarily halt the Kroger-Albertsons merger while an FTC in-house judge reviews its potential impact on competition. Such reviews can be lengthy, and companies often choose to abandon deals rather than endure prolonged legal scrutiny.

The states of Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, Wyoming, and the District of Columbia have joined the FTC in the lawsuit, underscoring the broad concern over the merger’s potential impact on the grocery market.

Source: Reuters