US regulator's Kroger trial begins with dispute over food prices

PORTLAND, Oregon (Reuters) – The U.S. Federal Trade Commission (FTC) argued with grocery chains Kroger and Albertsons in federal court in Portland, Oregon, on Monday over whether a proposed merger would hurt or help consumers, beginning a trial over the agency's attempt to block the deal.

The FTC and several states have filed suit to block the deal, claiming it would mean higher prices for consumers and less bargaining power for unionized grocery workers.

Susan Musser, chief counsel for the FTC, urged U.S. District Judge Adrienne Nelson to stop the deal, saying in her opening statement that it would result in Kroger “swallowing” Albertsons.

“Stopping this multi-billion dollar deal will preserve strong competition that will curb rising food prices and spur improvements in quality and innovation,” she said.

Nelson is considering putting the deal on hold while an internal FTC judge examines what impact it would have on competition.

Such reviews can take years and companies often abandon deferred deals rather than complete the process.

Kroger's attorney, Matthew Wolf, said in his opening statement that the merger would immediately reduce some prices for customers at Albertsons. Currently, prices there are 10 to 12 percent higher than in Kroger stores.

The FTC's attempt to drive down prices by blocking the deal shows that “they don't understand the industry or the parties involved in it,” Wolf said.

The merger is necessary, Wolf said, so the stores can compete with Walmart, the largest grocery retailer in the U.S., big-box retailer Costco and Amazon.com, which owns Whole Foods.

Kim Cordova, president of the United Food and Commercial Workers International Union in Colorado and Wyoming, expressed skepticism at a press conference outside the courthouse on Monday.

“We do not believe the company’s promises that it is doing this for competitive reasons,” she said.

The case is a high-profile part of the Biden administration's efforts to lower prices for consumers and comes at a time when high grocery bills are playing a major role in the U.S. presidential election campaign.

It is also an important test of FTC Chair Lina Khan's initiative to use antitrust law to increase worker wages and mobility.

Wolf said there is no difference in agreed wages at Kroger stores located near Albertsons stores and other stores.

Musser said unionized grocers get better wages and benefits when they strike at a store and send their customers to the competition. A merger between Kroger and Albertsons would mitigate that threat, she said.

The trial is expected to last approximately three weeks and will involve the presentation of evidence relating to competition in the food sector.

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 plans to sell 579 of the roughly 5,000 stores it would own in the deal. Part of the process will focus on whether buyer C&S Wholesale Grocers can successfully run those stores.

Kroger has also promised 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.

Although Kroger declined to provide details, a source familiar with the matter indicated that the cuts will likely initially focus on essential and high-demand items.

Musser said the investment represents only 0.5 percent of Kroger and Albertsons' combined sales.

In addition to the FTC, Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, Wyoming and the District of Columbia have filed lawsuits.

Washington and Colorado have filed their own lawsuits to block the merger, which are expected to go to trial after the FTC's lawsuit is heard.

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