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Revelations from the Kroger-Albertsons Trial

The Federal Trade Commission (FTC)’s trial to block Kroger’s acquisition of Albertsons concludes Tuesday. The three-week-long trial in a federal court in Portland, Oregon has revealed many reasons why a Kroger-Albertsons merger would hurt shoppers and workers and why the companies’ gambit to divest 579 stores [[link removed]] to C&S Wholesale Grocers will fail to preserve competition.

Albertsons is Kroger’s Primary Price Competitor

As shoppers struggle with rising grocery prices, the big question at the heart of this trial is: will it make food inflation worse?

Kroger and Albertsons say that merging will let them cut prices through greater operational efficiencies and bargaining power over suppliers. Kroger has promised [[link removed]] to invest $1 billion to lower prices.

The FTC argues that diminished competition will give Kroger more market power to raise prices, especially in regions where it competes directly with Albertsons. The agency presented evidence at trial that Kroger and Albertsons consider each other to be their “ primary competitor [[link removed]].”

Kroger claims it needs to acquire Albertsons to compete with Walmart, however, internal communications suggest that Kroger is not trying to lower its prices to Walmart’s levels, even when it can. American Economic Liberties Project research manager, Laurel Kilgour, spotlighted [[link removed]] one example when Kroger executives knew they could price their milk 10 cents below Walmart. Still, they held prices at 10 cents above Walmart for at least [[link removed]] a month. In another instance, a Kroger executive maintained their egg prices even when wholesale prices dropped and Walmart lowered [[link removed]] their prices, because a neighboring Albertsons store had not changed their egg prices. The Kroger store only lowered their egg prices when Albertsons lowered theirs [[link removed]]. This suggests that competition with Albertsons, not Walmart, primarily influences Kroger’s pricing.

Selling to C&S Won’t Solve the Problem

The FTC also highlighted the holes in Kroger and Albertsons’s plan to sell off hundreds of stores to wholesaler C&S to satisfy concerns about preserving head-to-head competition. One of the FTC’s expert witnesses, marketing professor Edward Fox, noted that Kroger and Albertsons aren’t selling C&S enough supportive assets for divested stores to succeed, for instance, distribution centers.

Fox said that roughly half of the sold stores would lose their primary distribution center. C&S can support some stores with its distribution network, but in key markets such as Southern California, the Intermountain West [[link removed]], and Chicago, Fox said [[link removed]] that C&S’s existing distribution assets are “not sufficient … to support those stores.” Stores will also lose key tech assets, such as pricing algorithms and data analytics, that support e-commerce and loyalty programs, Fox testified [[link removed]].

Kroger and Albertsons own a network of food processing plants that make some of their private label, aka store brand, products. More consumers [[link removed]] are buying private label products to manage rising food prices. Yet Kroger and Albertsons plan to sell C&S just one [[link removed]] of their food processing plants, a dairy facility in Colorado. C&S would pick up five [[link removed]] of Albertsons’s private label brands, but Fox argued [[link removed]] that “C&S will clearly be challenged to replace the private label sales” without more private label assets.

None of this may matter to C&S, since the wholesaler could have a plan to set up wholesale contracts [[link removed]] with these stores before re-selling many of them. In internal communications revealed at trial, C&S executives had planned to flip stores the last time they acquired divested assets from a merger settlement when Price Chopper merged with Tops. “Just be careful with FTC. We want to say we can run them,” C&S vice president Alona Florenz wrote [[link removed]] of the Tops stores. If C&S could not hold onto 12 divested stores then, the FTC doubts [[link removed]] that the company can competitively keep open over 550 stores from Kroger and Albertsons now.

Albertsons Playing Poor After Private Equity Payout

Halfway through the trial, Albertsons CEO Vivek Sankaran took the stand to make a new argument, or threat. If this merger does not go through, he warned, Albertsons will have to consider [[link removed]] job cuts, store closures, and finding a different buyer [[link removed]] in two to three years.

Not long ago in November 2022, Sankaran told Congress [[link removed]] that “Albertsons [was] in excellent financial condition,” to justify a $4 billion payout [[link removed]] to its private equity owners. When the FTC questioned why Sankaran changed his tune, Sankaran said [[link removed]] market conditions have changed. Walmart has been gaining market share [[link removed]] whereas Albertsons has flatlined or slightly fallen, from 6.5% of the market in 2021, up to 6.7% in 2022, then back down to 6.4% in 2023.

However, Kilgour pointed out that Albertsons’s financials are decent. Sankaran testified [[link removed]] that, since becoming CEO in 2019, Albertsons’s balance sheet, overall growth, and e-commerce business have improved. Another executive confirmed [[link removed]] that the company was “on target to achieve $2.3 billion in savings” between 2022 and 2025. Albertsons also holds the #1 or #2 spot, by market share, in 70% of the metro areas [[link removed]] where it operates, according to its latest investor reports.

Certainly, private equity looting [[link removed]] has left Albertsons in a worse position than some of its competitors, particularly raising its overhead by selling out land from under its stores and leasing it back to them. Yet since announcing this deal and receiving their big payout, Albertsons’s private equity owners have slowly sold off [[link removed]] their stake in the company. This lowers the pressure on Albertsons to find another buyer.

Nonetheless, Sankaran says Albertsons and Kroger need to join forces to better leverage suppliers [[link removed]] for lower prices. Even a giant like Albertsons says [[link removed]] that it pays more for some products at wholesale than Walmart charges at retail.

The answer to the retail buyer power arms race is not to allow more consolidation, but to enforce the Robinson-Patman Act [[link removed]]. This law, already on the books, bans grocers from demanding lower prices from suppliers simply because they have the clout to do so. Enforcing it would discourage grocers from merging their way to fairer pricing.

What Happens Next

Both sides present their closing arguments on Tuesday. It could take a few weeks for the judge to decide whether to grant the FTC’s request for a preliminary injunction. Technically, an injunction would prevent Kroger and Albertsons from closing their deal until the FTC’s internal administrative court reviews the case. In practice, however, most companies abandon their deal if the Court grants a preliminary injunction.

Meanwhile, Kroger has sued [[link removed]] the FTC alleging that the agency’s administrative proceedings violate the constitution. The charges rely on a recent Supreme Court decision [[link removed]] that found the Securities and Exchange Commission could not use its in-house tribunal to seek civil penalties against individuals. If successful, this case would dramatically curtail [[link removed]] antitrust enforcement.

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What We're Reading

In addition to landing wholesale contracts, C&S may be interested in buying up hundreds of divested grocery stores to prop up a failing warehouse automation business, led by several C&S executives and backed by SoftBank. ( Hunterbrook [[link removed]])

General Mills will sell its U.S. yogurt business, including brands such as Yoplait, Go-Gurt, Oui, and Mountain High, to Lactalis, owner of Stonyfield and siggi’s. This move would make Lactalis the second-largest yogurt company in the U.S. with an estimated 23% [[link removed]] of the market, leaving just three companies in control of nearly three-quarters [[link removed]] of the U.S. yogurt market. ( Press Release [[link removed]])

The Rural Advancement Foundation and the University of Chicago released a digital mapping tool that charts grocery consolidation and food access by census district. ( Grocery Gap Atlas [[link removed]])

Farm Action released a new data center compiling facts on concentration across various food markets, alongside a comprehensive historical analysis of antimonopoly policy and agriculture concentration. ( Farm Action [[link removed]])

About the Open Markets Institute

Our team of reporters, lawyers, and economists works to revive competition policy to build stronger democracies, more just and equitable societies, more innovative and sustainable economies, and a more secure and peaceful world.

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Written by Claire Kelloway

Edited by Phil Longman and Anita Jain

Open Markets Institute

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