While the trio of court battles over the proposed merger between Kroger and Albertsons have concluded, uncertainty about how judges will rule in the cases remains top of mind for the grocery industry.
The supermarket chains and their opponents made their main points clear months before these hearings started. But once things got underway in court, these points got further fleshed out, witness testimony added new details and novel arguments surfaced.
As the industry awaits the judges’ rulings on each case, Grocery Dive is taking a look back at some of the main arguments and findings that defined the heated court battles.
Attorneys representing the FTC, Washington and Colorado all zeroed in on the various ways Kroger and Albertsons compete with each other in markets where the two overlap, and how that competition benefits consumers.
The two companies operate as an effective check on each others’ pricing in states like Oregon where the chains both operate banners, said FTC lawyer Susan Musser during closing arguments in Portland, Oregon. Take Albertsons out of the equation, and Kroger will be less constrained to raise prices.
The same is true when it comes to sale promotions and services like online pickup, argued Glenn Pomerantz, an attorney representing Washington, during closing arguments last month in the state’s case against the merger.
“If Kroger no longer has to worry about Albertsons beating them on promotional prices, they don’t have to go so low on promotional prices,” Pomerantz said. “If Kroger no longer has to worry about Albertsons’ e-commerce pickup time, then it doesn’t matter so much whether their pickup time is four hours or two hours.”
These lawyers argued that showing the consumer benefits of competition between Kroger and Albertsons in local markets — and that the absence of this competition would hurt shoppers — was enough for the judges to approve preliminary injunctions.
While the FTC and Washington state defined supermarkets as the relevant markets for their challenges — a definition that also included Walmart — Kroger and Albertsons wanted the judges to take a more expansive view of the industry, where competition also includes the likes of Costco, Amazon, Whole Foods Market and Trader Joe’s.
“Albertsons is not Kroger's fiercest competitor, your honor,” Mark Perry, an attorney representing Kroger, said during closing arguments in the Washington state hearing. “Walmart is Kroger's fiercest competitor. Costco is Kroger's second fiercest competitor, and Amazon and Target are nipping at their heels to be the next fiercest.”
In his closing statement during the Colorado trial on Oct. 24, Kroger attorney Matt Wolf said the grocer is intensely focused on the prices Walmart, Amazon and Costco charge. Wolf also said that it is getting more difficult for Kroger to find ways to cut costs to keep pace with those competitors.
Albertsons may be doing just fine now, financially speaking, but according to Enu Mainigi, a lawyer representing the chain, it can’t keep up with accelerating industry competition.
“Over the next two to four years, things will be okay, but there are limits to what we can accomplish without the scale,” she said during opening arguments for the federal hearing in Portland, according to BoiseDev.
The chain, which prices its goods between 10% and 12% higher than Kroger on average, according to court testimony, may need to close stores and exit markets if it can’t link up with Kroger, Mainigi said.
Lawyers with Washington state, on the other hand, argued that Albertsons doesn’t need any help, pointing to the $4 billion dividend it issued to shareholders in early 2023.
“This is not a failing or flailing competitor,” Musser said during closing arguments in the federal hearing.
Legal teams representing the FTC, Washington and Colorado tore into the supermarket chains’ proposed divestiture of stores and other assets to C&S Wholesale Grocers. They argued the distributor had a poor track record as a retailer and wouldn’t have any incentive to hang onto the nearly 600 stores it would receive in the deal — making it a poor choice to replace Albertsons as a competitor in relevant markets.
“Kroger structured the divestiture in a way that created risks, and then Kroger placed those risks squarely on C&S,” Jonathan Kravis, a lawyer representing Washington state, said during closing arguments in Seattle late last month.
They also claimed that C&S would receive a sub-par set of assets from Kroger to compete, including lagging banners QFC, Haggen and Mariano’s as well as several private label banners that aren’t star performers for the companies.
Arthur Biller, the Colorado attorney general’s office attorney who summed up the state’s case to block the merger, derided C&S as a “retail liquidator” that has little interest in acquiring supermarkets other than to shore up its distribution business. To illustrate his point, Biller said that C&S decided to buy a group of Tops stores that the chain divested as part of its 2021 merger with Price Chopper despite describing the locations as underperformers.
Biller also said C&S has shown that it is not interested in investing in private label products, which he said would make the stores it would acquire less competitive. He said that while Albertsons has invested heavily in its own brands, C&S “doesn’t have a dedicated budget” for its private label operations.
The bottom line, Biller said, is that Kroger’s drive to merge with Albertsons reflects a desire by the company to “take Albertsons out of the market” and replace it with “far inferior” competition.
During closing arguments in the Washington state hearing, lawyers representing the state pointed to evidence that showed C&S wanted to receive a better set of store banners and brands as part of the divestiture deal. This included Safeway stores in the state.
Instead, it got four lesser-known banners and limited rights to use the Safeway brand name in Arizona and Colorado and the Albertsons banner in California and Wyoming.
“C&S was pretty clear: ‘We want that Safeway banner, especially in the state of Washington.’ And the evidence at trial showed why Kroger did not give C&S the deal it wanted. It is because that Safeway banner is just too valuable here in Washington,” Kuruvilla J. Olasa, a lawyer representing Washington state, said during closing arguments.
Kravis also pointed to evidence showing that C&S wanted a stronger selection of private label lines and instead was granted five “niche” brands, including Open Nature and Waterfront Bistro, and the ability to license the Signature and O Organics brands.
Pricing power was another point the grocers’ legal teams hit on. While opponents of the merger focused on how eliminating competition between Kroger and Albertsons would result in higher prices, lawyers representing Kroger pointed to the grocer’s pledge to lower prices by $1 billion if the merger is allowed to go through.
Kroger is intent on funneling the savings that it believes will stem from the merger to reducing prices for shoppers, Wolf said, adding that people who shop at stores the company is planning to acquire from Albertsons will see lower prices the “day after the merger … unless the government gets its way.”
Wolf said Kroger has proven through its past actions that it is true to its word when it promises to translate efficiencies from the merger into lower prices, noting the company took steps to bring down margins at Harris Teeter and Roundy’s following its acquisitions of those grocery chains.
More than that, Kroger is incentivized to keep prices low because it needs to compete with the likes of Walmart, Costco and Trader Joe’s, and because it operates a “flywheel” business model that relies on high volumes of customers powering high-margin data and ads services, said Perry.
Albertsons, Perry said, doesn’t operate a flywheel business model.
“It’s one reason Albertsons’ prices are so much higher than Kroger’s,” he said. “To put it bluntly, Albertsons has been focused on short-term profit, while Kroger has been focused on long-term profit. And it’s one reason that Kroger is going to be the long-term successful competitor against Walmart and Costco and Amazon, and why Albertsons is in trouble and has the ‘for sale’ sign up.”
However, Biller said that only Albertsons and Walmart serve as effective checks on Kroger because its pricing strategy is “entirely focused” on those two retailers.
Biller also said shoppers do not view retailers like Costco as substitutes for supermarkets, arguing that many Coloradans do not have access to Costco, which has only 16 locations in the state. He said Kroger’s pricing actions stem from what it sees at stores located within a few miles of its supermarkets, adding that it is “not plausible” that people would regularly drive an hour to buy groceries.
