Why the merger between Kroger and Albertsons has stalled

The Federal Trade Commission sued to stop the country’s two biggest grocers from merging.

By Michael MarksMarch 7, 2024 10:37 am,

In the fall of 2022, a couple of grocery chains with stores in Texas announced plans to merge. Kroger would acquire Albertsons in a deal worth more than $24 billion. Since then, federal regulators have been evaluating whether the deal would negatively affect consumers and workers.

Their conclusion: it would. In late February, the Federal Trade Commission filed a lawsuit to try to prevent the merger. Jeff Wells, lead editor for Grocery Dive, spoke to Texas Standard about why. Listen to the interview above or read the transcript below.

This transcript has been edited lightly for clarity:

Texas Standard: What are the FTC’s main complaints here about Kroger’s proposed acquisition of Albertsons?

Jeff Wells: Yeah, I think in in summary, the FTC is saying that by these two major supermarket chains combining, it would lead to higher prices for consumers.

It would lead to diminishing safeguards for workers. The two chains wouldn’t be competing for talent at the store level or the management level. And that could lead to lower pay or decreased benefits.

And the other thing there that the FTC is saying is that, you know, Kroger and Albertsons set out a plan to divest over 400 stores to a wholesaler called C&S Wholesale based in New Hampshire. And the FTC is just not satisfied with that as a remedy for divesting stores.

You know, you anticipated my next question. Why was that part of the deal in the first place? I guess to sort of sweeten the appearance of things for the FTC?

Yeah, because in markets across the country, Kroger and Albertsons stores, they might be right down the street from each other or across the street. I’m sure that’s the case in some Texas markets.

You know, I live in the Seattle area where Kroger and Albertsons are the two main supermarket chains. And so to satisfy regulators, Kroger and Albertsons, you know, realized that they would need to offer to sell quite a few of the stores that they operate so that they’re not in direct competition with each other. They’re not operating in such close proximity.

And so they proposed selling over 400 locations that they thought would satisfy the FTC. But the FTC responded saying that they don’t believe that’s the case for a number of reasons.

It’s worth noting for our listeners here in Texas that even though H-E-B, which is a privately held company, dominates the market in at least Central to South Texas and has been making some rather large inroads into North Texas, Kroger’s certainly has a fairly large footprint, and it’s not at all uncommon for folks in different parts of Texas to see Albertsons, formerly Safeway. Am I right?

That’s right. Well, Albertsons owns Safeway. So both of these are the two largest supermarket chains in the country, and they both operate various regional brands.

So Albertsons controls Safeway. That’s its largest brand. It also controls Tom Thumb, which is in the Texas market. Kroger operates Ralphs in California, Harris Teeter on the East Coast, Dillons in the Midwest. Between the two of them, they have, I think it’s over 30 grocery brands.

So the FTC has sued to prevent this merger, but what exactly does that mean? What happens next? 

So Kroger has said that they plan to challenge the lawsuit. So I think they want to take this to court just because the FTC says they’re going to sue.

That doesn’t mean, you know, the merger can’t still happen. I actually think that Kroger and Albertsons have a pretty good case in fighting what the FTC has laid out here. So, it’s going to go before a federal judge, who would have the ultimate say over whether or not the merger could go through.

We were talking about Albertsons brands, and I mentioned Safeway and you talked about how it was such a big brand, but didn’t Albertsons and Safeway merge about ten years or so ago? And I’m curious why that was not such a red flag like this deal is. Does it come down to scale?

Well, it’s interesting because actually the ghost of that deal looms over this case because the FTC, you know, blessed that deal wherein Albertsons acquired Safeway. And part of that deal was Safeway had to sell off a bunch of stores. And what it did was it sold over 100 stores as part of a divestiture plan to a small northwest grocery chain called Haggen. And as you can imagine, a small grocery chain taking on suddenly all these stores that couldn’t manage that load, and it ended up filing for bankruptcy.

And so the FTC has looked at that case from ten years ago and said, yeah, that deal got approved, but it probably shouldn’t have. And so that’s why they were taking really close extra scrutiny to the divestiture plan. So the ghost of Albertsons’ acquisition of Safeway certainly looms over this deal.

So what does this mean for the grocery industry writ large? Are we going to see more consolidation attempts or what’s your take?

I think it depends on if the deal goes through. If Albertsons and Kroger are ultimately able to merge, I think we’re going to see a great deal of merger activity among other regional grocery chains in the country.

Because what I find really interesting about this deal is that these are two supermarket chains that, through combining, they’re trying to compete with Walmart, Amazon and Costco. Traditional grocery chains used to dominate the industry, but that’s no longer the case. Walmart is the leading grocer in the country. And so Kroger and Albertsons realize that they need to stand on each other’s shoulders if they’re going to compete with those heavyweights.

And so if they’re allowed to, you can imagine that other companies in the industry would see this, other traditional grocers would see this, and they would want to build scale as well. Really, the greatest benefits in this industry are going to companies with scale, because it means you have greater efficiency, you have greater negotiating power with suppliers, you have a leading edge in technology and some of these other really rapidly evolving areas.

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