Colorado sues to block Kroger, Albertsons merger

Colorado Attorney General Phil Weiser announced on Wednesday that the state is suing to block the $24.6 billion Kroger Albertsons megamerger. 

The AG’s office released a statement noting that Kroger and Albertsons are the two largest grocers in the state and operate more than 250 locations combined — Kroger with 148 King Soopers and City Market stores and Albertsons with 105 Safeway and Albertsons stores. 

In filing the lawsuit, Colorado joins several other states and the District of Columbia which are also suing to block the merger. 

 Weiser argues that the grocery market is already highly concentrated, and the merger would hurt shoppers, workers, and suppliers. 

“Coloradans are concerned about undue consolidation and its harmful impacts on consumers, workers, and suppliers,” Weiser said in a press release. “After 19 town halls across the state, I am convinced that Coloradans think this merger between the two supermarket chains would lead to stores closing, higher prices, fewer jobs, worse customer service, and less resilient supply chains.”

In response to the lawsuit, Kroger and Albertsons released a joint statement saying it was a “premature decision to file a lawsuit while the merger is still under regulatory review, and we remain in active dialogue with the FTC and the other state attorneys general.”

“The merging parties will vigorously defend this in court because we care deeply about our customers and the communities we serve, and this merger will result in the best outcomes for Colorado consumers," the statement said. “Blocking this merger would only serve to strengthen larger, non-unionized retailers like Walmart, Costco and Amazon, by allowing them to maintain and increase their overwhelming and growing dominance of the grocery industry. In contrast, Kroger and Albertsons Companies merging will bring lower prices to more customers, strengthen and create good-paying union jobs, and bring more fresh, affordable food to more communities.”

The lawsuit not only aims to block the merger, but it also challenges a “no-poach” agreement between the companies “during a 2022 strike when employee movement was a threat to Kroger’s operations.”

The AG’s office said in a press release that the two companies compete directly with one another and frequently adjust their prices down based on that competition in the marketplace. 

In some Colorado cities, Kroger and Albertsons banners are the only options for consumers. 

“For instance, City Market and Safeway are the only supermarkets in Gunnison. The merger would make Kroger the only supermarket in this area, and a Gunnison resident would have to drive 65 miles to Salida or Montrose to reach a non-Kroger store, leaving them at the peril of their supply chain failing,” the AG’s office argues. 

The merger would also make it more difficult for workers to strike, Weiser explained, saying that a King Soopers strike in Colorado that lasted 10 days in January 2022, resulted in consumers taking their business to a nearby Safeway store. 

It was during this strike that Kroger and Albertsons entered into an agreement, which the AGs office says is illegal, wherein the grocers promised not to poach one another’s employees, particularly the King Soopers workers on strike.  

The two companies also allegedly agreed “to not solicit any of King Soopers’ pharmacy customers, according to an email between company executives leading up to the strike,” Weiser said in the announcement. “Such no-poach and non-solicitation agreements are illegal under the Colorado State Antitrust Act because they are agreements to not compete.”

The state seeks $1 million in civil penalties from the two grocers over the no-poach and non-solicitation agreement. 

“In addition to challenging this merger, we are also suing the two companies for a no-poach agreement that harmed workers and blatantly violated antitrust law,” Weiser said. “No-poach agreements stifle worker mobility and depress wages and non-solicitation agreements harm consumers and raise prices.”

Kroger and Albertsons released a statement denying that such an agreement exists. 

“It is disheartening for Coloradans that General Weiser would mischaracterize the facts because there was not then, and there is not now, non-solicitation or so-called no-poach agreements between Kroger and Albertsons. Employees at both companies regularly join our teams from — and exit our companies for opportunities to work at — Albertsons, Kroger, Walmart, Amazon, Costco, and other retailers as well as restaurants, food service companies, convenience stores, warehouses, and more.”

The AG’s office also argues that a merger would hurt some suppliers, such as farmers who produce Palisade peaches. The grocers frequently sell those peaches on promotion at a loss to attract shoppers. 

“This benefits Palisade peach farmers because they can be assured of a fair price and avenues to sell their crops, and it benefits consumers because they have access to great local product at low prices. The same dynamic plays out for other local Colorado products, ranging from produce and other fresh products like meat, dairy, baked goods, or center-store packaged products,” Weiser’s statement noted. 

Weiser also argued against the proposal by Kroger to divest 413 stores to C&S Wholesale Grocers, which operates 23 stores outside of Colorado. The divestiture would position C&S to buy 50 Safeway stores and two Albertsons stores in Colorado.  

The AG’s office argues that C&S has insufficient experience to take on a divestiture that large, and C&S would not adequately be able to compete against Kroger in the way that Albertsons currently does. 

Albertsons’ divestiture of 168 stores in its 2015 merger with Safeway also was poorly executed and allegedly led to the bankruptcy of Haggen, which bought most of the stores, according to Weiser. 

“Shortly after acquiring the divested stores, Haggen filed a lawsuit accusing Albertsons of anticompetitive conduct and violating the FTC’s divestiture order. Haggen went bankrupt within months of the divestiture sale, Albertsons bought back many of the stores at a steep discount, and many other stores closed,” the AG’s office noted. 

That failed effort to preserve competition could also happen in Colorado, according to Weiser.

“Our conclusion in this case — and our skepticism about the proposed divestiture—is strongly supported by what happened in the Albertsons/Safeway merger, where stores closed, jobs were lost, consumers suffered, and the divestiture failed miserably to preserve competition,” Weiser said in a statement. “We won’t risk another such failed divestiture and we will fight hard to preserve competition for consumers, workers, and suppliers, all of whom have raised serious concerns about the remedy proposed in this case.”