Kroger, Albertsons CEOs Defend Supermarket Merger Plans in Court

Krogers’ CEO on Wednesday stressed that the merger with rival Albertsons would allow the two supermarket chains to lower prices and compete more effectively with retail giants such as Walmart, Costco and Amazon.

Kroger CEO Rodney McMullen, testifying at a hearing in federal court in Oregon on the U.S. government’s request for a temporary injunction that would block the $24.6 billion deal, argued in favor of the largest grocery chain merger in U.S. history.

“The day we merge is the day we start lowering prices,” McMullen said under questioning from a lawyer representing his company.

Addressing another issue that worries customers in communities where both Albertson’s and Kroger stores operate, McMullen said Kroger has pledged not to close any stores immediately if the merger is finalized, but could do so at a later date if it decides a relocation or consolidation is necessary.

The Federal Trade Commission sued earlier this year to stop the merger that the two companies proposed in October 2022 after Kroger agreed to buy Albertsons. The commission argued that the deal would eliminate competition and lead to higher food prices for already struggling consumers.

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.

FTC attorneys argued in a U.S. District Court motion seeking the commission’s injunction that in the 22 states where the two companies currently compete, they are similar in price, quality, private-label products and services such as in-store pickup. Customers benefit from that competition and would lose if the merger were allowed, they said.

McMullen responded to that argument by saying that Albertsons’ prices are 10% to 12% higher than Krogers’ and that the combined company would try to narrow that gap as part of a strategy to retain customers. Walmart currently controls about 22% of U.S. grocery sales. Combined, Kroger and Albertsons would control about 13%.

“We know prices will continue to decline,” McMullen said.

His statements and the upcoming testimony of Albertsons CEO Vivek Sankaran were expected to be key elements of a three-week hearing that is now halfway through. What the two say under oath about prices, potential store closures and the impact on workers will likely be scrutinized for years to come if the merger goes through.

FTC Chief Counsel Susan Musser cited Kroger’s 2021 investor book to argue that the merger would impact competition in areas where the two companies’ stores overlap. Albertsons is Kroger’s biggest competitor in many metropolitan areas, including Portland, according to the document.

Kroger’s lawyer responded that Walmart remains Kroger’s largest competitor in most markets across the country.

The FTC and union leaders also say worker wages and benefits would fall if Kroger and Albertsons stopped competing. They also expressed concerns that potential store closures could create so-called food and pharmacy “deserts” for consumers.

Albertsons has argued that the deal could actually strengthen union jobs, since many of its stores and Kroger’s competitors, such as Walmart, have few union workers. McMullen said Wednesday that Kroger has committed to honoring existing labor agreements.

FTC general counsel Musser said the merger could have an impact on working conditions because union contracts are typically renegotiated every three years.

Under the proposed deal, Kroger and Albertsons would sell 579 stores in areas where their locations overlap to C&S Wholesale Grocers, a New Hampshire-based supplier to independent supermarkets that also owns the Grand Union and Piggly Wiggly brands.

The FTC says C&S is not prepared to take on the stores. Laura Hall, senior counsel for the FTC, cited internal documents that indicated C&S executives were skeptical about the quality of the stores they would receive and may want the option to sell or close them.

C&S CEO Eric Winn testified last week that he believes his company can succeed in the endeavor.

The FTC is seeking an injunction to temporarily block the merger while its lawsuit challenging the deal goes to an administrative judge. U.S. District Judge Adrienne Nelson was expected to hear from about 40 witnesses before deciding whether to grant the request.

If Nelson agrees to issue an injunction, the FTC plans to hold internal hearings starting Oct. 1. However, Kroger sued the FTC last month, arguing that the agency’s internal proceedings are unconstitutional and wants the validity of the merger to be decided in federal court.

Attorneys general for Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming joined the FTC’s lawsuit on the commission’s side. Washington and Colorado filed separate cases in state courts seeking to block the merger.