The Federal Trade Commission (FTC) commenced a trial on Monday aiming to halt the $25 billion merger between Kroger and Albertsons, asserting that the merger would harm competition in the grocery sector and negatively impact consumers. Kroger and Albertsons, which announced their proposed merger in September 2023, have agreed to divest nearly 600 stores to C&S Wholesale Grocers to address regulatory concerns. Kroger has also pledged to reduce grocery prices by $1 billion if the merger proceeds, marking it as the largest merger in the grocery industry’s history.
In similar cases historically, the FTC has maintained a vigilant stance against large mergers that could potentially inhibit market competition. For instance, the FTC successfully blocked the Staples and Office Depot merger in 2016 due to concerns over reduced competition and higher prices. Similarly, the commission has also opposed the merger between Sysco and US Foods in 2015. These precedents highlight the FTC’s consistent effort to preserve market competition by scrutinizing large-scale mergers.
FTC’s Arguments Against the Merger
The FTC, along with several states, argues that the proposed merger would lead to increased grocery prices and weaken the bargaining power of unionized workers in the industry. They emphasize that blocking the merger would maintain the competitive dynamics that help control grocery prices and foster innovation. U.S. District Judge Adrienne Nelson is overseeing the case in Portland, Oregon and will decide whether to pause the merger while the FTC’s in-house judge evaluates its impact on competition.
“Stopping this multibillion-dollar deal will keep in place the vigorous competition that acts as a check on rising grocery prices and spurs improvements in quality and innovation,” said FTC chief trial counsel Susan Musser.
Kroger’s Defense and Market Competition
Kroger’s attorney, Matthew Wolf, countered the FTC’s assertions, stating that the merger would result in immediate price reductions for Albertsons shoppers, where prices are currently 10-12% higher than at Kroger stores. Wolf also argued that blocking the merger reflects a misunderstanding of the industry and the involved parties and emphasized that the merger would enhance competition with major rivals like Walmart, Costco, and Amazon (NASDAQ:AMZN)-owned Whole Foods.
“They neither understand the industry nor the parties within it,” Wolf remarked, adding that the merger is essential for competing with significant market players.
The trial is expected to continue for approximately three weeks, featuring extensive evidence on competition within the grocery industry and the capability of C&S Wholesale Grocers to manage the 579 divested stores it would acquire. The case is part of the Biden-Harris administration’s initiatives to reduce consumer prices and FTC Chair Lina Khan’s efforts to leverage antitrust laws to enhance worker wages and mobility.
In related cases, the states of Colorado and Washington have also filed challenges, slated for trial following the FTC’s proceedings. Additional states, including Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, Wyoming, and the District of Columbia, have joined the FTC’s case, further underscoring the widespread concern regarding the merger’s potential impact.
The outcome of this trial holds substantial implications for the grocery industry. If approved, the merger could reshape market dynamics, potentially benefiting consumers through lower prices as promised by Kroger. However, the FTC’s stance highlights the importance of maintaining competitive markets to prevent monopolistic practices and ensure consumer protection. As the trial progresses, the evidence presented will be crucial in determining the merger’s fate and its broader implications for the industry.
