The October 11th edition of EGG-NEWS included a posting on the arguments advanced by the Federal Trade Commission (FTC) in cases heard in Oregon, Washington State and Colorado seeking to block the proposed merger between the Kroger Company and Albertsons Corporation. The parties to the merger countered with arguments refuting FTC assertions and supporting the transaction.
Kroger and Albertsons contend that the FTC is conducting a “trial-by-anecdote” and that their justification for opposing the merger is based on faulty concepts and a distorted characterization of the grocery industry. The two merger parties maintain that considerable competition exists in the grocery industry. This includes online purchasing through Amazon and the services operated by the major chains including Walmart and Target. Warehouse stores including Costco and Sam’s Club that have expanded now represent competition to conventional pure-play grocery chains especially in the suburbs of large population centers. The location of small independent and specialty grocers again in suburban areas compete with traditional chains. 
The ubiquitous dollar stores that serve inner city and rural areas, especially in the Midwest and Western states, do not in fact represent competition to Kroger and Albertson’s banners, despite representations advanced during the lawsuits in Colorado, Washington and Oregon. The proposed merger would in many states with low-density populations, reduce competition especially with the potential failure of the divested stores, to the disadvantage of consumers in small towns and cities in rural areas.
Kroger presented evidence that the purchasing patterns of consumers have changed over a decade and that they are now less reliant on a single banner for their groceries, frequently patronizing many different stores within a week. This may be a valid contention but is probably limited to areas of high density including the suburbs of large metropolitan areas. This is not necessarily applicable to the residents of Logan, UT., Bozeman, MT., Kingman, AZ. and hundreds more locations offering limited choice.
Kroger has indicated that it will deploy $1 billion to reduce prices within a short time of the merger taking place and will invest in store upgrades and benefits for workers. A non-binding promise in anticipation of the merger might be viewed as an inducement to secure approval but would be repaid in any given year by increasing markup by a fraction of a percent on the projected combined FY 2024 sales of the two companies, approximating $250 billion. Kroger management recognizes the potential for increases in margin in the absence of viable competition in Western states coupled with the economies of scale from consolidated buying and transport.
Albertsons Corporation through its CEO Vivek Sankaran maintained that without the synergy generated by the proposed merger, Albertsons would be obliged to close stores and exit some markets resulting in layoffs and inconvenience to consumers.
The parties to the transaction noted their intention of divesting 579 stores, a requirement that would have been imposed by the FTC under any Administration. Evidence in the Colorado trial confirmed that both Aldi and SaveMart were intereted in acquiring the stores representing substantial competition. In the event Kroger-Albertsons selected C& S Wholesalers to acquire the complete package of stores and DCs.To ensure viability, C&S iwill be staffed through transfer of experienced managers and their teams headed by the COO of Albertsons to ensure viability but with the obvious prospect of continued control. The intent is probably to sustain viability of C&S for a reasonable period but not represent any meaningful competition. The recent history of the demise of Haggen following acquisition of divested Safeway stores in 2015 and the apparent "synthetic" divestiture of 579 stores will be considered by the Courts as a justification to reject the merger.
In the context of dairy, eggs, produce and even packaged foods, the combined buying power of Albertsons and Kroger, especially in western states would be detrimental to farmers and suppliers.
Decisions have yet to be rendered in the three cases, but informed observers believe that the application for a preliminary injunction preventing the merger will be granted by the Federal Court in Oregon. It is also more likely that adverse verdicts will be rendered in both Oregon and Washington State, effectively torpedoing the transaction.
Based on the reported evidence presented at the three trials coupled with press releases by Kroger, the merger would benefit Cerberus Capital Management, shareholders of the Kroger Company and executives with ‘golden parachutes’. The proposal would appear to represent a zero-sum transaction with losers comprising farmers and suppliers of perishables including eggs and consumers deprived of alternative grocery retailers especially in underserved regions and areas in the rural U.S.