Kroger and Albertsons CEOs Argue Merger Will Lower Prices Amid Federal Scrutiny

The CEOs of Kroger and Albertsons, Rodney McMullen and Vivek Sankaran, argued on Wednesday in Oregon’s U.S. District Court that a merger of the two supermarket giants would enable them to lower prices and better compete with large retailers like Walmart, Costco, and Amazon. The hearing was part of a challenge by the Federal Trade Commission (FTC), which is attempting to block the merger over concerns it would reduce competition in key markets where the two companies are primary competitors.

McMullen, Kroger’s CEO, stated that the day the merger is completed, the companies would begin to lower prices. This statement came as he was questioned by a lawyer representing Kroger. The proposed merger, first announced in October 2022, would see Kroger purchase Albertsons in a $24.6 billion deal, potentially creating the largest supermarket merger in U.S. history. However, the FTC has sued to prevent the merger, arguing it would harm competition and lead to higher food prices for consumers already struggling with costs.

McMullen addressed concerns about potential store closures by stating that Kroger was committed to not closing any stores immediately if the merger is finalized, though he did not rule out future closures if changes or consolidations were deemed necessary. Sankaran, CEO of Albertsons, contended that the merger would support growth and strengthen stores and union jobs, noting that many of Kroger’s and Albertsons’ competitors, such as Walmart, have fewer unionized workers. However, Sankaran also indicated that if the merger did not proceed, the company might consider “structural options,” such as layoffs, store closures, or exiting certain markets to reduce costs.

Sankaran was pressed by an FTC lawyer about a statement he had provided to the U.S. Senate in 2022, where he described Albertsons as being in “excellent financial condition.” Sankaran responded that the market and certain conditions had changed since that time.

The testimonies from both CEOs are seen as critical to the outcome of the three-week hearing, which is at its midpoint. Their statements about pricing, potential store closures, and the impact on workers will likely be closely scrutinized if the merger is approved.

Kroger, based in Cincinnati, Ohio, operates 2,800 stores across 35 states under brands like Ralphs, Smith’s, and Harris Teeter. Albertsons, headquartered in Boise, Idaho, operates 2,273 stores in 34 states, with brands including Safeway, Jewel Osco, and Shaw’s. Together, they employ approximately 710,000 people.

FTC attorneys argued that in the 22 states where the two companies currently compete, they are closely matched on various factors, such as price, quality, private label products, and services like store pickup, which benefits consumers. Allowing the merger, they argued, would diminish this competition. Documents referred to by FTC lawyers also indicated that Kroger and Albertsons are primary competitors in several regions, from Southern California to the Portland metropolitan area. In response, a Kroger attorney argued that Walmart remains Kroger’s largest competitor in most markets nationwide.

McMullen noted that Albertsons’ prices are generally 10% to 12% higher than Kroger’s and said that a combined company would aim to reduce this price gap to retain customers. Currently, Walmart controls about 22% of U.S. grocery sales, while the combined market share of Kroger and Albertsons would be around 13%. He also expressed confidence that prices would continue to decline post-merger.

Both CEOs highlighted the impact of e-commerce on the grocery industry, citing the influence of Amazon’s online shopping platforms and its acquisition of Whole Foods. Sankaran remarked that Amazon’s entry into any sector tends to drive significant changes.

The FTC, along with labor union leaders, has raised concerns that the merger could negatively impact workers’ wages and benefits, particularly if Kroger and Albertsons no longer compete directly. They also warned that potential store closures could create “food and pharmacy deserts” in affected communities. The United Food and Commercial Workers International Union’s Stop the Merger coalition argued that the country needs more competition, grocery stores, and leverage for workers to secure better pay and staffing.

McMullen stated that Kroger would honor existing labor contracts, but Susan Musser, the FTC’s chief trial counsel, noted that working conditions could still change, as union contracts are typically renegotiated every three years.

Under the terms of the proposed deal, Kroger and Albertsons plan to sell 579 stores in areas where they overlap to C&S Wholesale Grocers, a New Hampshire-based supplier to independent supermarkets that also owns the Grand Union and Piggly Wiggly brands. However, the FTC has argued that C&S may not be prepared to manage these stores, citing internal documents that suggest C&S executives were concerned about the quality of the stores and might want the option to sell or close them. C&S CEO Eric Winn testified last week that he believes his company could succeed in this venture.

The FTC is seeking a temporary injunction to halt the merger while its lawsuit against the deal is heard by an administrative law judge. U.S. District Judge Adrienne Nelson is expected to hear from around 40 witnesses before deciding whether to grant the injunction. If granted, the FTC plans to start in-house hearings on October 1. Meanwhile, Kroger has filed a lawsuit against the FTC, claiming that the agency’s internal proceedings are unconstitutional and seeking to have the merger’s merits decided in federal court.

Attorneys general from nine states and jurisdictions, including Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming, have joined the FTC’s lawsuit, while Washington and Colorado have filed separate cases in state courts seeking to block the merger.

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