Kroger was dealt a big blow in February when, 16 months after the company first announced plans to acquire its competitor Albertsons, the Federal Trade Commission and eight states sued to block the $25 billion merger between two of the country’s largest supermarket chains.
The FTC asserted that the deal would eliminate the "fierce competition between Kroger and Albertsons,” which consumer groups worried would lead to higher grocery prices and union job losses during a time of sustained food inflation. “In some regions, such as in Denver, the combined Kroger/Albertsons would be the only employer of union grocery labor. Union grocery workers’ ability to leverage the threat of a boycott or strike to negotiate better CBA terms would also be weakened,” the FTC said in a press release.
At the time, Kroger responded by saying that the “only winners if this merger is blocked will be larger, non-unionized retailers who will continue to fight union growth,” a message Albertsons leadership underscored.
“If the Federal Trade Commission is successful in blocking this merger, it would be hurting customers and helping strengthen larger, multi-channel retailers such as Amazon, Walmart and Costco — the very companies the FTC claims to be reining in — by allowing them to continue increasing their growing dominance of the grocery industry,” a spokesperson from the company said in an emailed statement.
At the time, according to Reuters, Kroger had proposed to divest 413 stores and eight distribution centers to C&S Wholesale Grocers, with the acknowledgement they might need to shed an additional 237 stores to gain regulatory approval. However, the FTC deemed that proposal inadequate.
Now, the supermarket chain — which owns brands like Ralphs, Mariano’s, Harris Teeter and King Soopers — has announced a plan to unload even more stores in an effort to push the merger over the finish line.
On Monday, Kroger and Albertsons jointly announced that they would divest an additional 166 locations, meaning the companies would sell a total of 579 stores to C&S, as well as giving it access to Albertsons Signature and O Organics private label brands. Under the new agreement, C&S will pay Kroger about $2.9 billion in cash for the stores, up from the previous payout of $1.9 billion, Reuters reported.
“We have reached an agreement with C&S for an updated divestiture package that maintains Kroger’s commitments to customers, associates and communities, addresses concerns raised by regulators, and will further ensure that C&S can successfully operate the divested stores as they are operated today,” Kroger chairman and CEO Rodney McMullen said in a statement to Retail Insight Network.
He continued: “Importantly, the updated divestiture plan continues to ensure no stores will close as a result of the merger and that all frontline associates will remain employed, all existing collective bargaining agreements will continue, and associates will continue to receive industry-leading healthcare and pension benefits alongside bargained-for wages. Our proposed merger with Albertsons will bring lower prices and more choices to more customers and secure the long-term future of [unionized] grocery jobs.”
However, some industry members and union leaders are already voicing concerns over Kroger’s updated plan. For instance, a coalition of representatives from UFCW Locals 5, 7, 324, 400, 770, 1564 and 3000 — which represent over 10,000 Kroger and Albertsons workers across the country — issued a statement Monday afternoon regarding the potential downsides of the sale of more stores.
“This bigger proposed divestiture simply increases the challenge C&S, a New Hampshire-based wholesaler, would have trying to operate a hodgepodge chain of retail stores,” the union representatives wrote. “They have no experience operating retail stores in these states, would still lack the IT, customer loyalty and manufacturing capabilities needed, and would most likely end up monetizing the real estate under many of these stores.”
The Federal Trade Commission’s lawsuit aimed at blocking the merger between Kroger and Albertsons is set for a hearing in August and — while, as Supermarket News reported, the FTC has been historically reticent to accept divestiture packages as an antitrust remedy — the commission’s former chairperson warns the organization will really have to establish what constitutes competition in today’s changing supermarket landscape.
Maureen Ohlhausen, who headed the FTC from 2012 to 2018 and now is a partner at Wilson Sonsini Goodrich & Rosati, said in a webinar on Thursday that the definition of the grocery market has expanded to include digital retail and massive competitors like Walmart and Amazon.
“This relevant market really hasn’t been tested in some time,” she said, adding that the market has seen massive growth in “online shopping, online acquisitions, and some of the new formats coming in and really taking on what we might have previously considered just being served by the traditional grocery market.”
“As I said, the market really has changed,” Ohlhausen said.
