As Kroger-Albertsons merger faces FTC scrutiny, state lawsuits add further hurdles

In August, the Federal Trade Commission (FTC) made a motion for a preliminary injunction against the proposed $24.6 billion merger of Kroger and Albertsons, two of the largest supermarket chains in the country. This kicked off a three-week trial in Portland, Ore. where over 30 witnesses gathered to discuss how much of an impact the deal would have on both consumers and employees. 

The FTC’s arguments largely centered on how they believe the merger would be anticompetitive, while representatives from Kroger and Albertsons argued the merger needed to happen in order for them to actually stay competitive in a rapidly-evolving grocery landscape where online retailers, delivery apps and club stores — many of which are not unionized — have changed how the average American does their shopping. 

By September 17, the trial concluded, with U.S. District Judge Adrienne Nelson committing to a swift decision, noting she would work “as expeditiously as possible, because everyone is anticipating a decision.”  

As Nelson works on her ruling, the Kroger-Albertsons merger faces additional roadblocks: state-level lawsuits filed by the attorneys general of Washington and Colorado. These suits aim to block the merger, adding another layer of complexity and uncertainty to the deal's future. The next phase of this legal saga is far from settled, with decisions that could reshape the grocery landscape for millions of Americans still pending. Here's where those state cases currently stand.

Colorado 

Meanwhile, the State of Colorado v. Kroger trial began on Sept. 30. As reported by Tamara Chuang of the Colorado Sun, if the merger moves forward, Albertsons would no longer exist in the state. If the deal were approved, Kroger would purchase 14 Albertsons-owned Safeway locations, while the rest of the company’s local stores would be sold to C&S Wholesale Grocers. 

Kroger, which already owns about 150 King Soopers and City Market grocery stores statewide, has said there is a $40 million investment reserved for the 14 Safeway locations, which will be implemented as part of the company’s nationwide effort to lower prices. According to the opening statement of Matthew M. Wolf, Kroger’s lead attorney, this won’t be much of a challenge as Kroger’s prices are reportedly already “10 to 12% lower than Albertsons” in Colorado. 

However, Arthur Biller, a lawyer from the Colorado Attorney General’s office, has argued the merger would cost Colorado consumers as much as $500 million a year because of a lack of competition, according to the “Denver Post.” 

“The merger of these two firms would mean the loss of competition and have a devastating effect on Colorado,” Biller said in court, noting that the two companies account for at least 50% of supermarket sales in Colorado. 

Much like in the FTC case, Kroger’s attorneys argued that non-unionized megastores like Walmart, Amazon, and Costco are the true competitors in the modern supermarket landscape, and that the analysis presented to the court by the state's expert witness, which excluded those competitors, provided an incomplete picture of today’s grocery business. 

“Not only does it defy common sense,” Wolf said in his opening statement. “It  defies what’s happening outside the four corners of this courtroom.” 

Steven L. Holley, the attorney for C&S, had a similarly strident tone when addressing assertions his client could handle the $2.9 billion divestiture and was potentially planning to dump the stores post-acquisition. 

“This notion that one would buy for $2.9 billion based on money borrowed from banks to a large extent and invest another $1.2 billion [and then] sell it for [less] would be a Harvard Business School case study in how to not run a business,” Holley said, according to the Sun. “C&S is buying these stores because it wants to run them.”

The Colorado trial is expected to wrap Oct. 18.

Washington 

Litigation is also ongoing in Washington State, where Attorney General Bob Ferguson has argued the merger would harm competition and drive up grocery prices. Ferguson has also raised an alarm about the fact that Kroger and Albertsons’ current divestiture program feels really similar to one implemented during the 2015 Safeway-Albertsons merger. 

As Salon has reported, Albertsons wanted to acquire the Safeway brand, but needed to divest nearly 146 stores in order for the FTC to approve the deal. The supermarket approached Haggen, a comparatively small grocery chain that had 18 stores with 2,000 employees scattered across Washington and Oregon, and offered them a way to explode into a 164-location brand with 10,000 employees essentially overnight. 

Taken by the idea of expanding their footprint into California, Nevada and Arizona, Haggen quickly dropped $1.4 billion for the Vons, Pavilions and Safeways that Albertsons needed to jettison in order for the merger to be approved, but then buyer’s remorse quickly set in. 

After slapping Albertsons with a $1 billion lawsuit — asserting the company sabotaged the deal — Haggen filed for bankruptcy and closed a total of their 27 new locations. While C&S Wholesalers has more experience, Ferguson’s team still contends the operator could struggle under the same rapid expansion. 

However, in court, Kroger has asserted it chose C&S as its divestiture partner because the retailer is the “anti-Haggen,” according to Progressive Grocer. 

“Kroger says C&S is well capitalized, has three years to rebanner its stores, has a nationwide distribution network that serves three times the number of stores as Albertsons operates today,” they report. “And it will be supported by Kroger in private label brands, IT infrastructure, customer data and distribution management for several years following the merger.”