Dispute over Kroger-Albertsons merger escalates in federal court

Alan Riquelme

PORTLAND, Oregon (CN) — Lawyers arguing over the proposed merger of supermarket chains Kroger and Albertsons painted starkly different pictures in federal court Monday of what would happen if the two giants merged.

The Federal Trade Commission and several states oppose the merger of Kroger and Albertsons and have filed for a preliminary injunction in federal court to stop the merger. On Monday – the first day of what is expected to be a three-week hearing on the injunction – lawyers for both sides presented their arguments to U.S. District Judge Adrienne Nelson in the District of Oregon.

The lawyers discussed what impact Kroger's acquisition of Albertsons would have on the cost of goods and what consequences it would have on competition, union members and the grocery market as a whole.

“These companies are now two of the largest supermarkets in the country,” said attorney Susan Musser, who represents the commission.

Together, the supermarket giants have over 5,000 stores and employ around 710,000 people.

Musser asked the judge to examine the impact of the takeover. Families across the country rely on supermarkets, and competition within the sector benefits them through lower prices. Musser said over 100,000 people have sent emails to the commission expressing their concerns about the potential merger.

Kroger and Albertsons have overlap in communities across the country, and competition between the supermarkets is local. In Corvallis, Oregon, for example, Albertsons has a 33 percent market share and Kroger has 27 percent. If the merger goes through, the new grocery giant would have 60 percent market share in that city and would own four of the six supermarkets, Musser said.

“This transaction will significantly reduce competition,” she added.

The direct cost of an item is just one way to compete. Supermarkets compete to have the freshest products. They offer special offers that build customer loyalty. And they offer various pickup and delivery options that benefit customers.

Once the planned merger has been implemented, there will no longer be any incentive to remain in competition, Musser argued.

In addition, union negotiations in one supermarket can affect what union members can negotiate in another supermarket, leading to better conditions for workers – an advantage that would disappear in a merger.

Musser said the FTC is not asking the judge to block the merger. Instead, the commission is simply asking the judge to stay the transaction by issuing a preliminary injunction. That would give the commission time to begin its proceedings to allow the merger.

Attorney Matthew Wolf, representing Kroger, argued that the judge's decision on the injunction would effectively decide the entire matter.

“This merger will not happen if this injunction is in place,” Wolf said. The FTC will need one to two years to complete its own investigation, during which time the financing arrangements will expire and the agreement will fall apart, he added.

Wolf also fundamentally disagreed with Musser’s arguments on the subject of competition.

Prices would drop on the first day after the merger, he said. Three months later, customers would see price cuts on 600 items. Kroger would invest $1 billion each year to lower prices at Albertsons. A one-time expenditure of $1.3 billion would go toward improving the customer experience at Albertsons stores.

“All this will only be possible if the merger goes ahead,” said Wolf.

Prices at Kroger are currently 10 to 12 percent lower than Albertsons. The competition is not between Kroger and Albertsons, but between supermarkets and stores like Walmart and Amazon, Wolf said.

And unlike Musser, Wolf argued that Kroger and Albertsons are not typically located near each other. That's one reason Kroger thought the acquisition was a good combination. The merger would eliminate supply chain redundancies, lower prices and get groceries to stores faster.

The merger involves the sale of over 400 stores and some brands to C&S Wholesale Grocers, which is being called a “divestment.” Wolf said the supermarkets recognized that the divestment was necessary for the deal to work.

“C&S doesn't just get business. They get people. Union jobs will be protected,” Wolf said, later adding, “There is no reason to block this merger.”

Attorney Enu Mainigi, who represents Albertsons, said stopping the merger would negatively impact her client. Kroger's prices are already lower than Albertsons'. Currently, Kroger cannot compete with the size of a store like Walmart and must merge with Kroger to remain viable.

“What will Albertsons look like if there is no merger?” Mainigi asked.

Closing arguments are scheduled for September 13.