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Kroger-Albertsons-C&S divestiture deal called insufficient remedy
Six members of Congress and the Teamsters union have urged the FTC to nix the planned asset sale and reject the supermarket mega-merger.
12 Min Read
Regulators, lawmakers and labor leaders have continued to question Kroger-Albertsons' planned divestiture to C&S. / Photos from C&S, Kroger and Shutterstock (Albertsons)
Six members of Congress have reiterated their calls for the Federal Trade Commission to reject the pending $24.6 billion Kroger-Albertsons merger, contending the supermarket giants’ recent divestiture deal with C&S Wholesale Grocers won’t be an adequate antitrust remedy.
U.S. Sens. Elizabeth Warren (D., Massachusetts) and Mazie Hirono (D., Hawaii) sent a letter on Monday to FTC Chair Lina Khan maintaining their stance that the more than year-old merger agreement will weaken the competitive playing field in grocery retail.
The letter—also signed by Sens. Bernie Sanders (I., Vermont) and Cory Booker (D., New Jersey) and U.S. Reps. Alexandria Ocasio-Cortez (D., New York) and Summer Lee (D., Pennsylvania)—further argues that Kroger-Albertsons’ $1.9 billion pact in early September to sell stores and other assets to C&S won’t lessen the anticompetitive impact of the merger, which would be the largest-ever U.S. supermarket combination.
“We write to express our continuing concerns with Kroger Co.’s proposed $24.6 billion acquisition of Albertsons Cos.,” the lawmakers wrote. “In September 2023, Kroger and Albertsons released the details of a divestiture plan to sell 413 stores and other assets to C&S Wholesale Grocers, in an attempt to assuage competition concerns raised by the merger. However, this divestiture plan will not ameliorate harms to consumers, workers and the grocery industry as a whole if the merger is allowed. We urge you to oppose this proposed merger, regardless of the proposed divestiture.”
Gauging the impact
Under the proposed divestiture transaction, Kroger-Albertsons plans to sell 413 stores, eight distribution centers and two regional offices in 17 states and the District of Columbia plus five Albertsons private brands to Keene, New Hampshire-based C&S. The pact also might require C&S—which committed to honor union contracts—to buy another 237 stores based on Kroger and Albertsons securing FTC and other regulatory clearance for their merger.
The merger of Cincinnati-based Kroger and Boise, Idaho-based Albertsons—joining the nation’s largest conventional supermarket retailers—would form a company with annual revenue of about $210 billion and (excluding divestitures) 4,996 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies, 2,015 fuel centers and 710,000 workers in 48 states and the District of Columbia.
“A Kroger-Albertsons merger would net the five largest food retail companies control of 55% of all grocery sales. The newly merged entity could use its dominant position to further control and ultimately raise consumer prices,” the Senate and House members said in their letter to Khan. “At the regional and local level, mega-grocer domination will be even more pronounced. The merger would result in a duopoly with Walmart, with the two corporations controlling more than 70% of the grocery market in over 160 cities across the country.”
The lawmakers, too, claim the Kroger-Albertsons combination would exacerbate an existing problem of grocery retail “power buyers,” which use their scale to command more favorable supply terms, lower prices, special product package sizes and first call on high-demand items—putting smaller chains and independent grocers at a marked disadvantage in supply and pricing.
“A grocery mega-merger also increases the risk that firms will violate the Robinson-Patman Act, a longstanding but under-enforced law that prohibits sellers from engaging in price discrimination among different buyers,” the senators and reps explained. “Dominant grocery chains can use their buyer power to pressure food suppliers for preferred pricing and terms, beyond what might be justified by efficiency. This price discrimination impairs independent and smaller grocers’ ability to compete on price and quality.”
Workers also may get squeezed by fewer employment choices as grocery competition shrinks, they added.
“Since October 2022, new economic analyses have illuminated additional harms to workers. The consolidation of grocery store employers will eliminate workers’ options for employment, reducing competition for labor and decreasing wages,” the lawmakers wrote. “A merger will also decrease the bargaining power of organized labor, as unionized workforces will not be able to play different employers off one another.”
C&S deal under scrutiny
In their letter to the FTC’s Khan, Warren, Hirono, Sanders, Booker, Ocasio-Cortez and Lee claimed that divestiture arrangements like the Kroger-Albertsons-C&S deal don’t always pan out as expected.
“When massive mergers like this one are proposed, merging parties sometimes offer behavioral or structural remedies to preemptively ‘cure’ their anticompetitive effects. Structural remedies, such as a divestiture of a number of assets, often fail to address harms to competition—in part because companies have an incentive to ensure the failure of spun-off companies and do not mitigate price increases and other negative effects on consumers,” the congressional members said. “Furthermore,” the lawmakers added, “they encourage companies to ‘litigate the fix’ by proposing remedies during ongoing litigation in order to distract a judge’s focus from the original antitrust violations of the merger.”
The letter cited examples of what the senators and representatives deemed as unsuccessful divestiture agreements—for the 2015 Albertsons-Safeway, 2016 Royal Ahold-Delhaize Group and 2013 Hertz-Dollar Thrifty mergers, in which the divesting companies ended up reacquiring locations.
The centerpiece of Kroger and Albertsons' proposed divestiture is a package of 413 stores, eight distributors centers and two regional HQs. / Image courtesy of The Kroger Co.
On Monday, the International Brotherhood of Teamsters made a similar argument against Kroger-Albertsons’ planned divestiture to C&S. The union urged the FTC to “reject C&S as a buyer” of Kroger and Albertsons assets, arguing that C&S won’t be bound to stand by the deal down the road.
“Kroger and Albertsons management has told everyone and anyone that no union members will lose their jobs, contracts or hours if this merger goes through. Those promises mean nothing if they sell parts of either company to C&S,” Teamsters General President Sean O’Brien said in a statement. “We're not going to let any company put Teamster jobs at risk. Make no mistake: This deal is as anti-union as it gets if C&S ends up owning any part of Kroger or Albertsons.”
Overall, Teamsters represents over 22,000 members at Kroger Co. and Albertsons Cos. facilities nationwide. The union projected that, under the proposed divestiture, 1,200 Teamster jobs would “likely disappear in the first weeks and months following the asset transfers, regardless of the eventual buyer.” Teamsters said that number reflects displaced grocery distribution volume from Teamster-represented distribution centers serving the remaining Kroger and Albertsons stores versus the stores being sold.
“C&S has driven one grocery business after another into the ground for 30 years. This anti-union company has just one playbook when it comes to acquiring Teamster companies or grocery distribution contracts where our members work: close it down, bail on pensions, and move the work to one of their non-union sites,” stated Tom Erickson, international vice president for the Teamsters Central Region and director of the Teamsters Warehouse Division. “The proposed plan by Kroger-Albertsons is unacceptable, and we urge the FTC to reject it.”
In response to the Teamsters' comments, C&S said in an email to Winsight Grocery Business that the company is "excited to have announced that we entered into a definitive agreement to purchase 413 stores, eight distribution centers and two offices that have become available due to The Kroger Co. and Albertsons Companies Inc. merger."
C&S noted that, under the deal, it's slated to acquire Kroger's QFC and Mariano’s banners and Albertsons' Carrs banner, as well as the exclusive licensing rights to the Albertsons brand name in Arizona, California, Colorado and Wyoming.
"1918 Winter Street Partners, an affiliate of C&S Wholesale Grocers, will operate these stores. Our retail footprint expansion aligns with our ongoing efforts to always look for ways to continue delivering a strong customer service experience as our industry evolves," C&S said in a statement. "C&S has committed to honoring all collective bargaining agreements, including industry-leading benefits and retaining frontline associates, and we are confident the associates joining the C&S family will have an amazing opportunity to continue building a thriving career. C&S' strong operational focus and financial resources will position it to successfully operate and continue to grow and create healthier communities for years to come."
Kroger buttresses its case
Essentially, Kroger Chairman and CEO Rodney McMullen and Albertsons CEO Vivek Sankaran have restated what they’ve said publicly since their merger agreement emerged: No store closings or job cuts are upcoming, and the combined company plans to use its scale to lower prices, not raise them.
Upon the merger’s announcement, Kroger said the combined company would invest $500 million of cost savings from merger synergies to lower prices at the shelf. An incremental $1.3 billion also is earmarked for investment to enhance the customer experience in Albertsons Cos. stores.
In an August interview with WGB, McMullen noted that such price investment reflects Kroger’s historical practices. The company has reported investing $5 billion since 2003 to lower pricing. That includes $130 million after the 2014 Harris Teeter acquisition and $110 million following the purchase of Roundy’s in 2017.
Kroger, too, has said it expects to invest $1 billion to boost associate wages and benefits after the transaction closes. In March, the retailer announced plans to invest over $770 million in associates for 2023, including to raise average hourly wages, improve health care options, and create new training and development opportunities. The company said it raised average hourly rates by over 6% in 2022 and has now invested an incremental $1.9 billion in associate wages since 2018.
A report released in mid-October by the International Center for Law & Economics (ICLE) described the Kroger-Albertsons divestiture package to C&S as a viable antitrust remedy for the pending merger. And McMullen has noted the deal with C&S resulted from a careful search for a large, experienced and unionized grocery industry player as a divestiture partner.
“C&S is a well-qualified buyer who meets all the criteria necessary to complete our transaction and will ensure no stores will close as a result of the merger. Frontline associates will remain employed, and existing collective bargaining agreements will continue,” McMullen said in Kroger’s third-quarter analyst call at the end of November. “We have made a compelling case to both Kroger and Albertsons stakeholders. Our proposed merger with Albertsons creates meaningful and measurable benefits for our customers by lowering prices beginning on day one, extends our commitments to associates by increasing wages and benefits, and deepens trust with our communities by keeping stores open to assure America has access to fresh and affordable food.” (Call transcript provided by AlphaSense.)
In late July, a brief released by ICLE noted that about two-thirds of Kroger employees and a majority of Albertsons employees are represented by the United Food and Commercial Workers union. But last week, six UFCW locals endorsed a University of Utah study concluding that the Kroger-Albertsons mega-merger, if approved by regulators, would dilute labor power in the grocery retail industry.
Kroger countered, in part, by citing one of the chief reasons behind the Albertsons acquisition: fending off the growing strength of mass merchants and Amazon in the grocery marketplace.
“If the merger is blocked, the non-union retailers like Walmart and Amazon will become even more powerful and unaccountable—and that’s bad for everyone,” Kroger said in an emailed statement on the study. “The growth of non-union retailers led to fewer stores and the loss of more than 200,000 union jobs over the last 20 years. Kroger has bucked that trend, expanding access to affordable food and growing union jobs by more than 100,000 over the same time period.”
McMullen said in the Q3 call that Kroger has basically met the FTC’s second request for information on the merger, and the transaction remains on track for an early 2024 close.
Merger supporters in Congress cite changing grocery landscape
Late last week, two other members of Congress expressed their support for the Kroger-Albertsons merger. Reps. Brian Fitzpatrick (R., Pennsylvania) and Josh Gottheimer (D., New Jersey) on Dec. 8 sent a letter to FTC Chair Lina Khan noting that the agency must “analyze all of the grocery market”—including big-box retailers like mass merchants (Walmart, Target) and warehouse clubs (Costco Wholesale), as well as large, fast-growing discount grocery (Aldi) and dollar store (Dollar General, Dollar Tree/Family Dollar) chains—in evaluating the supermarket merger.
“The FTC can best protect consumers and producers by acknowledging the entire landscape of the present-day grocery market. Taking account of the sweeping changes in how Americans buy their groceries would be based on sound empirical evidence,” the two lawmakers wrote in the letter.
Fitzpatrick and Gottheimer cited data saying that 62% of Americans now buy their groceries mainly from a national/discount grocers versus just 38% at conventional supermarkets, compared with 79% purchasing their groceries at traditional supermarkets and 21% at national/discount grocers in 2003. Also, from among the top 15 U.S. grocers from 2003 to 2023, non-traditional grocery retailers added $511 billion in sales for 389% growth, 3.5 times that of conventional supermarkets in that time.
In terms of expansion, national/discount grocers added 38,951 stores over that time span versus only 402 stores for supermarkets, or 97 times more, Fitzpatrick and Gottheimer wrote, adding that such change has led to unionized grocers’ share of grocery jobs shrinking from 50% to 15% in the past 20 years. Dollar stores have seen explosive growth as well and are now the fastest-growing U.S. grocers, the lawmakers said. They noted that Dollar General and Dollar Tree/Family Dollar, the two biggest operators, combined have a $50 billion grocery business with 36,000-plus stores.
“Given this dramatic transformation in the grocery industry competitive landscape, analyzing all of the grocery market—including national/discount grocers—offers the best foundation for an accurate assessment of how the proposed merger of Kroger and Albertsons might affect wages, prices and competition,” Fitzpatrick and Gottheimer explained. “Failing to consider national/discount grocers as a part of the market analysis would overlook most of the largest and dynamic competitors facing supermarket grocers.”
As other industry observers have previously noted, Fitzpatrick and Gottheimer pointed out in their FTC letter that today’s grocery market has no true national supermarket operator. Kroger and Albertsons have locations in 35 and 34 states, respectively, and in D.C.
“Without this merger, low-wage, non-union national/discount grocery retailers will add to their dominance in the grocery sector and produce a more fragile and less resilient market for food,” Fitzpatrick and Gottheimer concluded. “Consumers are likely to continue to see unrestricted growth in dollar stores, especially in rural and marginalized communities. Local producers could see their access to consumers and the local retail food market blocked by large, dominant players with a national footprint. Workers would suffer, too—the national/discount grocers almost uniformly shun unions, pay lower wages and offer fewer employee benefits than supermarket grocers.”
Other members of Congress recently voicing support for the Kroger-Albertsons merger include Sen. Sherrod Brown (D., Ohio) and Rep. Greg Landsman (D., Ohio).
*Editor's Note: Article updated with comment from C&S and more information on merger supporters in Congress.
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