FTC sues to block Kroger-Albertsons deal: Why does it matter?

(NewsNation) — The Federal Trade Commission has sued to block a proposed merger between grocery giants Kroger and Albertsons, saying the deal would lead to higher prices for millions of Americans and harm tens of thousands of workers.

The FTC lawsuit — which was joined by eight state attorneys general plus Washington, D.C.’s — argues that the $24.6 billion deal will eliminate competition and raise grocery bills.

“This supermarket mega merger comes as American consumers have seen the cost of groceries rise steadily over the past few years. Kroger’s acquisition of Albertsons would lead to additional grocery price hikes for everyday goods, further exacerbating the financial strain consumers across the country face today,” Henry Liu, director of the FTC’s Bureau of Competition, said in a statement.

Kroger disputes that claim and says blocking the deal will “harm the very people the FTC purports to serve: America’s consumers and workers.”

Here’s what you need to know about the largest proposed supermarket merger in U.S. history.

Would a merger impact grocery prices?

The FTC said the merger would lead to higher prices and lower-quality products and services due to reduced competition. The federal agency also argued that consumers would have fewer options for where to shop.

Kroger has pushed back and said blocking the deal makes it more likely consumers will see higher prices. The grocer said it’s invested $5 billion to lower prices since 2003 and would apply its business model to the merged company.

The company said it’s committed $500 million to begin lowering prices on “day one” after the deal closes and will spend an additional $1.3 billion updating Albertsons stores.

The proposal comes as Americans continue to grapple with rising grocery bills. Prices for food eaten at home rose 11.4% in 2022 and another 5% in 2023, well above the typical 2.5% increase.

How would employees be affected?

Kroger and Albertsons are the two largest employers of union grocery labor in the U.S. and would employ nearly 700,000 employees across 48 states under the deal, according to the FTC.

If the deal goes through, the FTC says grocery store workers would be negatively impacted by the reduced competition, threatening their ability to secure “higher wages, better benefits and improved working conditions.”

In some regions, like Denver, the combined company would be the only employer of union grocery labor, the federal agency said.

To address those concerns, Kroger has committed $1 billion to raise wages and benefits. The grocer has also said that no stores, distribution centers or manufacturing facilities will close as a result.

“As union membership continues to decline nationwide, especially in the grocery industry, this merger is the best way to secure union jobs,” Kroger said in a statement Monday, noting nonunionized retailers like Walmart and Amazon. 

The United Food and Commercial Workers International Union (UFCW) — which represents more than 100,000 Kroger and Albertsons workers — opposes the deal and praised the FTC lawsuit, Reuters reported.

In June, the Teamsters union, which represents more than 22,000 employees across the two stores, also came out against the merger.

A local union representing workers in the Pacific Northwest has endorsed the deal.

A union member raises a sign outside a Kroger’s King Soopers store during a protest as workers go on strike in Denver, Colorado, U.S., January 12, 2022. REUTERS/Kevin Mohatt

How big would a merged company be?

As two of the nation’s largest grocers, a combined Kroger-Albertsons would operate more than 5,000 stores and approximately 4,000 retail pharmacies, according to the FTC.

In addition to their namesake stores, both companies own regional grocery chains. Kroger has Fred Meyer, Fry’s, Harris Teeter, King Soopers, and Quality Food Centers (QFC), while Albertsons controls Haggen, Jewel-Osco, Pavilions, Safeway and Vons. 

Together, Kroger and Albertsons would control around 13% of the U.S. grocery market, according to J.P. Morgan analyst Ken Goldman per the Associated Press. Walmart, by comparison, controls 22%.

Kroger has said the combined stores will provide greater and faster access to fresh food, with a total of 66 distribution centers and 52 manufacturing plants. The two companies have argued that the merger will allow them to compete with major players like Walmart, Costco and Amazon.

Amazon, which bought Whole Foods in 2017, is a growing player in the grocery space, with 3% market share. Costco controls 6% of the market, and other value chains like Aldi and Dollar General have a combined 4%.

But market share varies widely by region. In Washington state, for example, Kroger and Albertsons account for more than 50% of supermarket sales statewide, according to a separate lawsuit filed by Washington Attorney General Robert Ferguson.

How is Kroger addressing concerns?

To get the deal approved, Kroger and Albertsons agreed to sell off locations in markets where the two companies’ stores overlapped. Last year, C&S Wholesale Grocers agreed to purchase 413 stores and eight distribution centers as part of that, but the FTC said that plan “falls far short of mitigating the lost competition.”

The FTC pointed out that C&S currently operates just 23 supermarkets plus a single retail pharmacy and said the company would face “significant obstacles” to make it a real competitor against a merged Kroger-Albertsons.

The federal agency called the divestiture proposal a “hodgepodge of unconnected stores, banners, brands, and other assets” that had been “cobbled together” by Kroger’s lawyers.

For its part, Kroger said the two companies provided C&S with “strong teams” as well as a “cohesive network of stores” and a “robust operational infrastructure.” The grocer said the plan will maintain all current collective bargaining agreements.

The Associated Press contributed to this report.

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