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Kroger-Albertsons merger naysayers deliver their message to FTC Chair Lina Khan
Fresh Perspectives: Sting from 2015 Albertsons-Safeway deal and ensuing Haggen debacle evident in public session hosted by Colorado AG Phil Weiser.
6 Min Read
FTC chief Lina Khan and Colorado AG Phil Weiser listened to concerns about the Kroger-Albertsons merger this week at a session hosted by UFCW Local 7 in Denver. / Photo courtesy of UFCW Local 7
“Fresh Perspectives” is a Winsight Grocery Business column from Executive Editor Russell Redman, who will share insights on news, trends, people, issues and events in and around the grocery industry.
United Food and Commercial Workers (UFCW) Local 7 in Denver hosted a Kroger-Albertsons merger “listening session” with Federal Trade Commission Chair Lina Khan and Colorado Attorney General Phil Weiser on Wednesday afternoon (captured by the union on Facebook Live).
Khan and Weiser said very little (after all, it was a meeting for “listening”). But they heard a lot from Local 7 and other UFCW members (including Kroger and Albertsons current and former employees), grocery supply-chain stakeholders, community groups, consumers and others in attendance.
Their resounding message? These people do not believe what Kroger, Albertsons and divestiture partner C&S Wholesale Grocers have said will happen if The Kroger Co.’s $24.6 billion deal to acquire Albertsons Cos. is approved by the FTC and other regulators.
As attendees got up to speak, they shared their reasons for wanting the FTC to block the supermarket mega-merger: possible store closings, potential jobs lost, fewer places to buy groceries, expectation for increased food prices, too much grocery retail market power, unfair negotiating leverage with manufacturers and producers, corporate executives padding profits, etc.
The vast majority of speakers, however, cited the 2015 Albertsons-Safeway merger and the ensuing collapse of small Pacific Northwest grocer Haggen as the chief reason Kroger-Albertsons should get a red light.
During its review of Albertsons-Safeway, the FTC had flagged markets in Western and Midwestern states where it thought the merger would be anticompetitive. In response, Albertsons-Safeway agreed to divest 168 stores in those areas, and Haggen—with just 18 stores, mostly in Washington state—acquired 146 stores in Arizona, California, Nevada, Oregon and Washington.
The divestiture to Haggen—a family-owned chain that transitioned to private equity ownership for the transaction—got the OK from the FTC as it green-lighted the Albertsons-Safeway combination. But Haggen proved unable to digest the nearly tenfold increase in store count. The chain soon struggled financially and started selling some stores. Less than a year later, Haggen filed for bankruptcy, and Albertsons reacquired 33 of the stores it had divested.
Some of the listening session attendees experienced the fallout from the Albertsons-Safeway-Haggen situation firsthand, and the sting was evident. They don’t want to see it repeated.
Case made by Kroger-Albertsons and C&S
When announcing their merger deal, which as of Oct. 14 turned a year old, Kroger and Albertsons estimated they would need to sell off 100 to 375 stores for the transaction to earn FTC clearance. The deal also included a 650-store cap on divestitures, at which point the grocers could re-evaluate the agreement.
Kroger has emphasized that the transaction wouldn’t lead to shuttered stores or job cuts. Also, Kroger Chairman and CEO Rodney McMullen has reiterated in media interviews and earnings calls that potential suitors for divested stores would need to be financially sound, experienced grocery operators and committed to a unionized workforce—and to honoring collective bargaining agreements—at the locations sold. In September, during a second-quarter conference call and a Groceryshop keynote, McMullen said those conditions have been met in the planned transaction with C&S.
Under that $1.9 billion deal, announced in early September, Kroger-Albertsons plans to sell 413 stores, eight distribution centers and two regional offices in 17 states and the District of Columbia to C&S. The transaction—slated to close in early 2024, when Kroger expects to finalize the Albertsons acquisition—also includes the sale of five Albertsons private brands to C&S. The divestiture pact, too, might require C&S to buy another 237 stores based on Kroger and Albertsons securing FTC and other regulatory approval for their merger.
On the face of it, Kroger and Albertsons’ agreement with C&S doesn’t portend the same fate as the botched Haggen divestiture. C&S is a big grocery company. It generates about $30 billion in annual revenue and supplies more than 7,500 independent supermarkets, chain stores, military bases and institutions, offering more than 100,000 products. On its website, C&S lists 33 distribution centers/warehouses in 15 states coast to coast.
And on the retail side, C&S operates 160 stores, mostly under the Piggly Wiggly banner but also including 11 Grand Union locations. Overall, C&S licenses the Piggly Wiggly name to about 500 independent supermarkets in 17 states. So the Kroger-Albertsons divestitures, if approved, would give C&S a grocery retail network of about 1,073 stores, which could expand to 1,310 locations if regulators call for more stores to be divested.
What’s more, C&S CEO Eric Winn has said the company’s retail operations are an “important component of our long-term growth.” The distributor has hired former Stop & Shop president Mark McGowan as senior vice president of retail to lead its grocery store expansion. Of course, with big grocery retailers going the self-distribution route, the addition of the divested stores to C&S’ retail network also would give the distributor a sizable expansion of its wholesale customer base.
No buy-in here
Still, attendees at the Denver FTC listening session aren't buying any of these points. They see the C&S divestiture package for Kroger-Albertsons as a redux of the Haggen fiasco.
After all, some attendees posited, how would C&S successfully compete with bigger retail players, and what would stop C&S from actions like closing or selling off stores and/or pharmacies or laying off employees down the road? It might behoove C&S to speak out to doubters of its retail intentions and potential by providing more assurances of its commitment to growing this business.
Weiser noted that the listening session on the Kroger-Albertsons merger marked the fifth by Khan.
“It is so special to have Chairwoman Khan here,” he said. “I worked in Washington under two administrations, and I don’t know of an antitrust enforcer who went out and did five town halls.”
Khan even asked if any of the session attendees supported the Kroger-Albertsons merger. That produced a big snicker throughout the room, which was dotted with “stop the merger” logos.
She also alluded to the Albertsons-Safeway-Haggen debacle and the fact that regulators did clear both the merger and the divestiture transactions.
“I just want to thank you all. That was just such a remarkably rich set of perspectives, and I so appreciate your taking time to come share with us today,” Khan told attendees. “It was also a good reminder hearing directly from so many grocery workers. You all were really on the front lines of your communities during the pandemic, so I particularly feel a special obligation to make sure we get this [Kroger-Albertsons merger review] right. Trusted enforcers have not always gotten it right, and some of the stories you all have shared about past experiences are a reminder of that.”
