Kroger, Albertsons CEOs aim to dispel ‘merger myths’ in op-ed

Against a backdrop of intense opposition, Kroger Chairman and CEO Rodney McMullen and Albertsons Cos. CEO Vivek Sankaran addressed what they see as public “misconceptions” about their companies’ pending $24.6 billion merger deal in a Cincinnati Enquirer op-ed article.

Announced in mid-October, the Kroger-Albertsons merger would join the nation’s two largest conventional supermarket operators, creating a company with annual revenue of about $210 billion and 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. The transaction, in which Cincinnati-based Kroger plans to acquire Boise, Idaho-based Albertsons, is currently in the antitrust review phase with federal and state regulators.

In the Cincinnati Enquirer opinion piece, published on Friday and made available to Gannet publications nationwide, McMullen and Sankaran cited three “myths” about the merger’s potential impact: “My store will close,” “I am going to lose my job and my union will be hurt” and “My groceries are going to be more expensive.” The two CEOs essentially reiterated what they’ve said publicly since the deal was unveiled: No store closings or job cuts are upcoming, and the combined company aims to use its scale to lower prices, not increase them.

“The landscape is competitive and ever-evolving. That’s why we strive to do better—delivering lower prices and more choices faster. And that is what excites us about our proposed merger,” McMullen and Sankaran wrote in the op-ed. “Since we announced the merger, we have seen many misconceptions about it. We would like to correct a few of these and share the meaningful, measurable benefits the merger will bring to customers, associates and communities.”

Regarding the claim that Kroger-Albertsons would result in store closings, McMullen and Sankaran noted in the column that the companies have pledged no store closures and will seek to sell or divest locations. The two retailers said in announcing the merger that they plan to divest 100 to 375 stores via direct sales to other operators and/or a newly formed spinoff company, dubbed SpinCo. Their agreement also includes a cap of 650 store divestitures, at which point the companies could opt to reassess the transaction.

In early December, Kroger said it received a second request for information from the FTC on the proposed merger—days after McMullen and Sankaran were grilled by lawmakers in a Senate Judiciary subcommittee hearing on the planned transaction. But in a March 2 call with analysts on Kroger’s fiscal 2022 results, McMullen reported that talks to gain regulatory clearance for the merger are progressing.

“We understand the idea of a trusted neighborhood store closing is worrisome. That’s why Kroger committed to zero store closures as a result of the merger, and the company will invest in stores post-merger,” the CEOs stated in the Enquirer article.

Kroger's Rodney McMullen (left) and Albertsons' Vivek Sankaran were pressed by senators on the merger deal at a committee hearing in March. / Photos: U.S. Senate

McMullen and Sankaran also vowed in the op-ed that store associate layoffs won’t happen with the merger transaction. When the deal was unveiled, Kroger noted that it will augment its recent investments in associate wages, training and benefits. The retailer said at the time that it has invested an incremental $1.2 billion in associate compensation and benefits since 2018, and the combined company expects to invest $1 billion to continue raising associate wages and comprehensive benefits after the transaction closes. “The merger secures union jobs,” McMullen commented when announcing the agreement, adding that the two grocers “will continue to work with local unions across America to serve our communities.”

“We value and respect our associates and would never move forward with this combination if it could risk their careers. No frontline workers will be laid off as a result of the merger,” McMullen and Sankaran said in the Enquirer column. “The combined company will have one of the largest unionized workforces in the country. We are committed to protecting and expanding opportunities for union jobs.”

On grocery pricing, McMullen and Sankaran rejected claims that their companies’ merger would lead to higher costs for consumers and that they would “lower prices by squeezing farmers.” They said in the op-ed that Kroger’s business strategy is to “lower prices year over year” to draw more customers and earn their loyalty, reporting that the company has trimmed its margins by over $5 billion since 2018 while increasing customer counts.

At the time of the merger announcement, Kroger said it plans for $500 million in cost savings from merger synergies to be reinvested in reduced pricing at the shelf, and another $1.3 billion would be earmarked for investment to enhance the shopping experience in Albertsons Cos. stores.

“As a combined company, Kroger and Albertsons will be even more customer-focused. We will offer lower prices and more choices on products customers want, need and love,” the two executives stated in the Enquirer article. “Our associates lead the way, delivering a fresh and friendly shopping experience. We will continue to grow our workforce, raising wages and building comprehensive benefits. We are lowering prices, so customers find the value they deserve. Customers can feel confident we’ll hold ourselves accountable because we have a track record of investments that benefit them.”

Antitrust approval remains question mark

Kroger has said the merger deal is on track to close in early 2024. Yet Wall Street analysts and other industry observers say regulatory clearance is likely to take longer for such a large transaction—the biggest U.S. supermarket merger ever—and could last up to two years.

In an online article on Monday for investor website Seeking Alpha, J.G. Collins, managing director of economics, business and policy consulting firm Stuyvesant Square Consultancy, called the op-ed by McMullen and Sankaran a “desperate attempt to spin an increasingly negative view of the merger.”

He explained that a high number of store divestitures would upset the transaction’s financial metrics, and the deal continues to brew a high level of political, labor and consumer opposition. In addition, he said a rise in insider stock sales recently indicates that these executives think “this dog don’t hunt” in terms of the merger transaction gaining approval.

“We view an op-ed by the Albertsons/Kroger CEOs as mild panic. It’s likely to backfire, causing markets and regulators to evaluate whether what the CEOs call ‘myths’ actually have substance,” Collins wrote in the Seeking Alpha article.

The Kroger-Albertsons combination will face higher regulatory scrutiny under current Federal Trade Commission Chair Lina Khan, which likely would push divestitures toward the 650-store ceiling in the merger agreement and impact the projected benefits of the deal, Collins argued. What’s more, he said, stores sold to other retailers could end up putting frontline workers into non-union shops.

“So, while nominally it may not be true that ‘my store will close,’ there is a good chance it will change substantially,” he noted. “It could be sold to another entity, including one more hostile to a union workforce, like Amazon. It could also go to a more heavily leveraged buyer, which could up prices to service debt.”

UFCW Local 7 last month participated in "Stop the Merger" events at King Soopers and Safeway stores in the Denver metro area. / Photo courtesy of UFCW Local 7

And though store associates may not face job cuts as a result of the merger, their working hours could be pared, according to Collins. “While the CEOs’ op-ed boasts about the wages their companies pay their workers, it says nothing of their hours. Employee blogs have multiple instances of workers saying their hours have been cut,” he wrote.

A higher-than-expected number of required store divestitures—especially more profitable locations—also could impact Kroger’s ability to invest in lower prices and employee wages and benefits, Collins said. High-profile lawmakers like Sens. Elizabeth Warren (D., Maine), Bernie Sanders (I., Vermont) and Amy Klobuchar (D., Minn.), who chairs the Senate Judiciary’s antitrust subcommittee, all have expressed concerns—if not opposition—to the Kroger-Albertsons deal, he added.

“Less than 20 months out from an election, including one where both Warren and Klobuchar will stand for re-election, will make any merger highly unlikely,” Collins stated in the Seeking Alpha article. “While we once favorably—even enthusiastically—viewed merger, we reconsidered in January. We believe, now, that the merger is hopelessly entangled in regulatory issues.”

No shortage of opposition to mega-merger

Opposition to the Kroger-Albertsons merger pact has continued to mount. Earlier last month, Kroger filed a motion to dismiss a federal lawsuit by a group of 25 consumers from 11 states to block the deal. The group’s suit contends that a Kroger-Albertsons combination would violate antitrust law by quelling competition, reducing consumer choice, raising prices at grocery stores and triggering job cuts from store closings. Their complaint calls on the court to halt the merger and permanently block Kroger from acquiring Albertsons under Section 7 of the Clayton Antitrust Act.

In March, a coalition of about 100 organizations launched a “Stop the Merger” campaign website to sway regulators to halt the Kroger-Albertsons transaction. Located at NoGroceryMerger.com, the effort encompasses a diverse range of supporters—unions, communities, citizens groups, farmers, fair trade and employment organizations, and social justice and women’s advocacy groups, among a host of other stakeholders—who claim the grocery retail mega-merger is anti-competitive and will result in higher prices for consumers, “hundreds of thousands” of job cuts and an imbalanced playing field for manufacturers and farmers.

The Stop the Merger campaign’s website came less than a week after Kroger confirmed that it has enlisted former U.S. House Speaker John Boehner (R., Ohio) as a strategic adviser. Boehner, now a senior strategic adviser at Washington, D.C., lobbying and legal powerhouse Squire Patton Boggs, is slated to serve as a “strategic counsel” for Kroger but hasn’t registered as a lobbyist. Kroger has retained the services of Squire Patton Boggs, and ex-aides for Boehner are reportedly part of the lobbying team.

Also, in mid-February, Arizona Attorney General Kris Mayes announced an investigation of the proposed Kroger-Albertsons transaction, citing concerns about its possible impact on the state’s grocery retail market. Colorado and Washington state also are pursuing their own investigations to potentially block the merger. United Food and Commercial Workers, the nation’s largest grocery retail and food workers union, and its local chapters have spoken out against a combination of Kroger and Albertsons as well.