Colorado antitrust trial in grocery megamerger has Kroger dangling a 10% price drop

About two weeks before the Federal Trade Commission sued to block Kroger Company’s proposed $24.6 billion merger with Albertsons Companies Inc. in late February, Colorado’s Office of the Attorney General filed an antitrust lawsuit of its own.

The state’s antitrust trial began Monday morning in Denver District Court, room 414, as attorney Arthur Biller with the AG’s Office laid out how the merger threatens to increase grocery prices, reduce competition and impact the number of grocery workers and supermarkets, especially in the more rural parts of the state. He called Kroger “a monopolist of supermarkets” because it searches for “no-comp or low-comp stores,” or stores with little to no competition.

“Watch what they do, not what they say,” Biller said, “because Kroger has shown lowering prices is not their business strategy. They look to raise prices on consumers by conducting price probes and by looking for ‘no-comp’ stores. After this merger, there are likely to be even more no-comp stores, especially in Colorado.”

In Colorado, Kroger owns about 150 King Soopers and City Market stores while Albertsons has 105 under Safeway and its namesake brand. As part of the merger, Kroger will keep 14 Albertsons stores. But it will sell off 91 stores in Colorado — 89 Safeways and two Albertsons that will rebrand as Safeway — plus a distribution center and dairy plant to C&S Wholesale Grocers, a New Hampshire-based wholesale grocery supplier with two dozen stores in New York and the Midwest, including Piggly Wiggly and Grand Union supermarkets.

Kroger’s lawyer struck back, pointing out that his company’s grocery prices are “10 to 12% lower than Albertsons,” said Matthew M. Wolf, Kroger’s lead attorney, echoing Kroger CEO Rodney McMullen’s statement during the FTC trial that wrapped up two weeks ago.

“By continuing this suit, the state is seeking to preserve a status quo where Albertsons shoppers pay 10% more for their groceries then they have to,” Wolf said in his opening remarks. “I heard my colleague say more than once, ‘Watch what we do, watch what we do.’ And indeed he’s right. Yet, this is what we do. And the state ignores it.”

C&S has already said it knows prices are too high, too, and will reduce prices 10% by reinvesting store profits, Wolf added.

Lawyers for C&S, meanwhile, said the company is more than just a distributor. It plans to double down on its supermarket business with the $2.9 billion purchase of 579 new stores it’ll gain in the Kroger divestiture sale. It has also made offers to Colorado employees at the Safeway and Albertsons stores.

But Biller said one needs to just look to history to see how these megachains operate even when they are competitive. When investigating its antitrust case, the AG’s team alleged there was collusion between the companies during the King Soopers worker strike in January 2022. Correspondence between an Albertsons president and a Kroger vice president implied that Albertsons agreed not to hire any of its rival’s workers who were on strike nor would it try to market to King Soopers pharmacy customers who wanted to avoid crossing a picket line.

“The news of this agreement was spread to the highest levels of Albertsons,” Biller said. “None of these C-suite level executives tried to put a stop to this agreement or reported it. This is a stunning failure of corporate compliance. These are straightforward agreements between direct competitors to not compete for workers and not compete for customers. And they are per se illegal. …There are no inferences needed here because Kroger and Albertsons put their agreements directly in writing. We have what the courts refer to as the smoking gun.”

The two rivals also compete more closely with one another than with other “alternative format” stores, like a wholesale club or natural organic grocer, according to an analysis done for the AG by an economist who will take the stand later in the trial. The state downplayed alternative options because of the economist’s findings showing that in areas where a new supermarket opens, a nearby Albertsons loses 19% of its business while a Kroger loses 14%. But when an alternate format store opens, Kroger loses less than 5% of its business while Albertsons tends to gain business on average.

Grocery store attorneys found it ridiculous to exclude alternate-format stores as competition since, as Albertson’s attorney Enu Mainigi pointed out, even AG Phil Weiser shops at alternative stores like Costco and Trader Joe’s. She played a recording of Weiser mentioning just that.

“Shoppers are looking to optimize where they buy groceries. They go to multiple places to do so and the thing that many of them care about most is price,” Mainigi said. “Of course, Albertsons and Kroger compete. But as (our expert will testify), the most significant threat they face in Colorado today is not competition from King Soopers. It’s competition from Costco, Amazon, Target and Walmart.”

Albertsons sought a partner because it became too challenging to sell groceries for less than it cost the company and still remain competitive. She said in some markets, Albertsons sells a type of Kraft Mac & Cheese product for $3.49 while Walmart sells the same one for $2.98. She wouldn’t share the grocer’s exact cost to buy it but added, “it begins with a three.” In other words, she said, Albertsons doesn’t have the scale to buy mac and cheese for less than what Walmart sells it to its shoppers.

“The court here needs to look at the commercial realities when it evaluates this merger. And the commercial realities are that Walmart, Costco and Amazon, their corporate strategies involve keeping prices as low as possible, scale and lower prices are their business models,” she said. “Retail giants who can dominate on scale and price are taking over the market right now. Albertsons just can’t compete with that kind of scale but the merger will give the combined company the scale to lower prices and compete better with Walmart, Costco and Amazon.”

But it is the rural markets with limited choice that concerns the state. Biller said Kroger has eight stores, all of them in the mountains, that compete only with alternative-format stores.

In Eagle, for example, there’s a Kroger-owned City Market, a Costco within 4 miles, a Family Dollar within 6 miles and a Ridley’s Family Market “which we could not classify as a large grocer” that’s 7 miles away. Glenwood Springs has a City Market, a Natural Grocers, a Target and a Walmart, that has a pharmacy but is not a full grocery store, within 3 miles.

“So at each of these eight stores, Kroger decided to raise prices. What happened? Well, Kroger compared the performance at these no-comp stores to other of its Colorado stores that do face competition. “What they found was sales went up, gross margins went up and they did not lose customers,” Biller said. “In other words, Kroger as a monopolist of supermarkets in those areas profitably raised prices.”

The case continues Tuesday and is expected to wrap up Oct. 18.

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Type of Story: News

Based on facts, either observed and verified directly by the reporter, or reported and verified from knowledgeable sources.