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Retailers React to FTC Suit Against Kroger-Albertsons Merger

gavel for FTC

Many specialty food makers, retailers, and distributors are likely applauding the Federal Trade Commission’s lawsuit seeking to block the proposed merger of Kroger and Albertsons, according to some industry observers.

As previously reported, the FTC, along with several states, last week sued to block the proposed $24.6 billion merger, claiming that a combination of the two companies could weaken their head-to-head competition and lead to fewer choices for grocery shoppers. The two chains had sought to alleviate the FTC’s antitrust concerns to some degree by proposing to divest 413 store locations, along with other related assets, to wholesaler C&S Wholesale Grocers, but the FTC dismissed that effort as “inadequate.”

The potential for C&S to become a retail player in several markets around the country is also a concern to some retailers, including Lauren G.D. Redman, president and CEO of Rudy’s Markets, which operates the Newport Avenue Market and Oliver Lemon’s stores in Bend, Oregon.

“My concern lies in the potential that one of our wholesalers [C&S] becomes a retailer in our area with the purchase of divested stores,” Redman told SFA News Daily. “Given the difficulty all independent retailers face around procurement, shipments, and the like, one has to guess their stores would be a priority over delivery to ours.”

Redman said she’s not as concerned about competing against a combined Kroger-Albertsons—the companies currently operate under the Fred Meyer and Safeway banners in the Bend area—given her stores’ locations, differentiated assortments, and customer base. Rudy’s also seeks to offer better compensation and benefits and a better work environment for its employees than the big chains, Redman said, which in turn results in having longer-tenured workers.

“With happy employees come happy customers that choose to shop with us,” she said.

Redman also opposes the merger based on the pricing power and leverage over suppliers that a combined Kroger and Albertsons would have.

“These massive food retailers, or so-called ‘power buyers,’ use their influence to coerce suppliers into giving them lower prices, better terms, and exclusive offerings—and then make sure independent stores like mine can’t get the same treatment,” she said. “After decades of inaction, it seems the FTC is finally trying to level the playing field to make sure stores of all sizes can actually compete.

“Kroger and Albertsons were totally up front in their justification for merger,” Redman added. “They say they want to have the same economic power as Walmart. The way to fight market bullies is not by creating more market bullies. We need more competition in the grocery sector, not less.”

Pete Marczyk, co-founder and CEO of Marczyk Fine Foods in Denver, where Kroger and Albertsons compete against each other, said independent grocers have faced “immense competitive and legislative pressures for years,” but have continued to adapt.

He said a merger of Kroger and Albertsons could actually strengthen independents in some ways.

“If Albertsons and Kroger merged, it could have a positive effect, driving customers who seek differentiation and local alternatives, and prospective employees looking for more authentic employment.”

Revised Merger Plan Remains Possibility

David Patterson, associate partner, Clarkston Consulting, said the proposed merger is reminiscent of the attempted merger between restaurant distributors Sysco and U.S. Foods, which those companies abandoned in 2015 after the FTC challenged the agreement.

“The FTC arrived at a similar position that such a merger would stifle competition,” he said. “With the FTC arriving at this same conclusion on the Kroger-Albertsons deal, food manufacturers and wholesale distributors are likely breathing a sigh of relief. In a world where Kroger-Albertsons is second only to Walmart, this combined entity certainly would have been able to exert significant pressure on those groups through their sheer scale.”

Patterson said it’s possible that Kroger and Albertsons could go back to the FTC with plans for additional divestitures, while retaining enough locations to achieve the scale they are seeking. It's also possible that the companies could attempt to delay or argue this decision in the hopes that a potential new administration in 2025 might bring a more merger-friendly environment.

In opposing the merger, the FTC noted that Kroger and Albertsons currently “compete to improve their stores in many ways, including offering fresher produce, higher quality products, improved private label offerings, a broader array of in-store services, flexible store and pharmacy hours, and curbside pickup services.” The two supermarket chains compete to a lesser degree against alternative formats such as club stores, dollar stores, organic and natural retailers, and limited-assortment retailers, the FTC said, because these types of retailers offer a different experience and attract different customers.

Patterson said that while traditional supermarkets compete locally to maximize market share, at a macro level they do face “competitive headwinds” from other players.

“Walmart and others have used their scale to bring innovations, like local home delivery, to the masses at prices that remain compelling,” he said. “While Kroger has made tremendous headway with similar consumer-facing conveniences, notably curbside pickup and a well-integrated loyalty program, adding Albertsons’ brick-and-mortar locations to their footprint would give them the local reach needed to compete against the likes of Walmart and Amazon specifically in terms of efficiency of distribution.”

Both Kroger and Albertsons issued statements following the FTC’s decision, claiming that blocking the merger actually would actually harm both consumers and workers. They also said they plan to fight the FTC’s decision in court.