Merge With a Competitor or Fight to Stay Alive? The FTC Sues to Halt Kroger and Albertsons Survival Strategy—a Merger.

ALESSANDRA LORA—On February 26, 2024, the Federal Trade Commission (“FTC”) sued to block the proposed merger of supermarket giants, Kroger and Albertsons. As the largest proposed merger in the supermarket industry with Kroger’s $24 billion acquisition of Albertsons Companies, the FTC claims the proposed deal is monopolistic, which in turn will lead to decreased competition. Specifically, the complaint alleges that the deal will cause higher prices for grocery items as well as decreased product and service quality. Throughout recent years, the price of household grocery items has steadily increased, particularly following the COVID-19 pandemic in 2020. Also, the shift towards organic products and gluten-free options, which are more expensive than typical items, have contributed to the price increase. As a result, many consumers throughout the United States have experienced financial strain in terms of affording housing necessities, making the need for protection within this sphere greater. The complaint also alleges that the proposed merger can negatively impact grocery workers as it will threaten their ability to receive higher wages and secure better working conditions.

Without a merger, Kroger and Albertsons have a rather extensive reach individually but not when compared to the market leaders. Kroger currently operates in thirty-six states, whereas Albertsons operates in thirty-five. If the proposed merger succeeds, the new company will operate in forty-eight states¾almost every state in the United States¾employing over 700,000 employees with about 5,000 stores. In contrast, Walmart has 2.1 million employees with 1.6 million employees in the United States. Walmart also operates worldwide in over 19 countries and has an e-commerce website. Thus, the comparison is unparalleled despite Kroger and Albertsons’ seemingly comprehensive coverage.

Controversy arises as claims are made that the FTC fails to account for supermarket giants like Target, Walmart, and Costco when considering large mergers such as the one in question. In changing times following the COVID-19 pandemic, the world can never revert back to the way it was before. People constantly depend on services like Amazon that offer convenience for its members and e-commerce options. Hence, corporations must evolve to maintain a competitive edge within the industry. For these reasons, Kroger and Albertsons argue that the FTC has mischaracterized competition within the industry by failing to account for wholesale and e-commerce options. Further, these other supermarket options do not have as many unionized workers who are members of the United Food and Commercial Workers Union like Kroger and Albertsons. On the one hand, the FTC argues that the merger will inhibit the ability of union workers to negotiate, whereas Kroger and Albertsons argue it will allow them to compete with their competitors. Thus, the FTC is framing the competition in the grocery market differently than Kroger and Albertsons.

Additionally, to secure approval, Kroger and Albertsons made a divestment proposal to sell some stores and assets to C & S Wholesale Grocers (“C&S”). Yet, the FTC has stated that C & S is not capable of functioning in the capacity needed to compete with Kroger and Albertsons post-merger. Nonetheless, Kroger and Albertsons disagree, arguing that the FTC is using Albertsons’ past failure in connection with its acquisition of Safeway as a foundation to believe C & S is not suitable. According to Albertsons, C & S is a well-positioned company with extensive grocery experience capable of properly operating the assets it will acquire as part of the deal. 

A hearing is set for August 26, 2024, in the U.S. District Court of Portland, Oregon for the FTC’s preliminary injunction on the merger.  Some will find that this case invites the FTC to choose who has control of the market, regulating companies they believe to be suitable to enhance competition. If, however, the court does not grant the injunction against the merger, this decision would mark the largest grocery merger and can critically alter the way mergers within the grocery industry happen going forward. Direct competitors may choose to combine forces rather than compete against one another to survive.