Competition and Pricing Issues in the Kroger-Albertsons Merger Fight

On one side are supermarket chains Kroger and Albertsons, which say their planned merger will help them compete with rivals like Costco. On the other side are antitrust regulators from the Federal Trade Commission, who say the merger will eliminate competition and raise grocery prices at a time of already high food inflation.

Starting Monday, a federal district court judge in Portland, Oregon, will consider both sides and decide whether to grant the FTC’s request for a preliminary injunction. The injunction would delay the merger while the FTC pursues its internal case against the deal before an administrative judge.

Cincinnati, Ohio-based Kroger operates 2,800 stores in 35 states, including brands such as Ralphs, Smith’s and Harris Teeter. Boise, Idaho-based Albertsons operates 2,273 stores in 34 states, including brands such as Safeway, Jewel Osco and Shaw’s. Combined, the companies employ about 710,000 people.

Here’s what you need to know ahead of the hearing, which is scheduled to last until September 13.

Kroger and Albertsons — the two largest grocery chains in the U.S. — announced in October 2022 that they plan to merge. The companies say the $24.6 billion deal would lower prices, give them more leverage with suppliers and allow them to combine their store brands. They also say the merger would help them compete with large rivals like Walmart, which currently controls about 22% of U.S. grocery sales. Combined, Kroger and Albertsons would control about 13%.

Antitrust regulators say the proposed merger would eliminate competition, leading to higher prices, lower quality, and lower wages and benefits for workers. In February, the FTC filed a complaint seeking to block the merger with an FTC administrative judge. At the same time, the FTC filed a lawsuit in federal court in Oregon seeking a temporary injunction. The attorneys general of Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming joined the federal lawsuit.

They say no. If the merger is approved, Kroger and Albertsons have agreed to sell 579 stores in locations where their stores overlap. The buyer would be C&S Wholesale Grocers, a New Hampshire-based supplier to independent supermarkets that also owns the Grand Union and Piggly Wiggly store brands. Kroger and Albertsons initially planned to get rid of 413 stores, but the FTC found that the plan would not allow C&S to be a strong competitor. Kroger and Albertsons agreed to get rid of the additional stores in April. The largest number of stores to be sold are in Washington, with 124, followed by Colorado with 91 and California with 63.

If the temporary injunction is approved, Kroger and Albertsons will likely appeal to a higher court, said Mike Keeley, partner and antitrust chairman at Axinn, Veltrop & Harkrider, a law firm in Washington. The case could then go through the FTC’s own court system, but because that can take a year or more, companies often abandon the deal before going through the full process, Keeley said. Kroger sued the FTC this month, arguing that the agency’s internal proceedings were unconstitutional and saying it wanted the validity of the merger to be decided in federal court. In that case, filed in Ohio, Kroger cited a recent Supreme Court ruling that limited the Securities and Exchange Commission’s authority to hear some civil fraud complaints at the agency rather than in court.

The FTC would likely appeal the ruling, but Keeley said it’s rare for an appeals court to overturn a lower court’s ruling on a merger, so the FTC could decide to drop the complaint. The case could continue through the FTC’s administrative process. It’s unclear what impact the presidential election might have on the case. The Biden administration has been particularly aggressive in challenging mergers it sees as anticompetitive, but lawmakers from both parties have expressed skepticism about the merger at a hearing in 2022.

Colorado and Washington have separately sued in state court to block the merger. It’s an unusual situation; states are usually co-plaintiffs in federal lawsuits. But both states feel they have a lot to lose. Colorado has more than 200 Kroger and Albertsons stores, while Washington has more than 300. Keeley said both states could seek their own injunctions in a different court if the FTC loses, but it would be surprising if another court blocked the merger if Kroger and Albertsons succeed in their federal case.