Kroger-Albertsons merger stirs uneasiness in California

The nation’s largest state by population is having qualms about the nation’s largest-ever supermarket merger.

According to published reports, California Attorney General Rob Bonta is readying a lawsuit that to block the pending Kroger-Albertsons merger. What’s more, state lawmakers have passed legislation to give workers additional protections if layoffs result from The Kroger Co.’s planned acquisition of Albertsons Cos.

Bonta’s office so far hasn’t announced any suit to stop the merger, and when asked for comment on Friday by Winsight Grocery Business, the California AG’s office referred to his previously reported remarks.

Bloomberg reported on Thursday that Bonta met with Federal Trade Commission Chair Lina Khan to discuss the $24.6 billion Kroger-Albertsons transaction—slated to combine the largest and second-largest supermarket retailers—and afterward told reporters in D.C. that California is “moving toward acting” against the merger and sees “not a lot of reason not to sue.”

Besides tilting the competitive playing field in the grocery store arena, the Kroger-Albertsons deal raises concerns in the areas of food pricing, consumer choice, labor and state agriculture, Bonta indicated. “We are very concerned about it,” he reportedly commented. Bloomberg noted that California—with largest state antitrust organization—could initiate its own lawsuit against the merger or team up with the FTC and/or other states to take legal action.

Related:Timeline: One year in, Kroger-Albertsons merger remains uncertain

Cincinnati-based Kroger described a potential lawsuit to stop the Albertsons acquisition on those grounds as misguided.

“Only non-unionized retailers, like Walmart and Amazon, will benefit if this merger is blocked,” a Kroger spokesperson said in an email to WGB on Friday. “In fact, Kroger joining with Albertsons will mean lower prices for customers, secure union jobs and more food directed to hungry families, with 10 billion meals committed to people in need across America by 2030.”

The fact that Bonta met with Khan isn’t good news for Kroger. For one, Khan’s appointment as FTC chair was part of the Biden administration’s effort to crack down on antitrust enforcement. And in 2017, she wrote a paper on antitrust regulation in which she cited the 2016 Albertsons-Safeway merger as an example of how not to devise an antitrust remedy, pointing to the failed divestiture of 146 stores to the 18-store Haggen chain, which ended up in bankruptcy and selling stores back to Albertsons.

Recent comments by Khan also don’t bode well for the Kroger-Albertsons combination, including its $1.9 billion deal to divest 413 stores in 17 states and D.C. plus distribution centers and regional HQs to C&S Wholesale Grocers. Last month, at a public meeting on the merger led by Nevada AG Aaron Ford, Khan again referred to the Safeway-Albertsons-Haggen debacle in explaining that divestitures aren’t a reliable antitrust solution in large mergers.

“Agencies have been unlikely to actually follow through,” she told KLAS-8 News Now in an interview after the public session. “If there’s a merger that is presenting a lot of risk of reducing competition, may even create a monopoly, you know, we need to weigh those risks, and especially given that some of these remedies in the past have failed.”

Some 16 states are reportedly reviewing the Kroger-Albertsons merger deal. And in August, the secretaries of state for Colorado, Arizona, Vermont, Minnesota, Rhode Island, Maine and New Mexico sent a letter to Khan asking the FTC to block the transaction, while the state treasurers for Colorado, Delaware, Maine, Massachusetts, Nevada, New Mexico and Washington requested in a letter to Khan that the FTC oppose the merger.

Workers think their jobs are at risk

Meanwhile, grocery workers in California aren’t buying assurances from Kroger, Albertsons and C&S that their jobs are safe with the merger and divestiture deals. All three companies have said these transactions would result in no layoffs plus honor existing union contracts.

Last week, California Gov. Gavin Newsom signed into law two Assembly bills—AB 853 and AB 647—that give grocery staff extra protection in the event of M&As. AB 853 would mandate that grocery or drug retailers inform the state AG about an M&A transaction 180 days before closing the deal as well as provide an impact analysis. And AB 647 would extend California’s Grocery Worker Retention Law include warehouse workers. The measure requires grocers in M&As to retain current workers at least 90 days.

Newsom, though, vetoed Senate Bill 725, which would require a grocery retailer that initiates layoffs under an M&A to give workers one week of displaced grocery worker allowance for each year of service. He said grocery employees already have protection under the state’s Grocery Worker Retention Law and the federal Worker Adjustment and Retraining Notification Act (WARN), under which companies of 100 employees or more that plan mass layoffs must provide workers with 60 days advance notice.

SB 725’s sponsor, California State Sen. Lola Smallwood-Cuevas (D-Los Angeles), noted that the bill was “urgently needed” given the pending Kroger-Albertsons deal.

“The women and men who show up to work every day and make sure our communities are well-fed should not have to face uncertainty about their future. That’s why I authored SB 725, to give every worker who is laid off as the result of a merger the right to a safety net,” she said in a statement. “It’s time California supported our grocery workers.”

You can’t blame California grocery workers for being skeptical about the merger. In announcing her bill, Smallwood-Cuevas reported that California has more of the supermarket giants’ stores than any other state, including 233 Kroger Co. stores under the Ralphs, Food 4 Less and Foods Co. banners, and 579 Albertsons Cos. stores under the Albertsons, Safeway, Vons and Pavilions banners. Of those, 66 Kroger Co. and Albertsons Cos. stores are slated to be divested to C&S.

As an example of the threat of layoffs, Smallwood-Cuevas also noted that, in Los Angeles and Orange counties, 115 of 159 Albertsons stores are within two miles of a Kroger store, which could result in an estimated 5,750 jobs cuts if brick-and-mortar overlap is deemed to require workforce reduction.

“Grocery workers are facing an enormous threat to their livelihoods,” Mark Ramos, president of the United Food and Commercial Workers Western States Council and UFCW Local 1428, stated in the SB 725 bill announcement. “Without a proper safety net, essential grocery workers could potentially fall into poverty or deep poverty if they lose their job because of a merger, since they often live paycheck to paycheck and don’t have the savings to be able to be without income for even a week.”

And Bonta’s reported comments on potential legal action against the Kroger-Albertsons deal reflect some of these very same concerns.