Albertsons, Kroger will sell more stores to pacify regulators

Kroger and Albertsons will sell an additional 166 stores, the supermarket giants announced Monday in an effort to appease federal antitrust regulators trying to block their merger.

C&S Wholesale Grocers, a supplier to independent grocery stores and owner of a retail pharmacy and 23 supermarkets under the Piggly Wiggly and Grand Union banners, has agreed to acquire a total of 579 stores in a revised divestiture deal worth $2.9 billion.

The announcement comes two months after the Federal Trade Commission, along with eight states and the District of Columbia, filed a suit to block the merger, claiming it would eliminate competition, threaten consumers’ access to affordable groceries and undermine labor unions. At the state level, Colorado and Washington also filed separate lawsuits to block the merger.

The $24.6 billion consolidation has been under scrutiny since it was announced in October 2022. While Kroger and Albertsons claim that a merger is the only way to compete with retail giants Amazon and Walmart, state and federal regulators are raising concerns that it would have a ripple effect felt by customers, employees and suppliers across the country. (Amazon founder Jeff Bezos owns The Washington Post.)

Rodney McMullen, Kroger’s chairman and chief executive, said in a news release that the revised deal with C&S “addresses concerns raised by regulators.”

The divestiture will “ensure no stores will close as a result of the merger and that all front line associates will remain employed, all existing collective bargaining agreements will continue, and associates will continue to receive industry-leading health care and pension benefits alongside bargained-for wages,” McMullen said. “Our proposed merger with Albertsons will bring lower prices and more choices to more customers and secure the long-term future of unionized grocery jobs.”

In its complaint, the FTC alleged the original divestiture offering was an “inadequate” proposal and a “hodgepodge of unconnected stores, banners, brands, and other assets that Kroger’s antitrust lawyers have cobbled together and falls far short of mitigating the lost competition between Kroger and Albertsons.”

Critics have been also pointed to C&S’s lack of experience handling a large fleet of stores and concerns over its limited private-label selection – which it increasingly needs to extract higher margins while drawing in cost-cutting consumers.

As part of the revised deal, Kroger and Albertsons agreed to provide C&S with more “corporate and office infrastructure” to better handle the transition and added more distribution capacity and facilities. The plan also states that all fuel centers and pharmacies in the divested stores will remain open.

In addition, Kroger will sell its Haggen banner to C&S, and C&S will license the Albertsons banner in California and Wyoming and the Safeway banner in Arizona and Colorado.

It’s unclear if the revised plan could be enough for the courts’ green light. Federal regulators worry that a Kroger-Albertsons behemoth would eliminate competition and reduce pressure to lower grocery prices at a time when consumers are feeling especially vulnerable to soaring grocery bills. The FTC warned that the merger would “lead to lower quality products and services, while also narrowing consumers’ choices for where to shop for groceries.”

The merged company would also likely shut down stores to avoid duplication in certain communities, a move that would push workers out of jobs, undermine labor unions, remove price competition for local suppliers and in some cases limit vulnerable communities’ access to fresh produce, said Christine Bartholomew, a professor of law and vice dean of academic affairs at the University at Buffalo School of Law.

“There are lots of risks here: collusion, risks of market concentration, risk to employees, risk to access,” she said. “But at the end of the day, if it is just price increases, that’s enough to block it.”

A spokesperson for the FTC had no comment regarding the revised divestiture plan.