By Alina Selyukh
Kroger and Albertsons saw their $24.6 billion merger blocked on Tuesday by judges in two separate cases, one brought by federal regulators and the other by Washington state’s attorney general.
The largest grocery merger in US history is in legal jeopardy after more than two years of delays. The companies can choose to continue their legal appeals or abandon the deal. They are awaiting another decision in the third trial in Colorado.
Kroger operates many familiar grocery stores, including Ralphs, Harris Teeter, Fred Meyer and King Soopers. Albertsons owns Safeway and Vons. In statements Tuesday, the companies argued the courts were wrong in their rulings and said they were evaluating their options.
Tuesday’s first ruling is a big win for the Federal Trade Commission. He, along with several states, had asked a federal court in Oregon to stop the merger. The government argued that the resulting big food prices would rise and there would be fewer choices for shoppers and workers. In many markets, the two chains are each other’s biggest competitors.
Kroger and Albertsons, for their part, argued that together they would have more power to lower prices as well as compete with other giant grocery retailers, including Walmart, Costco and Amazon.
U.S. District Judge Adrienne Nelson on Tuesday The FTC ordered the merger halted while it underwent an internal administrative review — a procedure Kroger challenged as unconstitutional in a separate court. About an hour later, a Washington state court judge ruled separately that the merger violated that state’s consumer protection law.
“Both defendants pointed to a future in which they could not compete with an ever-growing Walmart, Amazon or Costco,” Nelson said in his order. “The general purposes of antitrust law are not served by permitting an otherwise illegal merger to permit firms to compete with an industry giant.”
Together, Kroger and Albertsons have nearly 5,000 stores and employ approximately 720,000 people in 48 states. They overlap especially in the western provinces.
The lawsuits hinge on how Americans buy groceries
During the three-week federal trial in a Portland courtroomThe FTC and companies have had differing opinions on the grocery market.
Kroger and Albertsons called their merger existential for survival. They argued that the FTC’s view of competition — which focuses on the options a shopper might have in the neighborhood — has become outdated since the expansion of big boxes and dollar stores.
Kroger officials testified that they typically compare their prices to Walmart, not Albertsons, and have struggled to keep up given Walmart’s ability to negotiate better deals with suppliers because of its scale. Walmart is the largest grocer in the United States, followed by Kroger and Costco.
However, the FTC argued that someone who shops at Walmart, Costco, CVS or even Trader Joe’s still trusts the supermarket next door. Government lawyers said enough people were worried about the merger that the agency had received an unprecedented 100,000 public comments.
Federal officials also shared grievances raised by unions.
Kroger and Albertsons are a rare combination of stores in retail. The companies argue that, in fact, it serves as a reason why their mergers are allowed to take on larger, non-merging competitors. But the FTC says a merger would give companies more power over contract negotiations, leading to lower wages and worse benefits.
Questions about the plan to sell some stores
A judge separately weighed in on Kroger and Albertson’s plan to sell hundreds of stores to a single firm. It’s called C&S Wholesale Grocers it was meant to appease regulators as a condition of their merger.
The idea is to create a new grocery competitor in markets where Kroger and Albertsons currently overlap, and so the merger would eliminate competition. C&S, food supplier, Agreed to buy 579 stores In 18 states and Washington
But the FTC argued that C&S would struggle to compete. The firm currently operates only 23 stores, mostly under the Piggly Wiggly brand, which has no national name recognition. Government lawyers shared internal memos in which C&S executives expressed concerns about the quality of the stores they were about to buy.
Kroger and C&S executives touted C&S as a grocer with experience. Judge Nelson remained skeptical.
“There are serious concerns about C&S’s ability to operate a large-scale retail grocery business that can successfully compete with the proposed combined business, as it would need to offset the competitive disadvantage of the merger,” he said.
The last time the government approved a demerger grocery merger was in 2015. Albertsons bought Safeway. It sold 168 stores, then bought back 33 of them at bargain prices because one of the buyers filed for bankruptcy protection a few months after the deal.
