Decision nears on Kroger-Albertsons merger

What will happen if America’s two largest grocery companies combine? Will food prices rise? Will wages stagnate? Will smaller grocers go bankrupt because they can’t compete with a colossus that controls more than a third of the U.S. grocery market?

For more than a year, the Federal Trade Commission (FTC) has investigated those questions to determine whether Kroger Co.’s offer to buy Albertsons for $24.6 billion would violate antitrust laws meant to prevent monopolies. Several antitrust experts interviewed for this story expect a final answer before Jan. 13, 2024, the date the companies tentatively set to close the deal.

In many areas of Oregon and Washington, a Kroger-Albertons combination would create a grocery monopoly. Kroger owns Fred Meyer and QFC, and Albertons owns Safeway, Albertsons, and Haggen.

To win FTC approval for the merger, Kroger and Albertsons are proposing to “preserve competition” in local markets by selling 413 stores—and the QFC brand—to C&S Wholesale Grocery, a privately-held grocery supply chain headquartered in New Hampshire. The selloff would include 104 stores in Washington and 49 in Oregon. And the two companies say they’re willing to “divest” 237 more stores — if that’s what it takes to get  FTC approval.

But one of the country’s leading anti-monopoly advocates says the selloff is a ploy that the FTC is unlikely to fall for.

“They are merging because they want market power,” said Matt Stoller, the director of research at the American Economics Liberties Project, an anti-monopoly group. “If they had enough divestments to make the merger legal, then it wouldn’t be worth it for them. The crime is the point.”

Stoller is the author of  “Goliath: The 100-year War between Monopoly Power and Democracy,” a history of federal antitrust law. Stoller said mergers eliminate competition, leaving suppliers, customers, and workers with fewer choices.

After its proposed selloff, Kroger-Albertsons would still own about 40 grocery chains and more than 4,500 stores.

Unions fight merger

On Oct. 13, 2022, the same day Kroger and Albertsons announced the merger, Seattle-based United Food and Commercial Workers (UFCW) Local 3000 and five other local unions blasted the deal in a public statement. Since 2016, Local 3000 had been collaborating with UFCW and Teamster locals in Washington, Colorado, Wyoming, and California, sharing information and strategies when bargaining with Kroger and Albertsons. Now the coalition, representing more than 100,000 Kroger and Albertsons workers, is working together to fight the merger.

John Marshall, capital strategies director at UFCW Local 3000, said the merger will diminish workers’ bargaining power because they will no longer be able to play the two grocery employers against one another.

“We’ve had success, sometimes behind Kroger’s back, working out a deal with Albertsons, then going to Kroger and saying, ‘If you don’t meet the deal we signed with Albertsons, we will strike you and put up pickets at your store to send everyone to Albertsons,’” Marshall said. “If the merger happens, that leverage totally disappears.”

With the loss of that leverage, grocery workers could see smaller paychecks.

In statements, Kroger and Albertsons executives have said they need to merge to stay competitive with Walmart and Amazon. According to grocery industry reports, Walmart sells more groceries than any other company in the United States.

A Kroger spokesperson declined to answer emailed questions from the Labor Press and said the company’s merger website, KrogerAlbertsons.com, has all of the information the company can share at this point.

On the site, Kroger makes a series of nonbinding promises about the merger, including a promise not to close any stores, distribution centers, or manufacturing facilities, or lay off any frontline employees. Kroger also promises to spend an additional $1 billion on wages and benefits over an unspecified period of time. And it claims it will lower food prices by $500 million “starting day one,” again without saying what period of time.

‘Haggen 2.0’

At a town hall hosted by his union on Oct. 26, UFCW Local 367 Organizer Colton Rose said layoffs are most likely to happen in any neighborhood where both an Albertsons store and a Kroger store remain, because the new company would probably consolidate those stores to save money. Why have two fully staffed locations if you could pay for half the staff and force shoppers to go to one store because they have no other choices?

UFCW Local 367 represents grocery workers in Tacoma and Olympia, Washington. In a study Rose did of Thurston County, which includes Olympia, he found that more than 1,000 Local 367 members work at Kroger or Albertsons stores that are less than 2.5 miles away from other Kroger or Albertsons stores; 2.5 miles is one measure the FTC uses when evaluating competition.

To avoid FTC scrutiny of mini-monopolies in those neighborhoods, Kroger and Albertsons will probably sell some of those stores to C&S, Rose said. But if C&S is not successful in operating the stores it purchases from Kroger-Albertsons, it might close some locations, leading to layoffs. Marshall, the UFCW Local 3000 financial analyst, is particularly wary about that, given Albertson’s track record.

In 2015, to get FTC approval of its merger with Safeway, Albertsons agreed to sell 146 stores to Haggen, a Northwest chain that owned 18 stores. Less than a year after the sale, Haggen filed for bankruptcy and sued Albertsons for $1 billion. In the suit, Haggen said Albertons purposely sabotaged the sale. Leading up to the handoff, it overstocked stores so products spoiled, and understocked others so customers complained about a lack of product. It reduced advertising for the stores it was selling before Haggen took over. And it kept the customer data from loyalty rewards programs, so Haggen couldn’t use that information in advertising.

“Consumers were getting 25% off coupons to come to a store a mile away that remained with Albertsons,” Marshall said.

To cover its debts, Haggen closed and sold about 127 stores. More than 5,000 workers lost their jobs, according to reporting from the Seattle Times. Haggen settled the suit with Albertsons for $5.75 million, a fraction of what it originally asked for. It later sold 30 stores back to Albertsons, defeating the purpose of the selloff in the first place. (Albertsons kept the Haggen name on 15 of the stores and rebranded others back to Safeway or Albertsons.)

“For us, the experience of the Safeway-Albertsons merger in 2015 is very fresh in our minds, because it was a disaster for thousands of UFCW members all along the West Coast,” Marshall said. “Stores closed. Our members lost their jobs. Communities all of a sudden lost their grocery store.”

Marshall sees similar red flags with the C&S deal, which he calls “Haggen 2.0.” C&S is primarily a wholesaler, not a retail grocer. It has 160 retail stores, but most are franchises run by independent operators. In total, Marshall estimates that C&S operates about 55 stores. If it acquired 413 stores, it would octuple in size, just like Haggen had.

Kroger and Albertsons haven’t shared whether the sale will include customer data. That’s a crucial piece of running a successful store, especially when it changes ownership, Marshall said. If C&S doesn’t get that data, Kroger and Albertsons could use it to draw shoppers away from the old stores, just like Albertsons did with Haggen.

The $1.9 billion purchase price seems fishy, too, Marshall said. By his estimates, the real estate alone is worth at least $2 billion, and the five distribution centers are worth at least $400 million.

This echoes what happened with Haggen: Court documents from the Haggen bankruptcy showed that the company knew buying the stores was risky but went ahead with it anyway because it was “too juicy” a deal to pass up. The real estate was worth more than the stores’ sale price, and Haggen executives knew they could make money selling off the property even if the stores went bankrupt, Marshall said. Marshall suspects Kroger and Albertsons are trying to pull the same stunt with C&S.

Kroger and Albertsons say C&S is in a better financial position than Haggen had been, and their divestiture to C&S is intended to make sure the new company can successfully operate the stores. Stoller, the antitrust expert, doesn’t buy it.

“If you have a bunch of stores and you are selling those stores to someone else that will compete with you, you have a strong incentive to make those stores unsuccessful,” Stoller said. Stoller said that’s something the FTC is probably considering in its investigation of the merger.

Campaign against the mega-merger

Unions in the anti-merger coalition have leafleted customers and held informational pickets and town hall meetings to explain why the merger would be bad for workers and shoppers. They also asked state attorneys general to help stop the deal. Washington Attorney General Bob Ferguson sued to stop Albertsons from paying a $4 billion “special dividend” to shareholders, which the companies announced as part of the merger. Ferguson argued that the payout — which amounted to all the company’s cash plus additional debt — was meant to cripple the company and make it uncompetitive if the merger doesn’t go through. Other state attorneys general filed motions in support of the suit, but Washington courts rejected it, and Albertsons paid out $4 billion to shareholders on Jan. 20, 2023.

The union anti-merger coalition also wrote to the FTC to say the merger would hurt workers and shoppers.

“These monopolistic machinations will inevitably cause worker layoffs, impose downward pressure on wages and other job standards, raise food prices for hard-hit consumers, increase the prevalence of food deserts in lower-income communities and the number of food-insecure Americans, and squelch competition in this essential industry,” the unions wrote in a letter dated Nov. 3, 2022. “It will also further exacerbate income inequality, with private equity pocketing billions of dollars while many thousands of workers are poised to earn less and consumers to pay more for the essentials of living.”

It’s not just union leaders raising alarms but the workers themselves. At community town halls held by the FTC, union members have shared their negative experiences with previous mergers.

Kyong Barry, a Local 3000 member in Auburn, Washington, was a grocery worker in 2013 when Cerberus Capital Management bought Albertsons for $3.3 billion, and in 2015 when Cerberus merged Albertsons with Safeway. Both times, Barry saw prices go up for customers, and she saw coworkers lose hours or get laid off. Barry said she and other workers have been making a lot of noise because they know the merger is bad all around.

“Back when they first announced it, I think Kroger and Albertsons thought, ‘Done deal, no biggie.’ And UFCW said, ‘Hell no, we are going to fight tooth and nail.’ And that’s what we’ve been doing.”

In May at the UFCW International Convention in Las Vegas, delegates passed a unanimous resolution opposing the merger. UFCW is the largest grocery workers union in North America, with more than 1.1 million members.

UFCW Local 555, which represents 26,000 workers in Oregon and Southwest Washington, is not part of the coalition of unions actively opposed to the merger, though it did propose an anti-merger resolution that passed at the Oregon AFL-CIO convention in September. UFCW Local 555 spokesperson Miles Eshaia said the union “prepares for inevitabilities” like big mergers by including transfer language in most contracts to require any new owner to honor the pay, benefits, and protections already negotiated by the union.

“Our members are going to be taken care of regardless of who has the banner,” Eshaia said.

Antitrust and FTC 101

The FTC was established in 1914 to prevent monopolies. Today, companies whose mergers are valued at $111.4 million or more — a size-of-transaction threshold that is updated annually — must file a notice with the FTC. The FTC reviews the proposal and decides if it would hurt shoppers, workers, or competitors in the industry.

FTC spokesperson Vicky Graham said the agency can’t publicly comment on the proposed merger of Kroger and Albertsons. However, Kroger has asserted that the merger is on track to close in early 2024, and Stoller expects a decision from the FTC before the end of this year.

There are three possible outcomes of FTC investigation: The merger happens as planned; the FTC allows the merger with special conditions it negotiates with the companies to resolve antitrust concerns that came up in the investigation; or the FTC challenges the merger in federal court. In the last scenario, the companies can either abandon the merger or fight the FTC’s challenge in court. The authority to block the merger then falls to a federal judge, who bases the decision on the FTC’s investigation and any legal arguments from the companies.

Stoller thinks the FTC is almost certain to challenge the merger. Kroger and Albertsons have both said they are willing to pursue the legal battle.

As Stoller details in his book “Goliath,” antitrust laws — and the FTC’s success in convincing federal judges to enforce them  — have waxed and waned depending on who is president, what state the economy is in, and how the public feels about big business. Starting in the 1980s under the Reagan administration, lawmakers loosened antitrust law and the country saw a merger boom that consolidated control of most markets in the hands of a few companies, Stoller writes. For example, between 1980 and 1999, the number of banks in the U.S. dropped from 15,000 to 9,000 due largely to mergers, according to a former chief of the Department of Justice. Antitrust experts interviewed for this story said the FTC has challenged just one grocery store merger since 1988 — Whole Foods’ proposed acquisition of Wild Oats for $670 million in 2007. The agency allowed other deals that raised antitrust concerns to go through after companies agreed to sell off a portion of their stores. 

But times are changing, Stoller said. In 2021, President Joe Biden appointed a FTC chair who has been vocally anti-monopoly and a critic of “Big Tech” throughout her career: Lina Khan. Khan has gone after Amazon for wage theft and Google for deceptive advertising. Under Khan’s leadership, the FTC has issued hundreds of millions of dollars in fines and halted major mergers. This summer, the FTC proposed stricter guidelines for reviewing and approving mergers.

As part of the FTC’s investigation of the Kroger-Albertsons merger, Khan has attended several listening sessions where workers, farmers, ranchers, and shoppers have explained how the merger could hurt them. On Oct. 24, Khan attended a public meeting hosted by UFCW Local 99 in Arizona. On Nov. 1, she visited Colorado for a similar session.

“I know that antitrust enforcers have not always gotten it right, and the stories you have all shared about past experiences are a good reminder of that,” Khan told the audience at the Colorado session.

The FTC and federal judges also have expanded their definition of who antitrust law is supposed to protect, Stoller said. Where in the past the FTC focused mostly on how customers would be harmed, lately it’s considered how suppliers and workers would be hurt, too. Last year, a federal judge sided with regulators to block the merger of the publishers Penguin Random House and Simon & Schuster on the grounds that a merger would leave authors with fewer options to sell their work to, thus lowering wages. That sets a legal precedent the FTC can lean on, Stoller said.

There’s also a shift in popular feeling about mergers, Stoller said. In September, U.S. Senator Dan Sullivan, a Republican from Alaska, announced he opposed the Kroger merger because it would raise prices for his constituents. Stoller said that’s a reversal for a politician who in the past openly criticized the FTC and business regulations.

“If that guy says this is going to threaten Alaskan stores and Alaskans, then this is a pretty unpopular merger. Politically, it doesn’t feel set up well for a win for (Kroger and Albertsons),” Stoller said. “I don’t want to say it’s a slam dunk, because it’s not. It’s pretty random the judges you get. But the facts here are likely to be pretty good for the FTC.”