After months of speculation and delay, the Federal Trade Commission moved Monday to prevent the proposed $25 billion merger of Kroger and Albertsons, claiming that the largest grocery merger in U.S. history would raise prices and hurt workers.
Legal experts say the government’s lawsuit, which contends the merger will reduce the competition that now keeps prices down, could take a year or more to get through various hearings and appeals. The FTC has asked the court to block the deal while the complicated case is being heard.
But many shoppers, including in Washington which has a disproportionately large share of Kroger and Albertsons locations, aren’t waiting to issue their own opinions on the merger between Kroger, which owns QFC and Fred Meyer, and Albertsons, which owns Safeway.
Regulators should “step in there and say, ‘no,’ ” Tim Johnson said Monday morning as he left the QFC in Seattle’s Wallingford neighborhood. He worried the merger “makes it so these guys’ prices go sky-high.”
At the Safeway a few miles west in Ballard, Geo Hasegawa called the FTC’s action necessary to prevent a situation with even fewer “companies controlling … the grocery market in Seattle.”
Shoppers also hoped the FTC’s lawsuit will address another merger worry — namely that some of the 413 Kroger and Albertsons stores, including 104 in Washington, that would be sold off as part of the deal might close down.
“There’s no other grocery store that I could walk to” if this one closes, said Christina Nichols as she entered the Wallingford QFC. “This is my store.”
Those sentiments roughly echo the arguments in the FTC’s administrative complaint against the merger, which was filed jointly with nine states in federal district court in Oregon.
“If allowed, this merger would substantially lessen competition, likely resulting in Americans paying millions of dollars more for food and other essential household goods,” FTC attorneys argued in the 24-page complaint.
The FTC also said that the existing competition between Kroger and Albertsons has given their unionized workforces better bargaining leverage and “has resulted in higher wages, better benefits, and improved working conditions for employees,” according to the complaint. “The proposed acquisition would eliminate this competition.”
Significantly, the FTC heavily criticized the proposal by Albertsons and Kroger to preserve competition in the market by “divesting” hundreds of stores to a third party, New Hampshire-based C&S Wholesale Grocers.
According to the FTC, C&S is primarily a wholesaler without the retail experience and capabilities needed to ensure successful operation of hundreds of stores. It has just 23 supermarkets and a single retail pharmacy.
“Through this divestiture, C&S is seeking to grow its retail footprint nearly 18-fold overnight,” FTC attorneys said in the complaint. “Yet, up until 2021, C&S stated in its quarterly reports that ‘[w]e do not intend to grow our grocery retailing operations or to operate the retail grocery stores in the long term.’ ”
The offices of the attorneys general of Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming are joining the Commission’s lawsuit.
Washington state, which filed a similar suit to block the merger Jan. 15, did not join in the FTC action.
Monday’s filings included several components. The administrative complaint lays out the FTC’s case against the merger, which would be heard by a special administrative law judge in a multistep process that would likely involve appeals and could take months or even years.
But the FTC along with Kroger and Albertsons have agreed that merger should be paused until a federal court determines whether a more permanent suspension, known as a preliminary injunction, should be imposed while the legal process runs its course, said Doug Ross, an antitrust expert at the University of Washington School of Law. A decision about a preliminary injunction would likely come in a matter of weeks, if not sooner.
Kroger and Albertsons quickly responded to the proposed lawsuit by claiming that consumers and workers would be harmed if the merger was blocked.
“Kroger’s business model is to take costs out of the business and invest in lowering prices for customers,” a Kroger spokesperson said in a statement Monday.
An Albertsons spokesperson said the FTC action would enable “larger, multichannel retailers such as Amazon, Walmart and Costco — the very companies the FTC claims to be reining in — by allowing them to continue increasing their growing dominance of the grocery industry.”
A C&S spokesperson didn’t directly respond to the FTC action or the claims about its operational capabilities, but said that “C&S has an experienced management team with an extensive background in food retail and distribution and has the financial strength to continue investing in associates and the business.”
Some legal experts had speculated an FTC action would pressure Attorney General Bob Ferguson not to pursue his own suit against the merger and join the FTC’s action.
In a statement Monday, Ferguson appeared to quash that idea. Though he applauded FTC and other states “for agreeing with us and recognizing the threat this merger poses to consumers and workers,” he said Washington “look[s] forward to standing up for Washingtonians in Washington state court.”
Some legal experts have also questioned whether Ferguson’s go-it-alone strategy was driven in part by his campaign for governor. Others have noted the outsize impact that the merger would have in Washington, which has roughly 10% of all Albertsons locations and 4% of all Kroger locations, and which would see the largest number of stores shifted to C&S ownership of any state.
The 104 locations that would be divested in Washington represent almost one-third of the state’s nearly 350 Kroger and Albertsons locations.
Ross, the UW antitrust expert, said it wasn’t clear why the FTC planned to file its suit in an Oregon district instead of district court in Washington, D.C., adding that judges in the D.C. district have far more experience in antitrust matters than judges in other district courts.
John Kirkwood, an antitrust expert and former FTC official who teaches law at Seattle University, said the FTC’s case against the merger will take several tracks with dramatically different time frames.
The agency’s case before an administrative law judge could take years to resolve, he said. But separate arguments around the preliminary injunction will happen much sooner and could be far more decisive.
If the government can’t persuade a court to block the merger until the administrative case concludes, and the merger is finalized, it would be very difficult for the government to undo, Kirkwood said.
“Although the FTC can, theoretically, continue the administrative litigation even if it has lost the preliminary injunction, because the parties will be free to integrate, to merge, to scramble the eggs, the FTC normally drops” a case against a merger, Kirkwood said.
By the same token, if a court approves the preliminary injunction and blocks the merger for what could be a multiyear administrative process, Kroger and Albertsons are likely to drop the merger, Kirkwood said.
Both Ross and Kirkwood say the case will likely turn on how effectively each side can make their arguments about C&S Wholesale’s abilities to run the divested stores.
Since the merger was announced in October 2022, shoppers in and around Seattle have seemed largely opposed to it. Many say they worry about a repeat of the failed divestiture attempt that followed Albertsons’ 2015 acquisition of Safeway. In that case, the retailers spun off nearly 150 locations, including some two dozen in Washington, to Haggen, a small Bellingham-based regional supermarket chain.
Within a year, Haggen had foundered and was forced to close or sell most of the stores — many of which were reacquired by Albertsons, according to the lawsuit.
Others fear an outcome similar to Rite Aid’s 2020 acquisition of Seattle-based Bartell Drugs, and the subsequent closure of more than a third of Bartell locations after Rite Aid’s bankruptcy.
Seattle resident Sidni Sobolik said before the Bartell debacle, she never used to worry about mergers.
“I used to think, ‘Oh, somebody else … buys it, and it just has a different name or something,’ ” she said. “But now, I think, yeah, it could go away.”
Mark Sindelar, who lives near Redmond, was more direct in his verdict on the FTC lawsuit: “Only thought is, what took them so long?”
