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Kroger’s $25 billion acquisition of Albertsons, long assumed in many quarters to be a done deal, has suddenly encountered new roadblocks or, put another way, a resurfacing of some ancient issues that have never been effectively resolved.
The potential roadblock in this instance is the federal government or, more specifically, the Federal Trade Commission. The questions the FTC has raised are the by now familiar ones: Is this acquisition potentially beneficial or harmful to two of its most affected parties — the consumer and the employee?
Late last month these questions were addressed in public, at a trial in Portland, Ore., which could help determine the ultimate outcome of this long-in-the-works acquisition.
To summarize the issues, both Kroger and Albertsons are arguing that the acquisition would reduce grocery prices by intensifying competition between Kroger, which would emerge from the deal with about $200 billion in volume, accounting for some 13% of U.S. grocery store sales, and its largest competitors, Walmart, Amazon and Costco, which currently account for far higher sales (Walmart alone is estimated to account for some 22% of U.S. grocery sales).
As well, Kroger insists that employees would benefit from the transaction by bolstering their leverage in transactions with the retailer and its competitors.
The FTC, along with a chorus of labor unions, consumer advocates, politicians and independent grocery chains, begs to differ.
The government insists that the acquisition, far from sharpening price competition, would reduce it, arguing that less competition would give Kroger more leverage to raise prices on millions of consumers. As well, the government asserts that the deal, if completed, would reduce union power at the bargaining table, resulting in lower wages and fewer benefits.
The FTC brings some powerful allies to this trial: the attorneys general of eight states (including California and Illinois) and the District of Columbia. As well, the government is expected to call “expert witnesses” to testify about competition in the grocery industry. To counter these issues and arguments, attorneys representing Kroger plan to discuss the changing nature of the grocery industry, a change which would, they will likely say, not necessarily give Kroger the dominance that the FTC maintains.
At the core of the Portland trial is the legal hurdle facing the FTC, namely its task of proving that the traditional supermarket industry is the appropriate venue for accurately assessing harm to competition — and, equally significant, that competition in the grocery industry takes place at the local level.
Many subtexts to this trial might conceivably enlighten the proceedings or, on the other hand, further confuse the issues at hand.
As an example, Kroger has announced that it would sell about 580 Kroger and Albertsons stores to a company called C&S Wholesale Grocers. The FTC’s expected rejoinder: Who is C&S?
In the end, the hearing may, or may not, resolve some of the issues that have plagued mass retailing since … since forever. More importantly, it might resolve the state of one of the most significant acquisitions in the long history of grocery retailing in America.
