What we learned from the Kroger-Albertsons FTC trial as more court battles loom

Nearly two years ago, grocery chains Kroger and Albertsons announced their plans to combine in what would be the country’s largest-ever supermarket merger. The path to closing the proposed deal hasn’t exactly been smooth, and it recently faced its most noteworthy challenge yet in a showdown with the FTC in federal court in the District of Oregon.

The highly anticipated hearings on the government’s request for preliminary injunction to block the merger was held before Judge Adrienne Nelson of the US District Court, spanning just over three weeks before wrapping up on September 17. Defending the deal has proven to be an “uphill battle” for Kroger and Albertsons, Arindam Kar, an antitrust attorney at law firm Polsinelli, told Retail Brew, and the FTC brought a “very strong case” against the merger.

Here’s the major takeaways from the trial, and what’s next for the ongoing battle.

Sizing up the competition: Kroger and Albertsons have said they need to join forces to fight off who Kroger CEO Rodney McMullen claims is their top competitor, Walmart, which accounts for more than 20% of US grocery dollar share. One of the central themes of the hearing has been determining how exactly competition within grocery is defined, and the boundaries are “murkier” than they once were, Lori Yue, associate professor of business at Columbia Business School, noted. The question has thus become whether a mega-retailer like Walmart with grocery sales accounting for a bit more than half of its business is in direct competition with a pure-play grocer like Kroger—or if Kroger’s and Albertsons’s biggest competitors are, in fact, each other.

During the trial, Andy Groff, Kroger’s senior director for pricing, revealed the grocer has raised milk and egg prices above what was necessary to account for inflation. Groff also said it has used Albertsons, along with Walmart and Aldi, as pricing benchmarks. That puts pressure on Kroger and Albertsons’s Walmart argument, Kar noted, as well as McMullen’s testimony that the merged companies will lower prices on Day 1. In the FTC’s rebuttal, several economists also challenged Kroger and Albertsons’s ability to lower prices if they merged.

“The facts maybe aren’t really lining up as closely as one would want them to be in a case of this magnitude,” Kar noted.

Wage gap: In addition to the question of pricing and impact on consumers, the trial has also evaluated the impact to labor competition—a new area to be considered in an antitrust case. The trial saw dueling accounts between union leaders and Kroger’s labor relations head Jon McPherson on how workers may have leveraged Kroger and Albertsons against each other. McPherson said the tactic was used “very little,” while union leaders expressed concern over the effectiveness of a strike if there aren’t other grocery stores for consumers to go to instead.

UFCW Local 555, which includes Kroger-owned Fred Meyer workers in Portland, Oregon, went on strike on August 28 on the grounds of Unfair Labor Practices. They returned to work after a week without a new contact, but called for a boycott of Fred Meyer in light of alleged price gouging revealed during the trial.

What’s next: Judge Nelson’s decision in the FTC trial is still forthcoming. Should she issue the injunction, in-house hearings would begin October 1, though Kroger has sued to block this case, claiming it is unconstitutional.

Now, Kroger has shifted its focus to another merger legal battle in Washington, home to 124 of the 579 stores the companies plan to sell to C&S Wholesale Grocers. The move will be a major focus of the trial, as it’s reminiscent of Albertsons’s merger with Safeway in 2015, when Albertsons sold 146 stores to Washington-based small grocery chain Haggen. Haggen couldn’t handle the rapid expansion; within six months, it was laying off workers, closing stores (including 14 in Washington), and eventually sold its remaining locations to Albertsons in 2016. As C&S is the country’s largest grocery wholesale distributor, the deal isn’t the same, but Kar noted that the Haggen situation is on the minds of both state and government agencies.

Zoom out: As legal battles drag on, Kroger and Albertsons have invested a lot of time and $$ ($864 million to be exact, per Bloomberg) in this merger.

“Prolonged litigation certainly is taxing on organizations,” Kar said. “Companies like certainty, companies like stability, because then they can do what they need to do, and uncertainty is definitely challenging.”

Kar noted it’s “certainly possible” that the two companies eventually abandon the deal, though they’re engaged in “bet-the-company litigation” that indicates they don’t think they can prevail without the deal. (During the trial, Albertsons CEO Vivek Sankaran alluded to a bleak future for the grocer should the deal not go through.)

“We’ll see whether they believe that, in the sense that they believe this is the only path forward,” Kar said.