Kroger’s Nearly $25 Billion Merger Is Bad for Shoppers, FTC Says

PORTLAND, Ore. — A trial that could determine whether the two largest supermarket chains in the United States can merge opened in Portland, Oregon, on Monday, pitting grocery giant Kroger against regulators who argue that its takeover of Albertsons would eliminate competition at the expense of consumers and workers.

Before U.S. District Court Judge Adrienne Nelson, the Federal Trade Commission and the supermarket chains laid out their arguments in court for the first time, as union representatives and workers protested the deal on the courthouse steps. Less competition, the agency’s lawyers said, would give Kroger more leverage to raise prices on millions of consumers.

The highly anticipated proceedings, set to last three weeks, come as high food prices have become a critical focus in the presidential race. Vice President Kamala Harris, the Democratic presidential nominee, has backed a federal ban on price-gouging in the food and grocery industries to combat high grocery costs.

Kroger and Albertsons defended the $24.6 billion deal, which would be the biggest supermarket merger in U.S. history, saying it would bolster their leverage with suppliers and improve competition against major retailers such as Costco, Amazon and Walmart. But the FTC — backed by a chorus of unions, consumer advocates, politicians and independent grocery chains — reiterated its position that the merger would probably result in higher prices for groceries and worse conditions for workers.

The deal “would eliminate the competition that shoppers and workers depend on in one fell swoop,” Susan Musser, the FTC’s chief trial counsel, said in her opening statement. “This lawsuit is part of an effort aimed at helping Americans feed their families.”

In bringing the case, the FTC has been joined by the attorneys general of eight states, including California and Illinois, as well as the District of Columbia. It’s part of a regulatory push under the Biden administration to rein in corporate consolidation in an array of industries, including airlines, Big Tech, book publishing and pharmaceuticals.

The grocery industry has seen waves of consolidation since the 1990s, and the landscape is now dominated by four players: Walmart, Kroger, Costco and Albertsons. If allowed to combine, Kroger and Albertsons would account for around 13% of U.S. grocery sales.

The FTC filed its antitrust lawsuit in February, about a year and a half after the grocery giants announced their merger. It’s the first challenge to the deal to go to court; hearings for lawsuits filed by the Washington state and Colorado attorneys general are scheduled for the coming weeks.

The hearing in federal court is over a preliminary injunction. If Nelson rules in the FTC’s favor, the merger would be blocked pending the outcome of the agency’s separate internal proceeding over the deal, to be held before an administrative law judge. Kroger sued the FTC last week, calling its judges unconstitutional in an attempt to prevent the in-house tribunal from moving forward.

A preliminary injunction from a federal judge would most likely influence the outcome of the FTC’s internal proceeding. The hearing now underway is largely being treated as a mini-trial on the merits.

The FTC is arguing that the merger will decrease price competition, leading to higher costs for shoppers. But it also contends that the deal would erode the bargaining power of unions and harm not just consumers, but workers as well.

At a news conference on the courthouse steps Monday morning, Kim Cordova, president of the Colorado and Wyoming chapter of the United Food and Commercial Workers International Union, said the merger would reduce union power at the bargaining table, resulting in lower wages and worse benefits. The union represents most in-store employees at both companies.

“This kind of power is a fundamental right for workers,” Cordova said.

The merger would create a $200 billion company, with about 5,000 stores in 48 states and the District of Columbia. Kroger, based in Cincinnati, operates nearly 2,800 stores across the United States under banners that include Ralphs, Dillons and Harris Teeter. Albertsons, based in Boise, Idaho, runs more than 2,200 supermarkets under names including Safeway and Vons.

The FTC faces a critical legal hurdle in showing the merger would reduce competition: Its lawyers need to convince Nelson that the traditional supermarket industry, specifically, is the appropriate scope of analysis for assessing harm to competition — and that competition in the grocery industry happens at the local level.

Matthew Wolf, a lawyer for Kroger, said in his opening statement that the broader landscape of retailers that have made inroads into selling groceries — including online retailers such as Amazon and bulk retailers such as Costco — should be included in the assessment, an approach that would make it easier for the companies to argue that the merger would not give them undue dominance.

Competition with these bigger players is at the heart of Kroger’s justification for the deal. Currently, Walmart alone accounts for around 22% of U.S. grocery sales. Lawyers for Kroger and Albertsons portrayed the deal as a lifeline for traditional supermarkets strained by the increasing dominance of nontraditional rivals.

“Supermarkets are losing this food fight” to Walmart, Costco and Amazon, Wolf said.

The merger would lead to lower prices for shoppers at Albertsons, where prices tend to be higher than at Kroger stores, Wolf said. Kroger has said it would lower grocery prices by $1 billion if the merger were to close.

The two chains have significant overlap in some markets, including Los Angeles, Seattle and Chicago. Kroger has taken steps to try to allay regulators’ concerns about market concentration in such areas. The company said it would sell 579 Kroger and Albertsons stores to a third company, called C&S Wholesale Grocers.

But the FTC came out strongly against the proposal.

“Hundreds of markets are unremedied by the divestiture,” said Laura Hall, the FTC’s senior trial counsel. “C&S is unlikely to be an effective competitor for a litany of reasons.”

Looming over the proposal is the failed outcome of a similar deal in 2015, when Albertsons sold dozens of stores to a third company in order to acquire its rival Safeway. That third company, Haggen, ultimately went bankrupt, closing some stores and selling many back to Albertsons.

The FTC is expected to call expert witnesses to testify about the store sales, as well as competition in the grocery industry, before the hearing is scheduled to wrap up Sept. 13. The CEOs of Kroger and Albertsons are expected to take the stand next week.

This article originally appeared in The New York Times .