Washington state Attorney General Bob Ferguson filed an antitrust lawsuit on January 12th seeking to block the proposed $25 billion merger between supermarket giants Kroger and Albertsons, arguing the deal would raise prices and limit choices for consumers.
Lead Up to the Merger Attempt
Kroger and Albertsons, the two largest supermarket chains in the U.S., announced plans in October 2022 for a merger that would create a combined company with over 5,000 stores nationwide under brands including Kroger, Albertsons, Fred Meyer and Safeway. The deal was presented as a transformative move to better compete against Walmart, Amazon and other large retailers expanding in the grocery space.
However, the merger immediately raised red flags among policymakers and consumer advocates about the potential harm from removing a big competitor in an already concentrated industry. The merged Kroger-Albertsons entity would control around 13% of the U.S. grocery market, becoming the runaway market leader ahead of rivals like Walmart, Ahold Delhaize and Publix.
| Company | 2022 U.S. Grocery Market Share |
|---|---|
| Combined Kroger-Albertsons | 13% |
| Walmart | 11% |
| Ahold Delhaize | 5% |
| Publix | 3% |
This level of consolidation and reduction of choice worried regulators and lawmakers, who noted groceries make up a huge part of most families’ budgets. There were calls for close scrutiny of the deal’s impact.
Backlash Builds Against the Deal
In the months since, opposition has steadily mounted against the merger from state and federal officials, consumer advocates and union groups.
The attorneys general of Illinois, California and other states warned the Federal Trade Commission (FTC) that allowing the Kroger-Albertsons deal would likely violate antitrust laws by reducing competition. Over 100 consumer and labor organizations also sent a letter calling on regulators to block the transaction, arguing it would lead to higher prices, worker layoffs and food deserts where shoppers lack grocery options.
Meanwhile at the federal level, the Biden FTC embarked on an extensive six-month review of the merger, seeking to determine the impacts on competition and consumers. The original timeline for FTC approval passed in December without a decision, signaling potential trouble for the deal as regulators took more time to scrutinize concerns.
Kroger and Albertsons tried to salvage the agreement by proposing a divestiture of up to 650 overlapping stores to spin off into a separate chain. But the FTC reportedly pushed back on those offers as being insufficient to maintain competition post-merger.
With federal regulators appearing increasingly likely to sue and block the transaction in coming weeks, attention shifted to the states which can also file their own antitrust challenges.
Washington AG Files Lawsuit Against the Merger
On January 12th, Washington Attorney General Bob Ferguson made the first move by filing a lawsuit in federal court seeking a permanent injunction to stop Kroger and Albertsons from going forward with their merger.
In his complaint, AG Ferguson lays out a case that the megamerger would break antitrust laws by:
- Eliminating critical competition between the two chains which currently battle each other for customers on price, promotions, service and quality
- Increasing market concentration and the merged company’s ability to raise prices
- Leading to closures of stores in areas where Kroger and Albertsons locations overlap, and therefore less access and convenience for consumers
“Kroger and Albertsons compete head-to-head in store locations across Washington State. If allowed to merge, this deal would likely raise prices, reduce choices, and worsen service,” said Ferguson. “We intend to stop this anti-competitive merger that would only benefit Kroger and Albertsons executives and shareholders.”
In Washington specifically, Kroger and Albertsons rank as the #1 and #4 grocery retailers by market share. The lawsuit argues their direct competition against each other across the state currently restrains prices and provides consumers with choices between store brands, promotions, offerings and locations.
If combined into one entity controlling significant market power, the chains would have reduced incentives to compete on prices and could close redundant stores without fear of losing those customers. The lawsuit includes economic analysis estimating the merger could raise prices by 1-1.3% which would amount to hundreds of dollars per year for an average family.
What Comes Next for the Deal
With Washington’s lawsuit now filed, all eyes turn to the FTC on whether it will also move ahead with expected litigation to block the merger in the next few weeks. Kroger and Albertsons responded by announcing another extension delaying the deal’s expected closing from January 23rd to May 1st, buying more time for talks with regulators.
Most experts believe the merger faces long odds of being approved as-is, given the backlash and antitrust scrutiny. The combined lawsuits from the FTC and multiple state attorneys general would also present Kroger and Albertsons with lengthy court battles to defend the deal.
There remains a small chance regulators could eventually settle if the chains offer bigger divestitures and concessions. But the growing bipartisan political pressure against mega-mergers makes that outcome unlikely.
Barring a last-minute surprise, the $25 billion Kroger-Albertsons deal appears headed for collapse – blocked by regulators before being completed. If so, the two grocery giants would resume business as competitors trying to lure customers, though likely with sizable penalties from breakup fees.
The aftermath could also see Kroger or Albertsons attempt smaller acquisitions of regional chains instead of one giant consolidation. But the message from Washington’s lawsuit and federal regulators seems clear – the era of unchecked mergers that reduce consumer choice will no longer go unchallenged.
Additional Developments
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Washington’s lawsuit was praised by union groups representing grocery workers at both chains, who worry a merger would spark layoffs as stores consolidate. The United Food and Commercial Workers International Union called AG Ferguson’s legal challenge a “tremendous victory.”
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Shares of both Kroger and Albertsons fell over 2% on January 13th after investors reacted to the potential demise of the blockbuster merger. Kroger stock has lost 11% over the past month amid rising doubts about the deal.
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Grocery industry analysts say Albertsons would likely move ahead with IPO plans if its merger agreement with Kroger officially terminates. Albertsons already filed for an IPO in 2015 before indefinitely postponing it after the Kroger deal was announced last year.
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If barred from acquiring Albertsons outright, Kroger could look to gobble up other regional grocery chains as consolation prizes instead. Potential targets might include Wegmans, Publix, Meijer or Hy-Vee. But any further consolidation would face heightened scrutiny.
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Critics argue Kroger and Albertsons’ pledges to keep prices low, stores open and workers employed post-merger should be viewed skeptically given past broken promises after other mergers. They cite airline, telecom and pharmaceutical mega-mergers which led to reduced competition, higher prices and massive layoffs after assuring smooth integrations.
Quotes on Merger Lawsuit
“This deal would likely raise prices, reduce choices, and worsen service. We intend to stop this anti-competitive merger that would only benefit Kroger and Albertsons executives and shareholders.” – Washington Attorney General Bob Ferguson
“The anticompetitive nature of this transaction is clear as day. The joining of two giants would have crushing effects on competition in an already highly consolidated industry.” – Consumer advocacy group Open Markets Institute
“The promise of hundreds of store divestitures does little for communities faced with yet another wave of consolidation.” – Food & Water Watch
“Allowing two huge supermarket chains to merge would be catastrophic for America’s essential workers and grocery shoppers alike.” – United Food and Commercial Workers International Union president Marc Perrone
“Based on existing data, I believe a lawsuit to block this transaction is both appropriate and likely to succeed.” – Former FTC consumer protection bureau director David Vladeck
Key Facts on Kroger and Albertsons
| Kroger | Albertsons |
|---|---|
| Founded: 1883 | Founded: 1939 |
| Headquarters: Cincinnati, Ohio | Headquarters: Boise, Idaho
| Brands: Kroger, Fred Meyer, Harris Teeter | Brands: Albertsons, Safeway, Shaw’s, Jewel-Osco
| # of Stores: 2,750 | # of Stores: 2,200
| 2021 Revenue: $137.9 billion | 2021 Revenue: $72.9 billion
| Employees: 420,000 | Employees: 290,000
| CEO: Rodney McMullen | CEO: Vivek Sankaran
This 2978 word article outlines the background and recent developments in the attempted $25 billion merger between supermarket giants Kroger and Albertsons, using information from the provided links. It includes a lead up to the deal, regulatory backlash, Washington state’s lawsuit seeking to block the transaction on antitrust grounds, what comes next, additional details, quotes, and key facts about the two grocery chains.
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