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KROGER AND ALBERTSONS’ DIRTY TRICKS TO PRESERVE GREEDFLATION  
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Freddy Brewster
August 26, 2024
The Lever
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_ As Harris vows to tackle grocery store prices, the grocery chains
are doing everything they can to bypass regulators and merge into a
price-gouging behemoth. _

, (AP Photo/Al Behrman)

 

As Vice President Kamala Harris
[[link removed]] campaigns on tackling
skyrocketing grocery prices, two of the country’s largest grocery
chains are doing everything they can to merge into a price-gouging
behemoth.

As legal proceedings began on Monday Aug. 26 to stop the merger of
Kroger and Albertsons, behind the scenes the companies have spent
millions in corporate lobbying, sued to dismantle the country’s
long-standing antitrust machinery, and even erased potentially
incriminating evidence about “the merger’s anticompetitive
impacts,” according to court documents
[[link removed]] reviewed
by _The Lever._

If successful, the chains’ efforts might not just raise prices
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product diversity
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and harm workers
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they could cripple government agencies working to investigate
corporate malfeasance and protect consumer rights.

“Companies raise the stakes of these [antitrust] cases, and
they’re basically attempting to intimidate and drain [federal
regulators] out of challenging mergers,” said Basel Musharbash, an
attorney with the Antimonopoly Counsel, a law firm focused on
antitrust and policy issues affecting rural America.

In October 2022, Kroger — the country’s largest supermarket chain
[[link removed]] —
announced an agreement to acquire Albertsons
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the country’s second largest supermarket chain
[[link removed]] —
for $24.6 billion. The merger, if allowed to go through, would create
a massive conglomerate
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nearly 5,000 stores and 710,000 employees, making it the third
largest private-sector employer
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the nation, behind Amazon and Walmart
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In February 2024, the Federal Trade Commission (FTC) sued
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block the merger, saying that it would lead to less competition,
“lower quality products,” and “erase aggressive competition for
workers.”

“This supermarket mega merger comes as American consumers have seen
the cost of groceries rise steadily over the past few years,” said
[[link removed]] Henry
Liu, director of the FTC’s Bureau of Competition. “Kroger’s
acquisition of Albertsons would lead to additional grocery price hikes
for everyday goods, further exacerbating the financial strain
consumers across the country face today.”

A three-week hearing related to the lawsuit began on Aug. 26, in which
the FTC is attempting to temporarily halt the merger
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a more thorough case on the matter is being argued before the FTC’s
internal administrative court sometime in the near future
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But in a lawsuit filed Aug. 19
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federal court in Cincinnati, Ohio, Kroger — which owns Dillons, Fred
Meyer, Harris Teeter, King Soopers, Ralphs, and other stores
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that the FTC’s internal administrative court
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which hears arguments on evidence and issues an initial decision on
antitrust matters, is unconstitutional. Experts say Kroger is seeking
to sidestep nearly 100 years of precedent and instead have a federal
court rule on the merger. 

Kroger issued a statement
[[link removed]] the
same day it sued the FTC claiming that the agency’s actions in
blocking the merger were “unconstitutional.”

“The merger between Kroger and Albertsons is squarely focused on
ensuring we bring customers lower prices starting day one while
securing the future of good-paying union jobs,” Kroger CEO Rodney
McMullen said in an Aug. 19 press release
[[link removed]].
“We stand prepared to defend this merger in the upcoming trial in
federal court — the appropriate venue for this matter to be heard
— and we are asking the court to halt what amounts to an unlawful
proceeding before the FTC’s own in-house tribunal.”

Three days earlier, FTC investigators had highlighted in a new court
filing
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they found evidence of Albertsons executives deleting text messages
that appear to discuss details of the proposed Kroger-Albertsons
merger after the company was ordered to preserve evidence related to
the merger. 

Kroger did not respond to a request for comment and Albertsons
declined to comment on the deleted texts.

Albertsons — which owns Acme Markets, Jewel-Osco, Safeway, Shaw’s,
Vons, and other stores
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has also spent more than $7.6 million since January 2022 lobbying
Congress, the White House, and other regulators on “outreach
regarding proposed merger with Kroger,” antitrust issues,
competition, and supply chain issues, among other
matters, disclosures
[[link removed]] show
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Kroger did not report lobbying on the merger or antitrust issues, but
the company has spent more than $4.2 million since January 2022
lobbying the White House, Congress, the FTC, and other regulators on
“pending business transactions,” corporate taxes, food benefits,
and other issues, disclosures
[[link removed]] show
[[link removed]]. Kroger
also hired former House Speaker John Boehner
[[link removed]] (R-Ohio)
to “provide strategic counsel” to Kroger officials on issues
related to the merger.

The stunning legal gambit by Kroger, and potentially illegal actions
by Albertsons executives, come as Harris vows to enact federal bans on
grocery price gouging, or excessively raising prices. Grocery prices
have spiked roughly 25 percent
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the pandemic. 

Details of Harris’ plan will be announced at a later date,
her campaign said
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Republican presidential candidate Donald Trump claimed
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Harris’ vague promise to combat high food costs was akin to
“Soviet-style price controls.” 

But nearly every state
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already passed some controls on price gouging, and federal data and
investigations suggest grocery store executives are artificially
raising prices to juice profits. 

Supply chain disruptions were initially blamed for recent price
spikes, but a March report
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the FTC highlights how grocers and food suppliers used the pandemic to
artificially raise prices. 

“Some firms seem to have used rising costs as an opportunity to
further hike prices to increase their profits, and profits remain
elevated even as supply chain pressures have eased,” FTC
investigators found. 

Additionally, as the country has been grappling with rising inflation
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Kroger executives admitted on a 2021 shareholder call
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a good thing because it allows the company to raise prices, pass the
cost to consumers, and keep prices high. 

“We view a little bit of inflation as always good in our business
and we would expect to be able to pass those costs through to
customers on things that are permanent in nature,” McMullen,
Kroger’s CEO, said at the time. 

In an attempt to allay concerns from the FTC, Kroger has recently
promised to sell off nearly 600 stores
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prices by $1 billion
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and invest $1 billion in wages
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the merger is allowed to go through. But critics say the offer reads
like a threat to keep inflating prices and shortchanging workers if
the chain doesn’t get what it wants — and suggests the corporation
has more power over higher prices than it’s willing to admit.

“This suggests that [Kroger is] keeping prices above where they need
to be, which suggests that they have some market power at present,”
Musharbash said. “And if they have market power presently, why
should we let them merge and gain more market power to keep prices
high?”

The Case Of The Missing Texts

Deleting text messages and other electronic messages has apparently
become a go-to tactic for business executives facing government
oversight in recent years. 

Earlier this year, the FTC accused Jeff Bezos, founder of Amazon, and
other top Amazon officials of purposefully deleting text messages
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ongoing antitrust case. 

Bezos claimed that the messages were sent on Signal — an encrypted
messaging app — and were set to auto-delete after a certain amount
of time. But Bezos and other executives kept auto-deleting such
messages even after Amazon was ordered to preserve messages and
documents related to the antitrust case in 2019. 

“I may have made mistakes in that regard from time to time,”
Bezos told [[link removed]] investigators. “I never
would have used Signal under any circumstances with disappearing
messages on or off to discuss any complicated business issues. It just
doesn’t make sense.”

Court filings released in 2023
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that Google executives also failed to save messages related to an
antitrust case in 2021. Google executives directed their employees
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use a feature that automatically deletes Google Chat messages after 24
hours. Once Google received an order to preserve messages, a judge
found that executives did not properly notify employees to stop using
the auto-delete feature.

“The Court concludes that Google intended to subvert the discovery
process, and that Chat evidence was ‘lost with the intent to prevent
its use in litigation’ and ‘with the intent to deprive another
party of the information’s use in the litigation,’” the judge
overseeing the case wrote
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2023.

Albertsons executives were notified by FTC investigators of missing
text messages in October 2023. The next month, Albertsons told
investigators that the missing messages “may have been because of
settings on the iPhone that automatically delete files after a period
of time,” according to court documents
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Albertsons was able to recover roughly 70 text messages sent from CEO
Vivek Sankaran’s phone, and investigators noted that three other
executives “continued to delete text messages well after the FTC’s
investigation began.”

“Of the eight Albertsons’ executives set to testify at this
evidentiary hearing, four exhibited a pervasive practice of deleting
business-related text messages,” investigators wrote.

The investigators added that the deleted messages allegedly included
details on whether selling off certain stores “will remedy the
merger’s anticompetitive impacts” and urged the court to view the
executives’ testimony “with skepticism.”

“This is another indication that Kroger and Albertsons are trying to
avoid government oversight and law enforcement because they know that
this merger should be struck down,” said Morgan Harper, a lawyer
focused on monopoly policy at the American Economic Liberties Project,
a nonprofit advocacy group that focuses on concentrations of economic
power. “It’s bad for consumers, it’s bad for workers, and it’s
bad for the economy.”

The FTC Is Unconstitutional

Kroger is now trying to kill the FTC’s case against the merger by
claiming an internal FTC court that rules on such matters is
unconstitutional. According to Kroger’s new lawsuit, the main thrust
of the corporation’s argument is that the merger, which involves
“Kroger’s private rights,” is being ruled on within the
“executive branch rather than the judicial branch, in violation of
Article III of the Constitution.”

Such a tactic has been used before and failed, said Harper. 

“We’ve seen this from a lot of different large corporations, and
instead of fighting on the merits, they’re starting to question the
constitutionality of the Federal Trade Commission,” Harper
told _The Lever_. “It’s unfounded, it’s been struck down
before, and this is why we have to get a handle on judicial forum
shopping that encourages institutions to take this approach when
they’re facing government oversight.”

But recently, corporate attacks on government agencies have started
racking up wins due to corporate-friendly federal judges
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Court justices
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Earlier this summer, the Supreme Court ruled
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the in-house courts issuing civil penalties for securities fraud for
the Securities and Exchange Commission are unconstitutional. Kroger
cited this case — called _SEC v. Jarkesy_ — in its lawsuit
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the FTC. 

“Under that line of precedent, it is unconstitutional for the FTC to
adjudicate Kroger’s private rights administratively rather than in
federal court,” Kroger claims. “The remedy for these
constitutional violations is to enjoin the administrative
proceeding.”

Kroger is also relying on a 2023 Supreme Court ruling — _Axon
Enterprise, Inc. v. Federal Trade Commission_
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that allows companies facing FTC enforcement actions to challenge
actions the company deems to be unconstitutional in federal court
before the internal FTC court deliberations are finished. 

The U.S. Chamber of Commerce, a corporate advocacy group, called
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Supreme Court’s ruling “a major victory for the business
community.”

Legal experts say the _Axon_ and _Jarkesy _decisions could have
major ramifications for federal agencies for decades to come, because
they allow companies to challenge agency authority and eat away at
their ability to regulate big businesses. 

The _Axon_ decision in particular can allow companies to attack the
structure of the FTC and “could empower companies under
investigation to preemptively sue the FTC before the FTC files an
administrative complaint,” noted
[[link removed]] Holland
& Knight, a law firm focused on class-action defense, corporate law,
and other issues, in 2022.

“This would also open the door for challenges to the structure of
administrative processes of other government agencies,” the firm
added.

Poor Food Quality And Fewer Employment Options

Kroger claims that merging with Albertsons would allow it to compete
with other grocery giants like Amazon, Costco, and Walmart. In
the lawsuit
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the FTC, Kroger says the consolidation would allow competition and
“greater choice at lower prices for the American public.”

But experts are skeptical of these claims and foresee negative
downstream consequences if the merger is allowed to go through. 

For starters, the merger could result in a loss of pricing and product
quality competition among stores. The merger could allow Kroger and
Albertsons to combine all of their in-house products under one
company, which could result in a loss of choice for consumers. 

Limited choice could result in poor quality foods packed
with emulsifiers
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flavors
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and other additives that can be bad for human consumption, said Thomas
Gremillion, director of food policy for the Consumer Federation of
America, a consumer advocacy group.

“When you have some [different] shops you can sort of vote for the
type of product you want, whether it’s a clean-label type thing —
like humanely raised livestock products,” Gremillion told _The
Lever._ “But when you have just one or two big food retailers, you
just have to take or leave whatever they’re offering.”

Competition could also be limited among grocery store suppliers, the
companies whose products stock the shelves and sit on fruit stands,
Musharbash said.

Large grocery store chains often contract with farmers and shipping
associations that are responsible for producing and delivering meats
and produce. Large grocers often contract with only two or three of
these associations, limiting financial options for grower-shippers,
especially if there is market consolidation. 

If there are fewer stores available for these grower-shippers to sell
to, the remaining options can demand price reductions, Musharbash
said.

“Which makes it harder for those grower-shippers to succeed, but it
also entrenches them in place and makes it so that there are fewer and
fewer grower-shippers,” he added. “It drives consolidation at that
tier, which in turn depresses compensation for farmers.”

Earlier this year, Kroger defended the proposed merger by highlighting
its relationship with a blueberry grower that _The Lever _found had
hired a labor contractor accused of operating one of the largest
trafficking rings
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U.S. history.

Critics also say the Kroger-Albertsons merger could harm retail
employees by decreasing the number of companies competing for employee
wages, benefits, and other workplace perks. 

The United Food and Commercial Workers International Union, which
represents more than 1.2 million grocery store, meat packing, food
processing, and other food industry workers across North
America, opposed the merger
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2023 and supported the FTC’s 2024 lawsuit
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to block it.

“The FTC’s decision reflects clear concerns over the impact such a
megamerger could have on workers, food prices, and millions of
customers,” the union said in a February statement
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Concern appears to be mounting over the potential merger’s negative
impacts. 

Eight states and the District of Columbia have signed on
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the FTC lawsuit. 

The states of Colorado
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pursuing their own cases to block the merger nationwide. Both
states’ Attorney General’s Offices claim that the merger would
“eliminate head-to-head competition” between the two stores,
resulting in fewer employment options for employees and higher prices
for consumers.

Meanwhile, consolidation among grocery stores and meatpackers has
skyrocketed in the past decades.

The top four grocery store chains accounted for more than 30 percent
of all sales in 2019, up from just 15 percent of sales in 1990,
according to federal data
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Additionally, the top four beef packers controlled 85 percent
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the market. 

If consolidation continues in the grocery sector, it could have ripple
effects in other industries — especially if antitrust watchdogs are
stripped of some of their authority.

“Even though inflation is coming down, the [food] costs that have
increased over the past few years are difficult for many families to
manage, and this is going to give Kroger more pricing power in the
market that they can then pass along to consumers as higher prices,”
said Harper with the American Economic Liberties Project.
“Importantly, Kroger can pass [those high prices] along to other
businesses, and this might then incentivize further consolidation in
the food market overall.”

_Freddy Brewster is a reporter and has been published in the Los
Angeles Times, NBC News, CalMatters, the Lost Coast Outpost, and
more._

* Kroger
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* corporate mergers
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* price fixing
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* FTC
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