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The Kroger Co. has faced perhaps the most high-profile and controversial year in its 141-year existence as a result of its proposed $24.6 billion merger with Albertsons.
Over the last 12 months, the nation’s largest pure-play grocer has made headlines on an almost weekly basis over the deal, which as of press time remains unresolved.
Supermarket News published dozens of stories in 2024 about the proposed merger, which Kroger announced in fall 2022 and estimated would be completed in early 2024.
The grocery chain didn’t anticipate the pushback it received from unions, the Federal Trade Commission, and attorneys general from across the country.
Merger interrupted
Instead of completing the acquisition in the first part of the year as planned, Kroger was sued by the state of Washington in January and Colorado in mid-February. By late February, the FTC and attorneys general from eight more states and the District of Columbia joined in an antitrust lawsuit to block the biggest deal in the history of the U.S. supermarket industry.
Calling the acquisition “anticompetitive” and a “monopoly,” the FTC issued a scathing repudiation of the deal in an era of rapidly rising grocery prices.
“Kroger’s acquisition of Albertsons would lead to additional grocery price hikes for everyday goods, further exacerbating the financial strain consumers across the country face today,” said Henry Liu, director of the FTC’s Bureau of Competition, in February. “Essential grocery store workers would also suffer under this deal, facing the threat of their wages dwindling, benefits diminishing, and their working conditions deteriorating.”
In response, Albertsons released a statement the day the lawsuit was announced, saying the deal would “expand competition, lower prices, increase associate wages, protect union jobs, and enhance customers’ shopping experience.”
Kroger said in a separate statement that the FTC lawsuit would harm consumers and workers.
“The FTC’s decision makes it more likely that America’s consumers will see higher food prices and fewer grocery stores at a time when communities across the country are already facing high inflation and food deserts. In fact, this decision only strengthens larger, non-unionized retailers like Walmart, Costco and Amazon by allowing them to further increase their overwhelming and growing dominance of the grocery industry.”
Industry expert Brittain Ladd, who worked as a business operations consultant for Kroger and as a logistics strategist for Amazon, Instacart, and others, told Supermarket News in a recent interview that if the merger is approved, the combined grocers will operate over 4,400 stores and generate roughly $208 billion in annual sales.
“Kroger will employ about 640,000 workers making it one of the 10-largest private employers in the world,” he said.
Divestiture plan scrutinized
The two grocers pushed back on claims that the merger would result in a monopoly, arguing that its divestiture of hundreds of stores to C&S Wholesale Grocers would preserve competition in the market.
Originally, the grocers said they would collectively sell more than 400 stores to C&S Wholesale, but in April, they sweetened the deal, adding 166 more locations to the original divestiture proposal, bringing the total to 579 stores.
Opponents have argued that C&S, which operates 23 supermarkets and one retail pharmacy, is ill-prepared to take on hundreds of new locations. The FTC said in February that the divestiture plan ignored regional and local markets where Kroger and Albertsons compete.
“In areas where there are divestitures, the proposal fails to include all of the assets, resources, and capabilities that C&S would need to replicate the competitive intensity that exists today between Kroger and Albertsons,” the FTC said. “Even if C&S were to survive as an operator, Kroger and Albertsons’s proposed divestitures still do not solve the multitude of competitive issues created by the proposed acquisition ...”
Ladd said the divestiture plan is a heavy lift and that it would take years to get C&S up to speed. “The challenge is that it will take Kroger and Albertsons a minimum of two to three years to complete the integration of the IT systems, supply chain, and operations. It will be a Herculean task,” he told Supermarket News.
In July, Kroger and Albertsons released a full list of stores that would be divested if the merger goes through, and aimed to allay fears that the sell-off would fail by leaking an internal memo saying that Albertsons Chief Operating Officer Susan Morris would move to C&S Wholesale Grocers to become president and CEO of retail if the deal was approved.
By the end of July, Kroger and Albertsons executives had spent nearly two years working on the acquisition, and the price tag on the grocers’ collective efforts had reached an estimated $864 million, with Kroger spending $535 million and Albertsons $329 million, according to filings with the FTC.
That price tag could jump substantially if the deal is killed, due to a clause in its contract with Albertsons that says it will have to pay the Boise, Idaho-based grocery chain $600 million if the deal fails.
The two grocery chains have faced an uphill battle not only with unions, attorneys general, and federal regulators. In a Presidential election year focused on inflation, the rapid rise of grocery prices during the COVID pandemic has been an ongoing talking point for candidates.
Price gouging and politics
In mid-August, Vice President Kamala Harris targeted the industry, announcing that she would end “price gouging” by grocers if elected. Harris said she would empower the Federal Trade Commission and attorneys general with the authority to prosecute companies found guilty of gouging. That announcement came at a time when Harris lagged in the polls on the economy behind her opponent, former President Donald Trump.
Members of Congress also got in the game about a week prior to Harris’ announcement, when U.S. Sens. Elizabeth Warren (D-Mass.) and Bob Casey (D-Pa.) accused Kroger of using digital price tags to inflate food prices.
Meanwhile, the FTC and Department of Justice announced at the beginning of August that they were launching an investigation into high grocery prices.
Kroger denied claims that it had inflated prices with the digital price tags, releasing a statement that its business model aims to lower prices and attract more customers so it can invest in further reducing prices and raising wages.
Reducing prices has been one of the cornerstones of Kroger’s argument in court. All three cases — the FTC’s case in Portland, Ore., and the separate cases brought by attorneys general in Washington and Colorado — have concluded, but as of press time there have been no rulings.
Throughout the trials, Kroger aimed to distance itself from Albertsons as a direct competitor, arguing instead that Walmart and Amazon were the real competition.
Ladd tells SN that reducing prices is key for the grocer to compete. “Kroger will have to continually look for ways to reduce their costs. It won’t be easy,” he said. “Many stores will be closed and other stores will be remodeled.”
In the courtroom
Despite the grocer’s efforts to quash the lawsuits in Colorado and Washington, arguing that the states didn’t have jurisdiction in a merger that operates locations in states across the country, all three lawsuits moved forward starting with the FTC’s in late August.
In Portland, the FTC scrutinized an email from Kroger Senior Director of Pricing Andy Goff where he acknowledged that the grocer had raised the price of eggs and milk “significantly higher than the cost of inflation.”
Groff said on the stand that if the grocer raised prices on milk and eggs, it would lose market share to Walmart and others.
Kroger said in an email to SN in August that the email was “cherry-picked” and “covers a specific period and does not reflect Kroger’s decades-long business model to lower prices for customers by reducing its margins.”
Neil Saunders, managing director and retail analyst at GlobalData Retail, told SN in late August that egg prices can fluctuate for many reasons, such as bird flu and “enormous” price increases for bird feed.
“I'm not sure it’s a knockout blow from the FTC on that front because that's almost a separate argument in and of itself, and they would have to do an awful lot of work to prove that Kroger has artificially profited and price gouged,” he said.
Kroger has said that it will invest $1 billion to reduce prices if the merger is approved, but analysts have questioned whether the investment would make a big difference to shoppers at the checkout.
“Will customers save money as a result of the merger? Unlikely. Any savings will be minimal,” Ladd told SN.
That echoes an analysis by BoiseDev, a news organization in Boise, Idaho, that calculated a $1 billion investment would save shoppers about 4 cents per trip.
Grocery giant end game
It is still uncertain whether any of the three courts will rule against the proposed megamerger or how it will play out if the deal does go through.
Either way, the two grocery chains have their work cut out for them. Proponents of the plan argue that Cerberus Capital Management, the private equity firm that owns Albertsons, aims to sell the company, whether to Kroger or some other grocery chain.
If approved, it will be years before the combination of the two entities and ramp up of its new competitor, C&S Wholesale Grocers, is fully realized.
The bare-knuckle battle with federal agencies, elected officials, attorneys general, and unions in 2024, could be just the beginning of a new mega-grocer that is better positioned to take on retail behemoths like Amazon and Walmart. Stay tuned.
