PORTLAND, Oregon — The federal government urged a U.S. district court judge Tuesday to temporarily block a proposed merger between Kroger and Albertsons, saying in closing arguments that the combination would “almost certainly” benefit shareholders, not ordinary consumers.
Lawyers for the Federal Trade Commission and the supermarket chains presented closing arguments at the end of a three-week hearing on the commission’s request for a preliminary injunction to block the $24.6 billion deal.
Kroger and Albertsons have argued that their merger would preserve consumer choice by allowing them to better compete with growing rivals like Walmart, Costco and Amazon.
“If we do nothing, the corner store is in real danger,” Kroger attorney Matt Wolf said.
Federal Judge Adrienne Nelson must now decide whether to grant the injunction, while the FTC’s antitrust complaint is reviewed by an internal administrative law judge. Nelson said she would work “expeditiously” on her decision, but she did not say when she would issue her ruling.
Kroger and Albertsons have proposed what would be the largest supermarket merger in U.S. history in 2022. The FTC said the merger would eliminate competition and lead to higher food prices for already struggling customers.
FTC chief counsel Susan Musser argued Tuesday that Kroger and Albertsons compete primarily with each other and not with companies like Amazon or Costco, where consumers make other types of purchases.
“It’s that local competition, in those local communities, that this merger will eliminate,” Musser said.
But Wolf countered, saying Kroger and Albertsons were competing for the same customers as retailers that have lower labor costs because their workers are not unionized.
“Supermarkets are losing this food battle, and we are paying the price,” Wolf said.
Kroger has said it plans to invest $1 billion in price reductions if the merger goes through. Wolf said the company would focus on price reductions “from day one.”
But Musser said the judge should be skeptical of the companies’ promises, which are not legally binding. Kroger and Albertsons executives may mean well, she said, but they will face pressure to report profits and keep prices high.
“Executives have a fiduciary duty not to customers, but to shareholders,” Musser said. “Experience shows us that promises can be broken.”
Albertsons CEO Vivek Sankaran, who testified earlier in the hearing, attended closing arguments Tuesday but did not speak.
FTC lawyers noted that the two supermarket chains currently compete in 22 states, and that they closely compare on price, quality, private-label products and services like in-store pickup. Consumers benefit from that competition and would lose those benefits if the merger were allowed to proceed, they said.
Under the deal, Kroger and Albertsons would sell 579 stores in locations where their locations overlap with C&S Wholesale Grocers, a New Hampshire-based supplier to independent supermarkets that also owns the Grand Union and Piggly Wiggly store brands.
FTC maintains C&S is ill-prepared to take on stores currently owned by Albertsons and Kroger. Earlier in the hearing, Laura Hall, the FTC’s lead attorney, cited internal documents indicating that C&S’s executives were skeptical about the quality of the stores they would get and perhaps wanted the option to sell or close them.
But Wolf said Tuesday that C&S has the experience and national stature to handle the sale. “We chose the party that could carry out this task,” he said.
Kroger, headquartered in Cincinnati, Ohio, operates 2,800 stores in 35 states, including brands such as Ralphs, Smith’s and Harris Teeter. Albertsons, headquartered in Boise, Idaho, operates 2,273 stores in 34 states, including brands such as Safeway, Jewel Osco and Shaw’s. Together, these companies employ about 710,000 people.
In an attempt to block the merger, the FTC and union leaders have argued that workers’ wages and benefits would decline if Kroger and Albertsons cease to compete. They have also expressed concern that potential store closures could create food and drug “deserts” for consumers.
Six locals of the United Food and Commercial Workers International Union, which together represent 100,000 Kroger and Albertsons workers in 12 states, said in a joint statement Tuesday that the companies cannot be trusted.
“The companies have admitted under oath, despite repeated comments to the public and the media to the contrary, that some stores may close after a merger, that prices may not decrease after a merger, and that the statements they have made to protect union jobs are not legally enforceable,” the group said in a statement.
The attorneys general of Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming have all joined the FTC’s complaint alongside the commission. Washington and Colorado have filed separate complaints in state courts seeking to block the merger. The Washington trial opened in Seattle on Monday.
If Nelson agrees to issue the injunction, the FTC plans to hold internal hearings starting Oct. 1. Kroger, however, filed a lawsuit against the FTC last month, alleging that the agency’s internal procedures were unconstitutional and saying it wanted the merger’s merits to be decided in federal court. That lawsuit is currently being heard in federal court in Ohio.
Shares of Kroger and Albertsons fell 2% in Tuesday trading.
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Durbin reported from Detroit.
