Colorado lawsuit challenging Kroger-Albertsons merger begins

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

The state antitrust trial began Monday morning in Denver District Court, Room 414, as attorney Arthur Biller of the AG’s office outlined how the merger threatens to raise grocery prices, reduce competition and impact grocery and supermarket worker numbers, especially in more rural parts of the state. He called Kroger a “supermarket monopoly” because it seeks out “no-compromise or low-price stores,” meaning stores with little or no competition.

“Watch what they do, not what they say,” Biller said, “because Kroger has shown that lowering prices is not their business strategy. They try to raise prices for consumers by conducting price surveys and looking for “no-compromise” stores. After this merger, there will likely be even more no-compromise stores, especially in Colorado.”

In Colorado, Kroger owns about 150 King Soopers and City Market stores, while Albertsons has 105 under the Safeway brand and its namesake. As part of the merger, Kroger will retain 14 Albertsons stores. But it will sell 91 stores in Colorado – 89 Safeways and two Albertson’s, which will be renamed Safeway – as well as a distribution center and dairy plant to C&S Wholesale Grocers, a New Hampshire-based wholesale grocery supplier that operates two dozen stores in New York and the Midwest West, including Piggly Wiggly and Grand Union supermarkets.

Kroger’s lawyer responded by pointing out that his company’s grocery prices are “10 to 12% lower than Albertsons prices,” said Matthew M. Wolf, Kroger’s general counsel, echoing a statement Kroger CEO Rodney McMullen made during the FTC trial that ended two weeks ago.

“By continuing this lawsuit, the state seeks to maintain the status quo in which Albertsons customers pay 10% more than necessary for groceries,” Wolf said in his opening remarks. “I heard my colleague say more than once: ‘Watch what we do, watch what we do.’ And he is indeed right. Yet that’s exactly what we do. And the state ignores it.”

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

Meanwhile, C&S lawyers said the company is more than just a distributor. It plans to double its supermarket business by purchasing 579 new stores for the $2.9 billion it will receive from the sale of Kroger. He also made offers to Colorado workers at Safeway and Albertsons stores.

But Biller said you only need to look at history to see how these mega-chains perform even when they are competitive. Investigating the antitrust case, the AG team alleged that there was collusion between the companies during the January 2022 King Soopers employee strike. Correspondence between Albertsons’ president and Kroger’s vice president indicated that Albertsons had agreed not to hire any of its rival’s employees to go on strike or attempt to offer products to King Soopers pharmacy customers who wanted to avoid crossing picket lines.

“News of this arrangement reached Albertsons’ top officials,” Biller said. “None of the senior executives attempted or reported this arrangement to end it. This is a stunning corporate compliance failure. These are simple agreements between direct competitors that they do not compete for employees and do not compete for customers. And they are illegal in themselves. …No conclusions are needed here because Kroger and Albertsons have presented their findings directly in writing. We have what the courts call a smoking gun.”

According to an analysis conducted for AG by an economist who will comment later in the process, the two rivals compete more closely with each other than with other “alternative format” stores, such as a wholesaler or a health food grocery store. The state disregarded alternative options because of economist findings that showed that in areas where a new supermarket opens, nearby Albertsons loses 19% of its business and Kroger loses 14%. But when a store opens in an alternative format, Kroger loses less than 5% of its business, while Albertsons gains on average.

Grocery lawyers found it absurd to exclude alternative format stores as competition because, as Albertson’s lawyer Enu Mainigi pointed out, even AG Phil Weiser shops at alternative stores like Costco and Trader Joe’s. She played a recording of Weiser just mentioning it.

“Shoppers want to optimize where they buy groceries. To do this, they go to many places, and for many of them, the most important thing is price,” Mainigi said. “Obviously Albertsons and Kroger compete. But as (our expert will testify), the most important threat facing Colorado today is not competition from King Soopers. That’s competition from Costco, Amazon, Target and Walmart.

Albertsons was looking for a partner because it was becoming too difficult to sell groceries at less than it cost the company while remaining competitive. She said that in some markets, Albertsons sells a type of Kraft Mac & Cheese product for $3.49, while Walmart sells the same product for $2.98. She didn’t give the exact cost of the grocery store purchase, but added, “It starts with three.” In other words, she said, Albertsons doesn’t have the scale to buy macaroni and cheese for less than what Walmart sells to its customers.

“In assessing this merger, the court must take commercial realities into account. “The commercial reality is that Walmart, Costco and Amazon, whose corporate strategies include keeping prices as low as possible, and scale and lower prices are their business models,” she said. “Retail giants that can dominate in scale and price are already taking over the market. Albertsons simply cannot compete on this scale, but the merger will provide the combined company with the opportunity to lower prices and better compete with Walmart, Costco and Amazon.”

But it is rural markets with limited choices that worry the state. Biller said Kroger has eight stores, all in the mountains, that compete only with alternative format stores.

For example, Eagle has a Kroger-owned City Market, a Costco within 6 miles, a Family Dollar within 6 miles, and Ridley’s Family Market, “which we cannot classify as a large grocery store,” which is within 7 miles. In Glenwood Springs, within a 3-mile radius there is a community market, a natural grocery store, a destination store, and a Walmart with a pharmacy but not a full grocery store.

“So in each of these eight stores, Kroger decided to raise prices. What happened? Well, Kroger compared the performance of these stores without offsetting to other stores in Colorado that have competition. They determined that sales increased, gross margins increased and the company did not lose customers,” Biller said. “In other words, Kroger, as the supermarket monopoly in these areas, has profitably raised prices.”

The case continues on Tuesday and is scheduled to end on October 18.

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Story type: News

Based on facts observed and verified directly by the reporting person or reported and verified from competent sources.