Washington AG Sues to Block Kroger-Albertsons Merger
One of Kroger’s subsidiaries, QFC, in Redmond, WA. Photo courtesy of iStock.
Last week, the Washington State attorney general sued to block a proposed merger between Kroger and Albertsons. “The [merger] would combine the two largest—and, in some areas, the only—supermarkets in many communities across Washington, which is likely to lead to higher prices, lower quality, and less variety in many local markets throughout Washington,” the lawsuit says.
The suit highlights the acute regional effects of this significant national merger. Its timing surprised some merger watchers because Washington jumped ahead of the Federal Trade Commission, whose investigation has extended past the standard timeline for merger review. Kroger and Albertsons technically could have closed their deal in mid-December, but the companies agreed to continue negotiating with the FTC. Axios reported that the FTC will not decide to approve or block the deal before February.
For months, the FTC has collaborated with some state enforcers to investigate the deal. It’s unclear why Washington decided to sue now, but states can and do bring their own antitrust cases under state and federal law. Often, the FTC or Department of Justice leads on large merger challenges and interested state AGs join their suit. However, state enforcers have acted independently before, often when the feds fail to challenge a deal or bring too narrow a case.
An antitrust specialist at the University of Washington Law School told The Seattle Times that this suit “suggests there was a complete breakdown in coordination between the FTC and the state of Washington.” However, a spokesperson from the attorney general’s office said, “It’s not unusual for us to decide to file our own case even when there may be other investigations going on, particularly where there are outsized impacts in Washington.”
Some Washingtonians suspect that Attorney General Bob Ferguson wanted to grab headlines to help his run for governor. Ferguson also could have grown impatient with the FTC, given the stakes for Washington shoppers. After all, the Washington attorney general’s office has a bit of a maverick reputation, as evidenced in their suit to block Albertsons’s private equity payout and their nationally impactful crusade against no-poach agreements. Either way, this unexpected legal strategy does not preclude further action by the FTC or other state AGs.
Kroger and Albertsons have an exceptional grip on the Washington grocery market. According to the suit, the two companies together own more than half of all grocery stores in the state. The companies also employ a lot of workers. Kroger alone has 21,000 employees in Washington.
Eliminating head-to-head competition between Kroger and Albertsons will encourage Kroger to raise prices, cut wages, and close overlapping stores, the suit alleges. Upon hearing rumors of the deal, one Albertsons vice president wrote, “you are basically creating a monopoly in grocery with the merger,” according to internal documents obtained by the Washington state attorney general.
Store closures would put people out of work and diminish food and pharmacy access. As an example, after Albertsons took over Safeway in 2015, the grocery giant closed a store in Bellingham’s racially and economically diverse neighborhood, Birchwood, leaving the community without a full-service grocery store. To make matters worse, Albertsons put restrictive covenants on the land to prevent future buyers from opening a grocery store there until 2038.
Kroger and Albertsons argue that they can maintain healthy competition by selling off stores to a third party, C&S Wholesale Grocers. This theoretical new competitor would play a very real role in the Washington grocery market. A full 104 of the nearly 450 stores that Kroger and Albertsons plan to sell off are in Washington state. Overnight, C&S would become the second-largest grocery chain in Washington.
Washington antitrust enforcers doubt that C&S can enter this new retail market and successfully compete with a beefed-up Kroger, citing concerns about C&S’s inferior IT systems, limited private label offerings, and lack of grocery and pharmacy experience. C&S primarily distributes food to other grocery stores, and it has no distribution centers or grocery stores in Washington.
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