PORTLAND, Ore. – In the highest-profile testimony over Kroger ’s proposed $25 billion takeover of Albertsons , the CEOs of both companies defended the merger’s merits and hinted at dire consequences if it was not approved.
Kroger CEO Rodney McMullen warned supermarkets were surrounded by nontraditional rivals selling food. Albertsons CEO Vivek Sankaran hinted his Plan B could mean layoffs, store closures and retreating from geographic markets.
The hearing has been described as a mini-trial by antitrust experts where regulators with the Federal Trade Commission are seeking a court order to block the merger as the agency pursues the rest of its case against the deal in Washington, D.C. The stakes are high because antitrust experts predicted and a Kroger attorney confirmed the merger "will not occur," if the grocers don’t fight off the injunction.
Here are highlights of the CEOs' testimony:
Rodney McMullen focused on prices, Walmart and other emerging competition
On the stand, McMullen repeated promises that his acquisition would preserve union jobs and save customers money at the checkout. He also downplayed that the loss of Albertsons as a standalone company would reduce overall competition in the marketplace. He said too many nontraditional competitors are selling food and the industry is more competitive than ever.
“We would consider Walmart our No. 1 competitor,” McMullen told the court.
McMullen recalled Walmart first caught his attention in the 1990s when they opened a store in Tennessee and quickly grabbed a third of the local market share. In general, he described Kroger’s strategy as keeping its prices on core items within a few percentage points above Walmart prices and below traditional competitors. He noted Albertsons’ prices were about 10% to 12% above Kroger's on average.
He indicated it was short-sighted to focus on competition between traditional grocers, noting many are fading or gone altogether.
“When I got into the industry, A&P was the largest grocer," he testified. "They don’t even exist anymore.”
The ghost of business descriptions and reports past
FTC attorney Susan Musser pushed back at McMullen’s vision of a widening competitive landscape. She noted Kroger referred to itself as a “one-stop shop” describing its business model in government filings and even lawsuits. The distinction is critical because if the judge comes to view Kroger more narrowly as a “traditional supermarket” it complicates the argument that removing Albertsons as a competitor is a good idea.
Musser challenged McMullen about how much Kroger competes with dollar stores and club stores. She cited company documents describing Albertsons as its No. 1 or 2 competitor in several of its major metropolitan markets.
Finally, Musser pressed on McMullen’s promise not to close stores. He admitted that after the merger he could close an unspecified number, whether to relocate a store to a larger location or to close or consolidate stores in a struggling geographical market.
‘The grocery business is a zero-sum business’
Sankaran also stressed the swarm of competition from nontraditional grocery retailers and tried to downplay Albertsons’ rivalry with Kroger. He described the industry’s brave new world as one of “category-blurring” where once-noncompetitive operators were now at each other’s throats.
“When customers start buying (a case of) 50 bottles of Gatorade, they won’t be getting that in a grocery store,” Sankaran told the court. “The grocery business is a zero-sum business. People are not eating more.”
Sankaran said joining forces and getting bigger was critical for Albertsons to achieve the scale of operations to become more efficient, lower prices and compete effectively. He indicated Albertsons’ future could get bleaker if the merger failed to win approval: layoffs, store closures and even exiting geographic markets could happen.
“I do not want to go down this road,” Sankaran warned.
Albertsons restructuring rumblings questioned
McMullen got pushback, but Sankaran faced even harsher questions by FTC attorney Albert Teng.
Part of that was due to Albertsons' decision to pay shareholders a one-time $4 billion dividend payment in early 2023 as part of the deal.
Weeks before the payout, Sankaran told federal lawmakers at a Senate hearing in November of 2022 that Albertsons was in “excellent financial condition” and that the dividend wouldn’t “alter our ability to invest in the business,” Teng reminded Sankaran.
“Did you tell Congress about (potential) layoffs, closures and exiting markets?” Teng asked.
Teng pressed for details of Albertsons’ potential future restructuring, but the grocer's attorneys objected the question was veering into “confidential material.”
Sankaran said “the market is different” today and that he “must look forward.”
Oops: When the boss makes a big mistake
Those weren’t even the hardest questions Sankaran faced.
Teng opened his cross-examination, pressing the CEO to remind the court of the size of his golden parachute if the deal is approved: $43 million.
Sankaran also faced questions about his handling of internal communications he was ordered to preserve once his company was being shopped for sale. He testified Wednesday he forgot to turn off the auto-delete function on his cell phone for a year.
Sankaran admitted to Teng he might have deleted about 1,700 work-related texts.
Union workers oppose the deal
Following the CEO testimony, a group of local chapters of the United Food and Commercial Workers International Union and other merger opponents, on Wednesday expressed their continued concern for food prices, jobs and competition.
"“This is a bad deal that would reduce consumer choice, put tens of thousands of workers and hundreds of stores at risk, and take the legs out from under workers’ leverage in negotiating for better wages and benefits," Stop the Merger group said in a Thursday statement. "America needs more competition, more grocery stores, and more leverage for workers to secure better pay and staffing – not less."
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This article originally appeared on Cincinnati Enquirer: Deleted texts, grocery prices: CEOs testify in Kroger-Albertsons merger case
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