FTC Sues to Block Kroger-Albertsons Merger | April 2024

April 2024 | Volume 15, Issue 9

Read the full article from CBS News.

According to the article, the Federal Trade Commission (FTC) recently sued to block a proposed merger between grocery giants Kroger and Albertsons, saying the $24.6 billion deal could result in higher prices for millions of American consumers.

The FTC Lawsuit

The FTC filed a lawsuit in U.S. District Court in Oregon, alleging that the deal is anticompetitive and could harm shoppers by boosting prices for groceries and other essential household items. The merger could also result in lower quality products and services, as well as limit shoppers' options for where to buy groceries, the agency alleged. 

The FTC was joined in the suit by eight state attorneys general and the District of Columbia.

Kroger and Albertsons, two of the nation's largest grocers, agreed to merge in October 2022. But grocery costs have soared since the pandemic, pushing Americans to spend more of their income on food than they have in 30 years and prompting some critics to point to corporate "greedflation" as a cause.

Given high food-price inflation, the merger was bound to get tough regulatory scrutiny.

"This supermarket mega merger comes as American consumers have seen the cost of groceries rise steadily over the past few years," said Henry Liu, Director of the FTC's Bureau of Competition, in a statement. 

He added, "Kroger's acquisition of Albertsons would lead to additional grocery price hikes for everyday goods, further exacerbating the financial strain consumers across the country face today."

U.S. prices for food eaten at home typically rise 2.5% per year, but in 2022 they rose 11.4%, and in 2023 they rose another 5%, according to government data. Inflation is cooling, but gradually.

Bigger Rivals

The companies said a merger would help them better compete with Walmart, Amazon, Costco, and other large rivals. Together, Kroger and Albertsons would control around 13 percent of the U.S. grocery market; Walmart controls 22%, according to J.P. Morgan analyst Ken Goldman.

Kroger, based in Cincinnati, Ohio, operates 2,750 stores in 35 states and the District of Columbia, including brands like Ralphs, Smith’s, and Harris Teeter. Albertsons, based in Boise, Idaho, operates 2,273 stores in 34 states, including brands like Safeway, Jewel Osco, and Shaw's. Together the companies employ around 700,000 people.

The FTC, which said the proposed deal would be the largest grocery merger in U.S. history, said it would also erase competition for workers, threatening their ability to win higher wages, better benefits and improved working conditions.

The Biden administration has also shown a willingness to challenge big mergers in court. Last month, the Justice Department sued to block a proposed merger between JetBlue Airways and Spirit Airlines.

The action by the FTC and the states follows lawsuits filed earlier this year in Colorado and Washington to block the merger. The states that joined the FTC lawsuit Monday are Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming.

Kroger's Pledge to Lower Prices

Kroger has promised to invest $500 million to lower prices as soon as the deal closes. It said it also invested in price reductions when it merged with Harris Teeter in 2014 and Roundy's in 2016. Kroger also promised to invest $1.3 billion in store improvements at Albertsons as part of the deal.

Last year, C&S Wholesale Grocers agreed to purchase 413 stores and eight distribution centers that Kroger and Albertsons agreed to divest in markets where the two companies' stores overlapped. C&S said it would honor all collective bargaining agreements with workers.

Still, the United Food and Commercial Workers union, which represents 835,000 grocery workers in the U.S. and Canada, voted last year to oppose the merger, saying Kroger and Albertsons had failed to be transparent about the potential impact it would have on workers.

The union was also critical of a $4 billion payout to Albertsons shareholders that was announced as part of the merger deal. Several states, including Washington and California, tried unsuccessfully to block the payment in court, saying it would weaken Albertsons financially.

"The FTC's decision reflects clear concerns over the impact such a mega-merger could have on workers, food prices and millions of customers," UFCW International President Marc Perrone said in a recent statement.

Kroger and Albertsons had hoped to close the deal early this year. But the two companies announced in January that it was more likely to close in the first half of Kroger's fiscal year. Kroger's fiscal second quarter ends August 17.

Discussion Questions

1. What is the Federal Trade Commission (FTC)?
   The Federal Trade Commission (FTC) is an independent agency of the U.S. government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction over federal civil antitrust law enforcement with the Department of Justice Antitrust Division.
   
   The FTC was established in 1914 with the passage of the Federal Trade Commission Act, signed in response to the 19th-century monopolistic trust crisis. Since its inception, the FTC has enforced the provisions of the Clayton Act, a key antitrust statute, as well as the provisions of the FTC Act, 15 U.S.C. Section 41 et seq. Over time, the FTC has been delegated with the enforcement of additional business regulation statutes and has promulgated several regulations (codified in Title 16 of the Code of Federal Regulations). The broad statutory authority granted to the FTC provides it with greater surveillance and monitoring abilities.
   
   “The FTC’s mission is protecting the public from deceptive or unfair business practices and from unfair methods of competition through law enforcement, advocacy, research, and education.
   
   Our work to protect consumers and promote competition touches the economic life of every American. We are the only federal agency that deals with consumer protection and competition issues in broad sectors of the economy.
   
   Every day we: 
   (1) Pursue strong and effective law enforcement against deceptive, unfair, and anticompetitive business practices. 
   (2) Create and share practical, plain-language educational programs for consumers and businesses.
   (3) Advance consumers’ interests by sharing our expertise with federal and state legislatures and U.S. and international government agencies.
   (4) Develop policy and research tools through workshops conferences, and hearings.”
2. What is the legal basis for the FTC attempting to block the proposed Kroger-Albertsons merger?
   As indicated in the article, the FTC lawsuit alleges that the proposed Kroger-Albertsons merger is anticompetitive and could harm shoppers by boosting prices for groceries and other essential household items. The merger could also result in lower-quality products and services and limit shoppers' options for where to buy groceries. Put quite succinctly, the FTC believes that the proposed Kroger-Albertsons merger violates federal antitrust law.
3. Do you support or oppose the FTC’s actions in this case? Explain your response.
   This is an opinion question, so student responses may vary. On its face, the FTC lawsuit is easy to support for its pro-consumer bent (after all, we are all consumers of essential groceries), but your author would like to see more information to determine whether, from a legal standpoint, the effect of the merger would be to significantly limit competition in the grocery sector of the economy. Although there is no scientific basis to determine whether a merger would indeed violate antitrust law, actual data would assist in terms of formulating a reasonable conclusion as to whether the merger would significantly and adversely affect the market and the consumers in it.