US FTC launches proceedings to prevent Kroger-Albertsons merger

(Recast to clarify that the process is ongoing, adds comment from a trade union representative, paragraphs 1, 3 and 5-6)

FTC and US states argue that merger will harm competition and increase prices

Kroger and Albertsons claim merger is necessary to compete with Walmart and Amazon

Kroger promises $1 billion in price cuts and plans to sell 579 stores if deal goes through

By Jody Godoy, Deborah Bloom

PORTLAND, Oregon, Aug 26 (Reuters) – The U.S. Federal Trade Commission (FTC) opened a case in federal court in Portland, Oregon, on Monday challenging Kroger's $25 billion merger with grocery rival Albertsons, seeking to convince a judge that the merger would hamper competition and harm customers and workers. The FTC and several states had already filed suit against the merger in February, arguing that it would eliminate competition between the two largest traditional supermarket chains in the U.S., meaning higher prices for customers and less bargaining power for unionized grocery workers.

The FTC and the companies are expected to make opening arguments before U.S. District Judge Adrienne Nelson on Monday before each side has a chance to present evidence. Kroger and Albertsons have asked the judge to approve the deal, saying the merger is necessary to compete with multinationals such as Walmart, the largest grocery retailer in the U.S., wholesaler Costco and Amazon.com, which owns Whole Foods.

Kim Cordova, president of a Colorado and Wyoming chapter of the United Food and Commercial Workers International Union, expressed skepticism about this argument at a press conference outside the courthouse.

“We do not believe the company's claim that it is doing this for competitive reasons,” she said. The case is a prominent part of the Biden administration's efforts to lower prices for consumers and comes as high grocery bills are looming large in the U.S. presidential race between Vice President Kamala Harris, the Democratic nominee, and her Republican opponent, former President Donald Trump. It is also a key test of FTC Chair Lina Khan's initiative to use antitrust law to increase wages and mobility for workers.

The trial is expected to last about three weeks and will provide evidence of how large grocers and smaller competitors set their prices and view competition in the industry.

Kroger and Albertsons say the lawsuit's focus on traditional supermarkets ignores the fact that consumers typically shop for groceries at a variety of locations, including big-box stores like Target and dollar stores like Dollar Tree.

Kroger has said it will sell 579 of the roughly 5,000 stores it would own if the deal goes through. Part of the process will focus on whether the buyer, C&S Wholesale Grocers, can successfully run those stores. Kroger has also pledged to cut grocery prices by $1 billion after the merger.

Retailers use several levers to reduce prices, including negotiating more favorable terms with suppliers, investing in supply chain automation, or changing the way products are labeled and packaged.

While Kroger said it could not provide more specifics on the price investments, a source familiar with the matter indicated that the price reductions will likely initially be focused on key and high-demand items.

“Initially, it will not be about peanut butter spread, for example, but a wide range of staple foods,” the source said.

Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, Wyoming and the District of Columbia are pursuing the case alongside the FTC.

Washington and Colorado have also filed lawsuits to block the merger, with trials set to follow the Oregon case.

There are Kroger and Albertsons stores in every state.

(Reporting by Jody Godoy and Siddharth Cavale in New York and Deborah Bloom in Portland, Oregon; Editing by Matthew Lewis)