One week into the projected three-week hearing on the proposed merger between the Kroger Company and Albertson’s Corporation, there is no indication of an outcome. U.S. District Judge, Adrienne Nelson, will rule on the action to derail the transaction initiated by the Federal Trade Commission and supported by the attorneys general of nine states.
The FTC maintains that the merger would be prejudicial to workers and would ultimately result in increased prices for consumers.
Kroger maintains that it is necessary to become larger through mergers or acquisitions to compete with Walmart, Amazon and Costco. Kroger and Albertson’s have offered to divert $1 billion to reduce prices in stores with Albertsons running approximately ten percent higher than at Kroger. Both parties to the proposed merger have agreed to recognize unions as a requirement for the transaction. Kroger and Albertsons announced they would divest 579 stores to C&S Wholesale Grocers. This was an upward adjustment after a previous plan to sell 413 stores was rejected by the FTC.
Testimony during the first week of the hearing revealed internal messages among Kroger senior management relating to setting prices for eggs and milk at levels significantly higher than the trajectory of inflation. This strategy was intended to determine what consumers were willing to pay in order to maximize margins. This evidence plays into current political rhetoric concerning allegations of price gouging and will in some measure indirectly influence public opinion if not the court’s ruling.
Attorney Susan Musser, appearing for the FTC, noted in opening arguments, “Stopping a multibillion-dollar deal will keep in place bigger competition that acts as a check on rising grocery prices and encourages further improvements in quality and innovation.”
Haggen is the 600-pound gorilla in the corner of the Court. In 2014, Albertsons merged with Safeway, divesting stores in compliance with FTC concerns over limiting competition. Within a year, Haggen was bankrupt and the stores that were divested returned to the Safeway banner. Both unions and the FTC maintain that a similar situation will occur, effectively negating the promises made by Kroger and Albertsons.
An additional minor issue that emerged relates to alleged destruction of text messages by Kroger managers. The FTC informed the companies on November 3rd, 2022, within days of the official announcement, that all documentation pending completion of an FTC review should be retained. The FTC claims that Kroger “failed to preserve responsive text messages after receiving a preservation hold and numerous reminders”. Albertsons management claimed that an auto-delete feature on managers’ phones was responsible for the apparent disappearance of messages. One exchange emerging from discovery confirmed an Albertsons manager expressing the opinion that the merger would ultimately result in higher prices. The FTC claims that allowing individual managers discretion as to deletion of messages constituted “willful destruction of evidence”.
Irrespective of the outcome of the Oregon hearing, the show will go on. Lawsuits have been filed in state courts in both Colorado and Washington at which both the FTC and Kroger-Albertsons will present expert witnesses analyzing the effect on suppliers, consumers and unions of the proposed merger. And then there will be appeals--.