CEOs Testify in FTC Case Against Kroger-Albertsons Merger, Talk Prices, Closures, and Jobs

In the highest-profile testimony yet in the ongoing investigation of Krogers’ proposed $25 billion takeover of Albertsons, the CEOs of both companies defended the merits of the merger and hinted at serious consequences if it is not approved.

Kroger CEO Rodney McMullen warned that supermarkets are being surrounded by unconventional food competitors, and Albertsons CEO Vivek Sankaran suggested his Plan B could mean layoffs, store closures and withdrawing from geographic markets.

The hearing has been described as a “mini-trial” by antitrust experts, with regulators from the Federal Trade Commission seeking an injunction blocking the merger while the agency pursues the rest of its case against the deal in Washington. The stakes are high because antitrust experts have predicted, and Kroger’s attorney has confirmed, that the merger “won’t happen” if the retailers don’t fight back, saying months of delay would be too long.

Here are the most important excerpts from the CEOs’ statements:

Rodney McMullen Focuses on Prices, Walmart and Other Emerging Competitors

On the podium, McMullen repeated promises that his takeover would save union jobs and save customers money at the checkout. He also downplayed the fact that losing Albertsons as a standalone company would reduce overall competition in the market. He said there are too many unconventional competitors selling food, and the industry is more competitive than ever.

“We view Walmart as our number one competitor,” McMullen told the court.

McMullen recalled that Walmart first caught his attention in the 1990s, when it opened a store in Tennessee and quickly gained a third of the local market share. In general, he described Kroger’s strategy of trying to keep prices on basic items within a few percentage points above Walmart’s and below its traditional competitors—noting that Albertsons’ prices were, on average, about 10% to 12% higher than Kroger’s.

He said focusing on competition between traditional grocery stores would be shortsighted, noting that many of them are disappearing or even going out of business.

“When I started in the industry, A&P was the largest grocery store. They don’t even exist anymore.”

The Spirit of Business Descriptions and Reports from the Past

FTC lawyer Susan Musser dismissed McMullen’s vision of an expanding competitive landscape. She noted that Kroger has referred to itself as a “one-stop shop” when describing its business model in government filings and even lawsuits. That distinction is key because if the judge begins to view Kroger more narrowly as a “traditional supermarket,” it would complicate the argument that eliminating Albertsons as a competitor is a good idea.

Musser pressed the issue even harder: questioning McMullen about how much Kroger competes with dollar and club stores. She cited company documents that describe Albertsons as the No. 1 or No. 2 competitor in several major metropolitan markets.

Finally, Musser pressed McMullen on his promise not to close stores. He admitted that he could close an unspecified number of stores after the merger, either to relocate a store to a larger location or to close or consolidate stores in a struggling geographic market.

“The food business is a zero-sum business”

Sankaran also highlighted the swarm of competition from nontraditional grocery retailers and tried to downplay Albertsons’ rivalry with Kroger. He described the industry’s bold new world as one of “category blurring,” where once-uncompetitive operators were now at each other’s throats.

“Once customers start buying (a pack of) 50 bottles of Gatorade, they won’t get it at the grocery store,” Sankaran told the court. “The grocery business is a zero-sum business. People aren’t eating more.”

Sankaran said combining forces and getting bigger was key for Albertsons to achieve the scale of its operations that would allow it to increase efficiency, lower prices and compete effectively. He indicated that Albertsons’ future could become bleaker if the merger doesn’t get approval: layoffs, store closures and even exiting geographic markets could all happen.

“I don’t want to go down that road,” Sankaran warned.

Albertsons Restructuring Rumors Cast in Doubt

McMullen met resistance, but Sankaran had to field even tougher questions from FTC attorney Albert Teng.

This was due in part to Albertsons’ decision to pay shareholders a one-time $4 billion dividend in early 2023 as part of the deal.

Weeks before the payout, Sankaran told federal lawmakers at a November 2022 Senate hearing that Albertsons was in “excellent financial condition” and that the dividend “would not impact our ability to invest in the company,” Teng reminded Sankaran.

“Have you informed Congress about (potential) layoffs, closures and exits?” Teng asked.

Teng pressed for details about a potential future restructuring of Albertsons, but lawyers for the grocery store owner said the question veers toward “confidential materials.”

Sankaran said that “the market is different today” and that he “has to look to the future.”

Oops: When Your Boss Makes a Big Mistake

These were not the most difficult questions Sankaran had to face.

Teng began his cross-examination by pressing the CEO to remind the court of the size of his golden parachute if the deal is approved: $43 million.

Sankaran was also asked questions about how he handled internal communications he was required to keep when his company was put up for sale. On Wednesday, he testified that he forgot to turn off the auto-delete feature on his cellphone for a year.

Sankaran admitted to Teng that he may have deleted about 1,700 work-related messages.

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This article originally appeared in the Cincinnati Enquirer: Kroger, Albertsons CEOs questioned in court, defend proposed merger