WASHINGTON — Members of a U.S. Senate Judiciary Committee panel raised concerns during a Tuesday hearing that a proposed merger between two of the largest U.S. supermarket chains could mean a monopoly on groceries and lead to higher food prices for Americans.
U.S. Sen. Amy Klobuchar, a Minnesota Democrat who chairs the Subcommittee on Competition Policy, Antitrust, and Consumer Rights, along with the top Republican on the panel, Sen. Mike Lee of Utah, grilled the CEOs of the Kroger Co., based in Cincinnati, and Albertsons Companies, Inc., based in Boise. The two companies are attempting to merge.
Albertsons is Idaho’s largest company.
The grocery chain got its start in Boise, when Joe Albertson opened the first grocery store in 1939 on State Street, less than a mile west of the Capitol building.
“Over the last decade, the grocery industry has become increasingly consolidated, with the top four chains now making up more than two-thirds of all grocery sales,” Klobuchar said. “A lack of competition in the industry means higher prices and lower quality.”
After Kroger announced a $24.6 billion proposed purchase of its rival Albertsons last month, Klobuchar and Lee announced they planned to convene a hearing on the merger, citing concerns about already high food prices due to inflation, and their worry that a potential merger could worsen the problem.
Another concern senators expressed was layoffs and store closures that could follow the merger. Sen. Josh Hawley, a Missouri Republican, pressed Kroger CEO Rodney McMullen on how many workers would be laid off if the two companies merged.
McMullen said Kroger had no plans to lay off workers or close stories and pointed to a previous acquisition of Harris Teeter in 2014 where there were no layoffs or store closures.
“We’ve ended up not laying off anybody because what we found is that merged companies do things better than we do,” he said.
Congress would not be able to stop the merger, as those dealings are reviewed by the Federal Trade Commission and the Justice Department. It would likely take until 2024 to complete the merger. If deemed necessary, the FTC can take legal proceedings to stop mergers, either in federal courts or before an FTC administrative law judge.
Competing with Walmart
Kroger leaders have argued that the deal will help them compete with top grocery retailers like Walmart, and online behemoths like Amazon. Walmart controls about 21% of the grocery market share, followed by Kroger at 10% and Costco at 7%, according to Business Insider. Albertsons controls about 5.8% of the grocery market share.
Albertsons is the second-largest supermarket company, owning 2,300 stores and employing 290,000 people. Kroger is the largest supermarket operator in the U.S., with more than 2,700 stores and 450,000 employees and owns other supermarket chains like Harris Teeter, Fred Meyer and Ralphs.
Labor unions have also raised concerns. The United Food and Commercial Workers International Union, which represents more than 1 million grocery workers, said in a statement following the hearing that Kroger and Albertsons have not been transparent about wages, jobs and benefits for workers.
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“Now, more than ever, Kroger and Albertsons executives must provide the answers and information needed to address the serious concerns our members and the American people have about this proposed merger,” according to the statement.
In his pre-written statement to the subcommittee, Albertsons CEO Vivek Sankaran suggested the grocery chain has a healthy relationship with labor unions.
“Albertsons has a rich history of creating good jobs, adding nearly 20,000 jobs over the past five years, while maintaining a productive and positive relationship with our employees and their unions,” Sankaran said in his written testimony.
Klobuchar and Lee wrote a joint letter to Federal Trade Commission Chair Lina Khan, asking for her assurance that the commission will thoroughly investigate the merger.
They asked the agency to include findings from its investigation last fall “into grocery prices and the availability of food products, sending data requests to a number of companies, including Kroger,” in its proposed analysis of the new merger.
According to the Consumer Price Index, food-at-home, such as grocery store or supermarket food purchases, increased 0.5% from September to October and was 12.4% higher than October of last year.
Grocery prices and the pressure to compete
Klobuchar and Sen. Alex Padilla, a California Democrat, grilled McMullen on how he expected Kroger to keep its grocery prices low if the company took out its biggest competitor, Albertsons, arguing that Kroger would not have an incentive to keep prices low without competition.
“I just don’t see less competition going forward,” McMullen said, adding that his company would still compete with Costco, Walmart and Amazon.
Sumit Sharma, a senior researcher of technology competition at Consumer Reports, disagreed with that assessment.
“The most likely outcome is increased prices, fewer choices for consumers, and reduced supermarket access for some consumers,” he said.
Padilla said that in California alone there are several areas where Albertsons and Kroger are the only supermarkets and if this merger goes through, his constituents will only have one option to do their food shopping.
“That’s the concern,” he said. “With less competition, prices go up.”
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Cotton questions Kroger uniforms
Sen. Tom Cotton, an Arkansas Republican, did not ask questions about the implications of the merger for food prices and instead took issue with the uniform that Kroger employees wear, which is an apron.
He cited a religious discrimination lawsuit that Kroger recently settled in late October, in which the store paid $180,000 to employees who were fired months after they were given new apron uniforms displaying a heart patch with rainbow colors.
The former employees interpreted the aprons as supportive of the LGBTQ+ community, and said the aprons violated their religious beliefs.
“If this merger goes through, who’s going to be making decisions about uniforms?” Cotton asked.
McMullen said that uniforms are put together by an associate resource group that designs them.
“The heart is a symbol of our fundamental purpose … to be in community spirit,” McMullen said about the patch. “And part of being the human spirit is the heart and that heart is our fundamental strategy to support our purpose. The colors were not tied to any specific thing.”
Albertsons 2015 merger with Safeway
Klobuchar and Lee said they were skeptical the merger would not increase food prices, following what happened in a 2015 merger between Albertsons and Safeway.
In 2015, as part of that merger, Albertsons had to participate in a divestiture and was required to sell 168 stores before it was allowed to merge with Safeway, per an order by the FTC.
Haggen bought most of the Albertsons stores, but in less than a year, the company filed for bankruptcy.
Haggen also sued Albertsons, accusing the grocery chain of engaging in “coordinated and systematic efforts to eliminate competition and Haggen as a viable competitor in over 130 local grocery markets in five states” and of making “false representations to both Haggen and the FTC about Albertsons’ commitment to a seamless transformation of the stores into viable competitors under the Haggen banner.”
Albertsons ended up buying back most of the stores and settling the lawsuit.
“I think this weighs heavily on the minds of a lot of people who have concerns about this agreement, just looking at the immediate past and what happened,” Klobuchar said.
Sankaran defended the deal, in spite of the Haggen bankruptcy that followed it.
“We did everything we could to help the Haggen stores at that time and when it didn’t work, we bought them,” he said. “But if you step back and look at the bigger picture, the merger by any measure is a success — where we put two companies together, one of them struggling, and I’ve turned them around, and we’re sitting at this table with the financial performance we have because of that merger.”
Blocked dividend payout to Albertsons shareholders
Washington state Attorney General Bob Ferguson filed a lawsuit earlier this month to block Albertsons from giving its shareholders a $4 billion dividend payout before the proposed merger with Kroger until the merger can be reviewed by state and federal antitrust officials.
Ferguson argued that the $4 billion dividend payments exceeded what Albertsons had on hand, which according to SEC filings was $2.5 billion. Albertsons was prepared to borrow the rest for the dividend payments.
By reducing Albertsons’ cash on hand, Ferguson argued, it would make it difficult for Albertsons to keep up with inventory orders, “forcing customers to go to other grocery stores when shelves are not stocked with the products they seek,” and that less “inventory to stock could also impact employee hours.”
“Paying out $4 billion before regulators can do their job and review the proposed merger will weaken Albertsons’ ability to continue business operations and compete,” Ferguson said in a statement. “Free enterprise is built on companies competing, and that competition benefits consumers. Corporations proposing a merger cannot sabotage their ability to compete while that merger is under review.”
A King County Superior Court commissioner granted Ferguson’s motion on Nov. 3.