Without mergers, traditional grocers will continue to decline.

Blocking the proposed $24.6 billion merger of Kroger and Albertsons grocery stores would “maintain the declining trend of the traditional grocery store by limiting consumer choice and limiting price competition,” both retailers argued in a letter filed after the Sept. 2 hearing. 27, in a federal antitrust case brought by the Federal Trade Commission and nine attorneys general.

Arguments in the case, which began Aug. 26 in U.S. District Court in Oregon, ended in late September with the presentation of post-trial briefs, and both sides are still awaiting Judge Adrienne Nelson’s decision. Meanwhile, Kroger and Albertsons continue to defend the proposed settlement in separate antitrust cases in Colorado and Washington.

All three lawsuits claim that the merger violates antitrust law and would create a monopoly in the grocery industry, but Kroger and Boise, Idaho-based Albertsons of Cincinnati, Ohio, maintain that the industry remains highly competitive from non-traditional grocery stores such as Walmart. Costco and Amazon, among others. They also argue that divesting the 579 stores to C&S Wholesale Grocers would ensure continued competition in the market.

“The merger with Albertsons provides Kroger with the best opportunity to successfully compete with the unaffiliated giants – Walmart, Costco and Amazon – that dominate the grocery retail industry, both in stores and online,” Kroger and Albertsons said in a briefing after the hearing.

Retailers have seen this competition continue to intensify as online grocery sales grow on Amazon and other companies. An analysis by Albertsons “found that over the next 10 years, customer spending on e-commerce will increase by 11%, while customer spending in the grocery store will increase by 1.6%.

Both grocers rejected one of the FTC’s key arguments that Albertsons was in direct competition with Kroger, arguing that “Kroger’s long-standing pricing policy has been to narrow its sales reach to Walmart.”

“While this strategy helped Kroger close the spread with Walmart and enabled Kroger to lower its prices by 10% to 12% compared to Albertsons, Walmart remains the low price leader,” the retailers argued.

They said larger competitors such as Walmart, Costco and Amazon will continue to dominate the grocery market without a merger, and “Albertsons customers will continue to pay more than Kroger customers, and Albertsons may have to consider alternatives such as layoffs and stores closing.”

Kroger and Albertsons argued throughout the case that the FTC and state attorneys general were appealing to “neoclassical economics” in seeking to block the takeover in their claim that Kroger would raise prices if Albertsons ceased to be a competitor, “even though data shows that currently in some places where there are no Albertsons competing with Kroger, Kroger prices are not higher.”

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Calling the case a “trial anecdote,” Kroger said it must work in the “real world” where most customers shop at more than one store. Calling the one-stop-shop argument an “archaic view of consumers” that is “not supported by data or anything other than legal speculation,” the grocers argued in a letter after the hearing.

“Albertsons customers shop for groceries on average six times at six different locations in a given week,” the retailer noted, adding that more than 90% of shoppers visit more than one grocery retailer per month. “(I)f they shopped in one place, the number of trips per week would be one. “This data confirms that the full-service customer service professional is not accepting the reality of how the retail landscape has changed over the last 20 years.”

In addition to larger, non-traditional players, Kroger and Albertsons say they face stiff competition from pure-play grocery chains such as Food Lion, Amazon Fresh, Publix, Ahold Delhaize, Wegmans, HEB and Hy-Vee, among others. “Kroger views these retailers as a threat to the very existence of the corner grocery store,” he added in the briefing.

Kroger again promised to invest billions of dollars in the business to speed up acquired Albertsons stores, improve employee pay and lower prices.

“The evidence shows that Kroger’s post-merger business strategy is to invest $1 billion in pricing and another $1 billion in wages each year after a period of growth. Kroger will invest another $1.3 billion in store improvements. This will lead to lower prices, better stores and higher wages and benefits for employees,” the retailer said.

Failure to merge could spell a bleak future for Albertsons, which was sold to private equity firm Cerberus Capital Management in 2005. Albertsons CEO Vivek Sankaran took the stand in early September, telling the court that the chain faced challenges related to “category blurring” of competitors and that rejecting the deal could lead to layoffs and store closures. A briefing after the hearing indicated that a failed merger could also mean Albertsons could “exit some markets.”

Kroger and Albertsons also rejected the FTC’s claims that the plan to divest 579 stores to C&S Wholesale Grocers is unlikely to fill the competitive vacuum left by Albertsons’ departure.

The report indicated that the decision to sell the company to C&S Wholesale Grocers was made after a rigorous tender procedure that began with the participation of 92 interested parties – 72 strategic buyers and 20 financial buyers.

As noted in the report, C&S Wholesale Grocers, which began its search for a “transformational acquisition” in 2021, topped the list because of its experience as a wholesaler and service provider to more than 7,000 independent retailers.

This was a strategic move for C&S, which had to change after the loss in 2019 of one of its largest clients, Ahold Delhaize, which represented 44% of the wholesaler’s sales. In 2019, Ahold Delhaize made its own pivot by deciding to establish its own distribution model.

“Both of our major wholesale competitors have larger retail store footprints,” the briefing noted, quoting Mark McGowan, president of retail for C&S Wholesale Grocers. “And as a company, a family business, our owner wants the company to grow. Looking at the business and its future, we also felt we needed to diversify.

“We needed to improve service to our independent customers and improve the retail experience. So for us, this is a transformational change that our owners and our team are incredibly passionate about.”

The FTC argued that other store divestment plans had failed, such as Albertsons selling 146 stores to Haggen in 2015 after the grocery chain purchased Safeway. More than half (57%) of the stores sold to Haggen were closed, and many of them were resold to Albertsons.

Federal regulators have warned that the same could happen in the Kroger-Albertsons deal, but the grocery chains argued that C&S would lose hundreds of millions on the deal if it did not operate the divested stores.

“Without any supporting facts or expert testimony, plaintiffs’ counsel speculate that C&S may sell the stores after disposition, likely to make a quick buck by selling the properties. “However, plaintiffs have provided no evidence that C&S planned to do so or even that such a strategy would be financially viable,” the grocery store clerks noted. “On the contrary, with a purchase price of $2.9 billion and a value of the underlying assets of only about $2 billion, C&S “would lose $900 million if (it) did so.”

Albertsons said it would send one of its chief executives, COO Susan Morris, to C&S Wholesale Grocers “along with four complete division teams and hundreds of subject matter specialists” to support the reorganized grocery chain.

“C&S is well capitalized — it has $900 million in new equity capital to finance the acquisition — and employs a team of experienced retail executives…” as stated in a post-hearing briefing.

Additionally, approximately 67,000 Kroger and Albertsons employees will move to C&S Wholesale Grocery during the transition period, and the new chain plans to launch its own private label with approximately 2,000-3,000 new products.

“C&S has a comprehensive plan: it has identified divestment risks, carefully quantified and budgeted the risks, and included $1 billion to cover any unexpected expenses beyond what was anticipated,” the grocer explained in the brief.