Kroger and Albertsons: Traditional Grocers Face “Downward Slide” Without Proposed Merger

Blocking the proposed $24.6 billion merger between Kroger and Albertsons could “maintain the downward slide of traditional grocery stores,” reducing both consumer choice and price competition, the two retailers argued in their post-hearing brief submitted on September 27 in the ongoing federal antitrust case. The case, initiated by the Federal Trade Commission and nine attorneys general, seeks to prevent the merger of these two pure-play grocers. The legal proceedings began on August 26 in the District Court of Oregon, with final arguments concluded by the end of September. Both parties are now awaiting a decision from Judge Adrienne Nelson.

The lawsuit claims that the merger violates antitrust laws, potentially creating a monopoly in the grocery industry. However, Kroger and Albertsons maintain that fierce competition from non-traditional grocers such as Walmart, Costco, and Amazon will persist, even if the merger is approved. To further ensure market competition, the two grocers have committed to divesting 579 stores to C&S Wholesale Grocers.

In defense of the merger, Kroger and Albertsons stated that this move is necessary for them to compete effectively with larger, non-unionized players like Walmart, Costco, and Amazon, which have increasingly dominated the grocery sector both online and in-store. They emphasized that, without the merger, the downward trend in traditional grocery retail will continue, with Albertsons potentially facing layoffs and store closures.

The growth of online grocery shopping was also highlighted as a growing competitive force. An analysis by Albertsons showed that customer spending on e-commerce is expected to grow by 11% over the next decade, compared to just 1.6% growth in physical stores.

Kroger and Albertsons countered the FTC’s claim that Albertsons serves as a direct competitor to Kroger. They argued that Kroger’s pricing strategy has historically been to narrow the price gap with Walmart, allowing its prices to remain 10% to 12% lower than those of Albertsons.

In their brief, Kroger and Albertsons reiterated their commitment to investing billions into their business post-merger. They plan to allocate $1 billion annually toward price reductions, another $1 billion toward improving wages, and $1.3 billion toward store upgrades, promising lower prices, better stores, and enhanced employee wages and benefits.

Albertsons’ CEO Vivek Sankaran took the stand earlier in the trial, warning that a failed merger could force the company to “exit certain markets,” while potentially leading to layoffs. The proposed merger, according to both grocers, offers the best opportunity to remain competitive against the growing dominance of major industry players.

To further support the transaction, Kroger and Albertsons defended the divestiture to C&S Wholesale Grocers, which rose to the top through a rigorous selection process. C&S has a solid plan in place to manage the acquired stores, backed by $900 million in equity funding. Moreover, approximately 67,000 employees from Kroger and Albertsons are expected to transition to C&S , which plans to introduce its own private-label brand and over 2,000 new products.

Despite opposition from federal regulators, Kroger and Albertsons argue that the divestiture will maintain competition, as C&S would face significant financial losses if the deal were to fail. Kroger and Albertsons: Traditional Grocers Face “Downward Slide” Without Proposed Merger, a critical consolidation move, could reshape the grocery landscape, leaving industry-watchers keenly awaiting the court’s decision.