The largest proposed grocery store merger in U.S. history is set to be evaluated in court. Supermarket giants Kroger and Albertsons assert that their planned merger will enhance competition against major rivals like Costco. Meanwhile, antitrust regulators from the Federal Trade Commission (FTC) contend that the merger could stifle competition and lead to increased grocery prices amid ongoing food price inflation.
Beginning Monday, a federal district court judge in Portland, Oregon, will review arguments from both parties to determine whether to grant the FTC’s request for a preliminary injunction. Should the injunction be approved, it would temporarily halt the merger while the FTC investigates the deal further before an administrative law judge.
Kroger, headquartered in Cincinnati, operates approximately 2,800 stores across 35 states, incorporating brands such as Ralphs and Harris Teeter. Albertsons, based in Boise, Idaho, runs around 2,273 stores across 34 states, including Safeway and Jewel Osco. Collectively, the two companies employ about 710,000 individuals.
In October 2022, Kroger and Albertsons announced their merger intentions, presenting a $24.6 billion deal that they claim would lower prices by increasing their negotiating power with suppliers and allowing for the combination of their store brands. They argue that this merger would also fortify their competitive position against dominant players like Walmart, which currently controls approximately 22% of U.S. grocery sales, while the merger would give Kroger and Albertsons about 13%.
Antitrust regulators have raised concerns that the proposed merger would suppress competition, potentially causing a rise in prices, a decline in product quality, and diminished wages and benefits for workers. In February, the FTC filed a complaint to block the merger and simultaneously initiated a lawsuit in federal court in Oregon for a preliminary injunction. Attorneys general from multiple states, including California and Illinois, have joined this federal lawsuit.
In response to regulatory concerns, Kroger and Albertsons have agreed to divest 579 stores in regions where their businesses overlap, with C&S Wholesale Grocers poised to take over. Initially, the companies proposed to sell 413 stores, but the FTC insisted that additional divestitures were necessary to ensure a robust competitive landscape. Washington state has the highest number of divested stores at 124, followed by Colorado with 91 and California with 63.
Should the preliminary injunction be granted, Kroger and Albertsons are expected to appeal to a higher court, which may prolong the case significantly. Kroger has filed a separate lawsuit against the FTC, challenging the agency’s internal proceedings and seeking a resolution in federal court. They cite a recent Supreme Court ruling that has impacted the jurisdiction of the Securities and Exchange Commission.
While the FTC may appeal any ruling in favor of Kroger and Albertsons, it is uncommon for appeals courts to overturn merger decisions from lower courts, which could lead the FTC to withdraw its challenge. The evolving political landscape, particularly the upcoming presidential election, might influence the case, especially given the Biden administration’s proactive stance against potentially anti-competitive mergers.
Notably, Colorado and Washington have filed their own lawsuits to block the merger in state courts, which is atypical as states usually join federal lawsuits as co-plaintiffs. Both states feel greatly impacted by the merger, with Colorado housing over 200 Kroger and Albertsons locations and Washington having over 300. Legal experts indicate that these states could pursue independent injunctions if the FTC’s case falters, though it would be surprising for state courts to countermand a favorable ruling from federal proceedings.
