The Federal Trade Commission and several state attorneys general on Monday sued to block Kroger, the supermarket giant, from completing its $24.6 billion acquisition of the grocery chain Albertsons, saying the deal would hurt competition in the industry.
The agency said the deal, which would be the largest supermarket merger in U.S. history, would most likely result in higher prices for groceries for consumers and, with fewer supermarkets, reduce the ability for grocery-store employees to negotiate higher wages and better working conditions.
“This supermarket mega-merger comes as American consumers have seen the cost of groceries rise steadily over the past few years,” Henry Liu, director of the F.T.C.’s Bureau of Competition, said in a news release. “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.”
The F.T.C.’s federal lawsuit was joined by attorneys general from Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, Wyoming and the District of Columbia.
The lawsuit is the latest move by the Biden administration to take a tougher stance on mergers. In recent years it has challenged several big deals, including the drug maker Amgen’s $27.8 billion acquisition of the pharmaceutical company Horizon Therapeutics; JetBlue’s proposed $3.8 billion purchase of Spirit Airlines; and Microsoft’s $70 billion acquisition of the video game maker Activision Blizzard.
But in many cases the F.T.C. has lost in court, including in its attempt to block the Microsoft merger. (The regulator has appealed the Microsoft ruling.) Kroger said in a statement that the F.T.C.’s move to block the merger would actually harm shoppers and grocery store employees.
“The F.T.C.’s decision makes it more likely that America’s consumers will see higher food prices and fewer grocery stores at a time when communities across the country are already facing high inflation and food deserts,” the company said.
Albertsons echoed those sentiments in a statement of its own. It added that if the F.T.C. successfully blocked the merger, “it would be hurting customers and helping strengthen larger, multichannel retailers such as Amazon, Walmart and Costco — the very companies the F.T.C. claims to be reining in — by allowing them to continue increasing their growing dominance of the grocery industry.”
Both chains said they looked forward to making their case for the merger in court.
In the 16 months since Kroger announced plans to acquire Albertsons, the proposed merger has faced opposition. Executives for the supermarket behemoths — two of the biggest grocery store chains in the United States — argued that the merger was necessary for them to compete against big-box retailers like Walmart, Costco and Amazon. Those retailers, the executives said, use their size to negotiate better prices with manufacturers and suppliers, which allows them to sell cereals, yogurts, pastas and other staples to consumers at lower prices.
But a chorus of critics, including consumer advocates, politicians, unions and independent grocery store chains, said combining Kroger and Albertsons would create a powerful giant with revenue of more than $200 billion and about 5,000 stores in 48 states and the District of Columbia. The chains have significant overlap in some markets, like Chicago, Dallas Los Angeles and Seattle.
Kroger, based in Cincinnati, operates 2,750 grocery stores across the United States under banners that include Ralphs, Dillons and Harris Teeter. Albertsons, based in Boise, Idaho, runs 2,200 supermarkets under names like Albertsons, Safeway and Vons.
Jon Donenberg, a deputy director of President Biden’s National Economic Council, said in a statement that Mr. Biden believed that competition was key to capitalism. “When large corporations are not checked by healthy competition, they too often do not pass cost savings on to consumers and exploit their workers,” he said.
As inflation continues to drive food prices higher, critics said, the proposed merger would give shoppers in some regions little or no choice about where to buy household staples. Others warned that with less competition, the merger would result in higher grocery prices and potential layoffs.
“This decision shows that the F.T.C. understands how the outsized power of big retailers is damaging the entire food system,” said Stacy Mitchell, co-executive director at the Institute for Local Self-Reliance, a nonprofit advocate for independent businesses. “These two giants already exert their power as dominant buyers of food and goods by bullying suppliers into giving them discounts and benefits they don’t offer to smaller food retailers.”
Marc Perrone, the president of the United Food and Commercial Workers International Union, said the guild would continue to stand “in opposition to any merger that would negatively impact our hundreds of thousands of hardworking members who work at Kroger and Albertsons.”
Kroger said later in a statement that it would invest $1 billion to raise wages and benefits and was committed to ensuring there would be no layoffs or store closings related to the merger.
In an effort to diminish some of the concerns about the merger, Kroger and Albertsons announced plans in September to sell 413 stores across the country to C&S Wholesale Grocers for $1.9 billion. The sale is contingent on the approval of the Kroger-Albertsons merger.
But the F.T.C. said the divestiture proposal created a hodgepodge of unconnected stores and brands that had been cobbled together and fell far short of creating a stand-alone business that could compete against a combined Kroger and Albertsons.
The F.T.C. also argued that quality would likely decline at a combined supermarket giant. Currently, the two stores compete against each other by offering fresher produce, flexible store and pharmacy hours, and curbside pickup services. If they merge, the incentive to compete by improving product quality and customer service would decrease, the F.T.C. said.
Critics also painted the proposed merger as a big payday for Albertsons’ private equity owners. Early last year, after surviving a legal challenge brought by the state attorney general in Washington, Albertsons made a special dividend payment of $4 billion to its shareholders. The biggest recipients of that dividend, which was funded through a combination of cash and debt that was added to Albertsons’ balance sheet, were Albertsons’ private equity owners, including Cerberus, which, at the time, held 73 percent of the company.
