Kroger CEO Rodney McMullen thinks that a merger between his company and Albertsons will be a boon for consumers. Both companies have agued that the merger will bring down prices, and McMullen said it again while testifying in federal court.
“The day that we merge is the day that we will begin lowering prices,” said McMullen while under questioning by a lawyer representing his company, according to CBS News.
Why was McMullen in court? Well, after plans for a merger of the two large supermarket companies were announced in 2022, an investigation began. Then, this February, the Federal Trade Commission sued to block the merger.
“The Federal Trade Commission today sued to block the largest proposed supermarket merger in U.S. history – Kroger Company’s $24.6 billion acquisition of the Albertsons Companies, Inc. – alleging that the deal is anticompetitive,” said the FTC in a press release.
According to the commission, the proposed deal would actually lead to higher prices for essential household items since Kroger and Albertsons would not longer be in “fierce competition,” and that it could lead to lower quality products and services. It also said the merger would threaten the ability of employees to secure higher wages, better benefits and improved working conditions.
Kroger operates around 2,750 stores including Fred Meyer, Fry’s, Harris Teeter, King Soopers, Kroger, and Quality Food Centers (QFC) locations. Albertsons operates around 2,200 stores, including Albertsons, Haggen, Jewel-Osco, Pavilions, Safeway, and Vons locations. With the merger, the combined companies would operate more than 5,000 stores and approximately 4,000 retail pharmacies, per the FTC. It would employ nearly 700,000 employees across 48 states.
“This supermarket mega merger comes as American consumers have seen the cost of groceries rise steadily over the past few years. Kroger’s acquisition of Albertsons would lead to additional grocery price hikes for everyday goods, further exacerbating the financial strain consumers across the country face today,” said Henry Liu, Director of the FTC’s Bureau of Competition.
Inflation and high interest rates have been putting pressure on consumers as the U.S. exited the COVID-19 pandemic. Although 12-month inflation finally dipped below 3% in July, it still rose slightly month-over month, according to the U.S. Bureau of Labor Statistics. Wages have not increased enough to keep up with inflation and, as of last month, many Americans were searching for new jobs at the highest rate in a decade.
However, USC marketing professor Anthony Dukes told CBS News he doesn’t think blocking the merger will necessarily help keep prices down.
“I’m not convinced of that argument,” he said. “So if they’re somehow able to combine their stores, some of those cost savings through lower wholesale prices could be passed on to consumers.”
In an announcement of the proposed merger, Albertsons said that “Kroger has a long track record of lowering prices, improving the customer experience and investing in its associates and communities,” and it said that lower prices were expected as part of the transaction. Additionally, it said Kroger plans to invest an incremental $1.3 billion in Albertsons locations to improve customer experience.
“We know that pricing is going to continue to go down,” said McMullen, according to CBS.
CBS News reported that McMullen countered the FTC’s argument that the merger would lead to higher prices by noting that Albertsons prices are around 10% to 12% higher than Kroger’s. He said lowering prices are part of his company’s strategy for keeping customers. Merging with Albertsons would allow the combined company to compete with retail giants like Amazon and Walmart, he said.
In an interview with Audacy station KCBS Radio’s Holly Quan, Bloomberg reporter Leah Nylen said that claim comes with its own issues.
“The FTC and states are worried that that may put a lot of pressure on farmers and producers who produce these goods, requiring them to take sort of lower prices, for their goods than… than they would otherwise,” she explained.
Last month, Kroger filed a motion to enjoin the FTC’s administrative merger challenge. In a press release, the company said the challenge “clearly violates the Constitution.”
“The merger between Kroger and Albertson’s is squarely focused on ensuring we bring customers lower prices starting day one while securing the future of good-paying union jobs,” said McMullen, as quoted by the press release. “We stand prepared to defend this merger in the upcoming trial in federal court – the appropriate venue for this matter to be heard – and we are asking the Court to halt what amounts to an unlawful proceeding before the FTC’s own in-house tribunal.”
Another element of the merger proposal calls for the companies to divest several hundred stores to a company called C&S Wholesale Grocers. Currently, the New Hampshire-based company operates just 23 supermarkets and one pharmacy, according to the FTC.
“So, Kroger and Albertsons have said that they would sell off 600 stores in towns across the country where they directly compete. But the company that they’ve chosen to sell them to is a company called C&S Wholesalers. You’ve probably never heard of it because they’re mostly a grocery wholesaler, which means that they bring, you know, the groceries from the warehouse to the supermarket,” Nylen explained. “They don’t have a lot of, experience in retail.”
She said that while C&S Wholesalers mainly operate stores on the East Coast and in Wisconsin, most of the stores they would take over through the merger would be on the West Coast. Authorities are worried that they won’t be able to handle these operations and that stores will close, leaving what are known as food deserts.
“That’s what happened in, a previous merger back in 2015 that, we took a deep dive into in a recent story,” Nylen told Quan. “At that time, Albertsons is buying Safeway and they agreed to divest about 200 stores, most of them to a Washington state grocery chain called Haggen. Hagen, however, rapidly expanded. It had only had 14 stores. It acquired close to 150, and it just wasn’t able to handle the load from going from so small to so large. It and it went into bankruptcy within six months.”
According to CBS, C&S CEO Eric Winn testified last week in Portland that he thinks his company can be successful. However, the outlet also said FTC senior counsel Laura Hall cited internal documents “that indicated C&S executives were skeptical about the quality of the stores they would get and may want the option to sell or close them.”
The FTC trial began last month and Nylen said it is expected to last two to three weeks.
McMullen’s statements and the upcoming testimony of Albertsons CEO Vivek Sankaran “were expected to be critical components of the three-week hearing,” that is now at a mid-point, said CBS. It added that their statements will likely be scrutinized for years if the merger does eventually go through.
“The attorneys general of Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming all joined the FTC’s lawsuit on the commission’s side,” said CBS. “Washington and Colorado filed separate cases in state courts seeking to block the merger.”