After months of speculation and delays, the Federal Trade Commission decided Monday to block the planned $25 billion merger of Kroger and Albertsons, saying the largest grocery merger in U.S. history would drive up prices and would harm the employees.
Legal experts say it could take a year or more for the government's lawsuit, which claims the merger would reduce competition that is now keeping prices low, to go through various hearings and appeals. The FTC has asked the court to block the deal while the complicated case is heard.
But many shoppers, including in Washington, where there are a disproportionate share of Kroger and Albertsons locations, aren't waiting to offer their own opinion on the merger between Kroger, the owner of QFC and Fred Meyer, and Albertsons, the owner of Safeway , to express.
Regulators should “step in and say 'no,'” Tim Johnson said Monday morning as he left the QFC in Seattle's Wallingford neighborhood. He feared that the merger would “cause these people’s prices to skyrocket.”
At the Safeway a few miles west in Ballard, Geo Hasegawa called the FTC's actions necessary to prevent a situation in which even fewer “companies control the Seattle grocery market.”
The buyers also hoped the FTC's lawsuit would address another merger concern – namely that some of the 413 Kroger and Albertsons stores, including 104 in Washington, that would be sold as part of the deal could close.
“There's no other grocery store I could walk to” if this one closes, Christina Nichols said as she walked into the Wallingford QFC. “This is my shop.”
These views roughly mirror the arguments in the FTC's administrative complaint against the merger, filed jointly with nine states in federal district court in Oregon.
“If approved, this merger would significantly reduce competition, likely resulting in Americans paying millions of dollars more for food and other essential household goods,” FTC lawyers argued in the 24-page lawsuit.
The FTC also said existing competition between Kroger and Albertsons gave their unionized workforces greater bargaining leverage and “resulted in higher wages, better benefits and improved working conditions for employees,” the complaint said. “The proposed takeover would eliminate this competition.”
Significantly, the FTC strongly criticized Albertsons and Kroger's proposal to maintain competition in the market by “divesting” hundreds of stores to a third party, New Hampshire-based C&S Wholesale Grocers.
According to the FTC, C&S is primarily a wholesaler without the retail experience and skills necessary to successfully operate hundreds of stores. There are only 23 supermarkets and a single retail pharmacy.
“Through this divestiture, C&S seeks to increase its retail footprint by nearly 18-fold overnight,” FTC attorneys said in the complaint. “Nevertheless, through 2021, C&S stated in its quarterly reports that '[w]“We do not intend to expand our grocery retail business or operate the grocery retail stores long-term.” ”
The attorneys general's offices of Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming join the commission's lawsuit.
Washington state, which filed a similar lawsuit to block the merger on Jan. 15, did not join the FTC lawsuit.
Monday's filings included several components. The administrative complaint sets out the FTC's case against the merger, which would be heard by a special administrative law judge in a multi-stage process that would likely include appeals and could last months or even years.
But the FTC, along with Kroger and Albertsons, has agreed that the merger should be put on hold until a federal court decides whether a more permanent stay, called a preliminary injunction, should be imposed while the legal process is ongoing, said Doug Ross, an antitrust expert the University of Washington School of Law. A decision on an injunction would likely come in a few weeks, if not sooner.
Kroger and Albertsons quickly responded to the proposed lawsuit, claiming that consumers and workers would be harmed if the merger were blocked.
“Kroger's business model is to reduce costs from the business and invest in lower prices for customers,” a Kroger spokesman said in a statement Monday.
An Albertsons spokesman said the FTC action would “enable larger multichannel retailers like Amazon, Walmart and Costco — the very companies the FTC is supposedly bringing under control — by allowing them to assert their growing dominance in the grocery industry.” to continue to expand.”
A C&S spokesperson did not directly respond to the FTC's lawsuit or allegations about its operational capabilities, but said: “C&S has an experienced management team with extensive experience in food retail and distribution and has the financial strength to continue investing in partners.” and “the business.”
Some legal experts had speculated that an FTC lawsuit would pressure Attorney General Bob Ferguson to stop pursuing his own lawsuit against the merger and join the FTC's lawsuit.
In a statement Monday, Ferguson appeared to reject that idea. Although he applauded the FTC and other states “for agreeing with us and recognizing the threat this merger poses to consumers and workers,” he said Washington “is looking.”[s] I look forward to advocating for Washingtonians in the Washington state court.”
Some legal experts also doubt that Ferguson's go-it-alone strategy stems in part from his campaign for governor. Others have pointed to the outsized impact the merger would have in Washington, where about 10% of all Albertsons locations and 4% of all Kroger locations are located and where the largest number of stores of any state would come under C&S ownership.
The 104 locations that would be divested in Washington represent nearly a third of the nearly 350 Kroger and Albertsons locations in the state.
Ross, the UW antitrust expert, said it was not clear why the FTC planned to file its lawsuit in an Oregon district rather than the district court in Washington, D.C., adding that judges in the D.C. District have far more experience in antitrust matters had as judges in other district courts.
John Kirkwood, an antitrust expert and former FTC official who teaches law at Seattle University, said the FTC's case against the merger will involve multiple steps with vastly different time frames.
It could take years for the agency's case to be resolved before an administrative law judge, he said. But separate arguments surrounding the injunction will come much sooner and could be far more decisive.
If the government cannot persuade a court to block the merger until the administrative process is completed and the merger is completed, it would be very difficult for the government to undo the merger, Kirkwood said.
“Although the FTC can theoretically continue the administrative litigation even after losing the preliminary injunction because the parties are free to integrate, merge, and scramble, the FTC typically drops a merger case.” says Kirkwood said.
If a court approves the injunction and blocks the merger for what could be a multiyear administrative process, Kroger and Albertsons will likely abandon the merger, Kirkwood said.
Both Ross and Kirkwood say the case will likely depend on how effectively both sides can make their case about C&S Wholesale's ability to operate the divested businesses.
Since the merger was announced in October 2022, buyers in and around Seattle appear largely opposed to it. Many fear a repeat of the failed divestiture attempt following Albertsons' acquisition of Safeway in 2015. In this case, the retailers spun off nearly 150 locations, including about two dozen in Washington, to Haggen, a small regional supermarket chain based in Bellingham.
Within a year, Haggen had failed and had to close or sell most of its stores – many of which were reacquired by Albertsons, according to the lawsuit.
Others fear a similar outcome to Rite Aid's acquisition of Seattle-based Bartell Drugs in 2020 and the subsequent closure of more than a third of Bartell locations following Rite Aid's bankruptcy.
Seattle resident Sidni Sobolik said before the Bartell debacle she was never worried about mergers.
“I used to think, 'Oh, someone else… will buy it and it'll just have a different name or something,'” she said. “But now I think, yeah, it might go away.”
Mark Sindelar, who lives near Redmond, was more direct in his assessment of the FTC lawsuit: “I just think, why did it take them so long?”
