Colorado trial over Kroger, Albertsons merger begins | News

The third trial over the proposed $25 billion merger of Kroger and Albertsons began Monday in Colorado, with the state seeking to portray the deal as enabling the grocers to raise prices and the grocers countering that it would do the opposite.

The state plans to demonstrate how Kroger would become a monopoly in parts of Colorado, while the company seeks to show that not allowing the merger would only preserve the status quo of higher prices.

Attorneys for the state and the grocers presented their opening arguments to Denver District Court Judge Andrew Luxen, who will consider whether the merger violates the state’s antitrust laws. Luxen issued a preliminary injunction to halt the merger while the case plays out in court. The judge is set to rule on whether or not to make it permanent.

Ahead of the trial, Attorney General Phil Weiser said the case here will differ from the one in Washington and the Federal Trade Commission’s lawsuit heard in Oregon by showing how the national merger would have local impacts on grocery competition within Colorado.

Kroger is based out of Cincinnati, Ohio, and has a strong footprint in the Midwest and Southeast US, not including Florida. Meanwhile, Albertsons has a better reach in California, West Texas and the Northeast US Kroger hopes the merger will help expand its presence nationally to better compete against other national grocers, notably as Walmart, Amazon and Costco.

Kroger is the parent company of Colorado’s King Soopers and City Market chains and operates 149 stores across the state. Albertsons owns Safeway and has 105 stores.

In Colorado, the two grocers’ presence is much closer in size than in other parts of the country. Officials worry Kroger would become a monopoly in the state.

Kroger is arguing that the merger would deliver better deals for customers, since it can use its size to lower prices.

More power to raise or lower prices?

In his opening arguments, Colorado Assistant Attorney General Arthur Biller said the merger would give Kroger more power to raise prices across the state, especially in mountain towns where there are fewer grocery options.

Biller said the grocery landscape in Colorado is dominated by Kroger, Albertsons and Walmart, in that order by store count.

“In this state, Kroger and Albertsons are the ones with the biggest footprints. And in many places, they are the only options,” Biller said. “If you’re lucky, you might also have a Walmart.”

When it comes to pricing, Biller said Kroger tracks Walmart’s prices as a “floor” for their own products and Albertsons’ as a “ceiling.”

The assistant attorney general said the merger would remove the ceiling and Kroger “will feel free to raise prices even more.” He added that Walmart will also have more room to raise prices if the merger goes through.

Several times, Biller told the court to “watch what they do, not what they say.”

The state plans to show throughout the trial that Kroger has historically raised prices when it could in markets with less competition, arguing that Kroger’s promise to lower prices isn’t legally binding.

Notably, the state plans to demonstrate how Kroger would become a monopoly in parts of the state, arguing the merger would give the grocer more than 30% grocery market share — the threshold for the state’s antitrust regulations — in every city area in Colorado.

On average, statewide, Biller said Kroger would take over 68% market share if it merges with Albertsons.

In eight markets — such as Gunnison, Durango, Grand Junction, Windsor and Steamboat Springs — Biller said the merger would create a monopoly.

The state also wants to define supermarkets by excluding Costco, Dollar Tree, Whole Foods and Trader Joe’s as serious competitors.

Biller said Trader Joe’s, Whole Foods, and Natural Grocers caters to higher-income consumers and are smaller-format that don’t offer the same variety of products. Costco is a wholesale membership-only grocer and many Dollar Tree stores don’t sell fresh produce and fresh meats.

Colorado’s case aims to show how Kroger’s pricing decisions are primarily determined by Albertsons and Walmart, not the other competitors.

Colorado AG sues to block Kroger-Albertsons merger

What’s a grocery store?

Kroger seeks to portray the state’s lawsuit as “seeking to preserve a status quo” of higher prices at Safeway.

Matt Wolf, Kroger’s attorney, argued that the grocer’s prices are, in fact, between 10% to 12% lower than Albertsons.

Kroger has promised in public statements and through testimonies at the other trials in Oregon and Washington that it would lower prices if the merger goes through. The company also said it needs the deal to happen to compete against a changing grocery landscape with the rise of Walmart, Costco and Amazon.

Kroger’s legal team also took issue with the state’s definition of a supermarket, saying it is “incredibly narrow” and the stores the state wants to exempt do have competitive effects on Kroger and will continue to years down the line.

Wolf claims the state’s case, arguing it will solely rely on expert testimony from economist Nitin Dua, claiming the expert doesn’t take into account the different grocery formats as competitors and missed calculating Target in the assessment.

And in rural mountain markets, Wolf said, the state’s examples of King Soopers raising prices when it faced less competition from Safeway wasn’t due to the lack of competition but because of the higher cost to operate stores in those regions, pointing to higher fuel costs and the distance it takes to get there.

Kroger said it’ll be able to lower prices because it’ll have more purchasing power with the national expansion the merger provides.

“A truly national footprint allows the efficiencies to drive down costs,” Wolf said, because Kroger will be in markets it is currently not in or has a small presence in, such as California, the northeast US and West Texas.

But in markets like Colorado, where there’s more overlap, Kroger plans to sell off much of Albertsons’ infrastructure.

“We recognized there are overlaps where divestitures are required,” Wolf said.

Wolf also downplayed the state’s scale of the merger, saying the grocer will gain 14 stores from the merger in Colorado due to the divestiture of 91 Albertsons stores under the Safeway banner to C&S Wholesale Grocers.

Albertsons’ legal team added that the impacts in Colorado will be non-existent, since C&S Wholesale Grocers will buy nearly all Albertsons stores in the state, as well as a Denver dairy plant and distribution center.

The new competitor

The state is worried about who Kroger and Albertsons chose to take over 91 Albertsons stores in Colorado, while the grocers maintained C&S Wholesale Grocers is competent.

Colorado’s legal team painted C&S Wholesale Grocers as a “distributor” and a “retail liquidator.”

Kroger’s attorneys stressed it’s a “family-owned business” with a long history in the grocery industry and will get the adequate resources needed to operate grocery stores once the merger closes.

“Rather than take a buyer with an established retail operation or split the divestiture among multiple established retail operators across the country, it picked a single buyer who would not put up much competition,” Biller said.

Colorado seeks to prove that C&S Wholesale isn’t a sufficient replacement for Albertsons, despite the divestiture agreement giving the rights to the Safeway brand to the distributor within Colorado.

Biller claimed the company wants the retail stores to expand its distribution business, will raise prices for short-term gain and will sell the stores once they underperform for their real estate value.

Why Colorado Safeway stores wouldn’t be run by Kroger if merger goes through

During the trial, the Colorado grocery worker’s union, UFCW Local 7, held a rally on the steps of the courthouse, advocating to stop the merger and also casting doubt on C&S Wholesale. The union said the company has no record to show it can handle operating more than 500 stores nationwide, putting workers at risk of store closures and layoffs.

The union workers demanded the grocers that have been promising to lower prices do it regardless of the merger, added the legal fees to fight the cases could have been better used to lower costs and offer better pay for workers.

“They are not going to be ready to go on day one,” Tom Olson, 61, a former Safeway worker in Golden before becoming a union representative, told The Denver Gazette. “They have to build an entire organization to support that many stores.”

Olson said he worked at Safeway when it was acquired by Albertsons in 2015 and lost his seniority and bonuses attached to being a product manager from the deal and is worried the same situation will happen again.

Albertsons’ failed divestiture to Haggen’s, when stores closed after a year of the deal for Albertsons to buy back at a cheaper price, will be Colorado’s example to show how divestitures can be harmful to workers and consumers.

Meanwhile, the Kroger and Albertsons legal teams said they’re giving a lot of infrastructure to C&S Wholesale to support its growth, including a distribution center and dairy plant in Denver, a “clone” of its technology systems and its top talent, including Albertsons Chief Operating Officer Susan Morris and the head of the grocer’s Denver division Todd Broderick.

“The top three people running the stores in Colorado for Albertsons will be doing the same thing for C&S the day after the merger,” Wolf said, adding that those leaders will establish an “Intermountain Division” for C&S Wholesale Grocers.

In short, the grocers’ argument is to show the leaders currently running Colorado’s Albertsons stores will be the same ones managing it after the merger under the divestiture agreement, claiming they aren’t moving over with their decades of retail experience to expand C&S Wholesale Grocers ‘ distribution business.

The state’s final argument is to show Kroger and Albertsons had illegal “non-poach agreements” when King Soopers workers went on strike in 2022. Colorado attorneys said they have a “smoking gun” where executives from both grocers said in an email exchange that they wouldn’t hire striking employees or solicit pharmacy prescriptions during the disruption.

Albertsons’ legal team denied the claim and said the emails were only to confirm Albertsons’ longstanding practice to not hire striking workers because many go back to their former employer when strikes end and Albertsons loses money to onboard them.

The trial is set to run three weeks with an end date scheduled for Oct. 18.