By Deborah Bloom
PORTLAND, Oregon (Reuters) – The U.S. Federal Trade Commission argued in federal court on Monday that Kroger's (NYSE:) $25 billion merger with rival Albertsons (NYSE:) is bad for consumers, in a case that underscores growing alarm over rising food prices.
The FTC and several states went to court in Portland, Oregon, to block the deal, arguing it would mean higher prices for consumers and less bargaining power for unionized grocery workers.
FTC chief trial attorney Susan Musser told U.S. District Judge Adrienne Nelson during opening statements in a packed courtroom that this would result in Kroger “swallowing” Albertsons.
“Stopping this multi-billion dollar deal will maintain the vigorous competition that acts as a brake on rising food prices and encourages improvements in quality and innovation,” he said.
Kroger attorney Matthew Wolf said in an opening statement that the merger would immediately lower some prices for shoppers at Albertsons, where prices are now 10 to 12 percent higher than at Kroger stores.
The FTC's attempt to drive down prices by blocking the deal shows that “they don't understand the industry or the stakeholders in it,” Wolf said.
The merger is necessary, Wolf said, so the stores can compete with Walmart (NYSE:), the largest U.S. grocery retailer, bulk-shopping mainstay Costco (NASDAQ:) and amazon.com (NASDAQ:), owner of Whole Foods.
Albertsons attorney Enu Mainigi said Walmart can sell certain products at a lower price than the supermarket chain can buy them in bulk, and that a tie-up with Kroger gives Albertsons the best chance of survival.
“It could involve layoffs, store closures or even a complete exit from certain markets. These are the kinds of things that are on the table if the merger doesn't go through,” he said.
The case is a high-profile piece of the Biden administration’s effort to lower prices for consumers, and comes as high food bills take center stage in the U.S. presidential race.
It is also a key test of FTC Chairwoman Lina Khan's push to use antitrust law to boost wages and worker mobility.
Kroger attorney Wolf said there is no difference between union wages at Kroger stores that are located near Albertsons stores and those that are not.
The FTC's Musser said unionized grocery workers get better pay and benefits by striking at one store and sending customers to a rival store. A merger between Kroger and Albertsons would reduce the severity of that threat, he said.
The FTC alleges the merger would harm workers in dozens of labor markets.
“We don't believe the company's promise that they're doing this to compete,” said Kim Cordova, president of the Food and Commercial Workers International Union, a local in Colorado and Wyoming.
The trial is expected to last about three weeks and will feature evidence on competition in the food industry.
Kroger and Albertsons say the demand-driven focus on traditional supermarkets ignores that consumers typically shop for groceries at a variety of places, including big-box stores like Target and dollar stores like Dollar Tree (NASDAQ:).
Kroger has said it will sell 579 of the roughly 5,000 stores it would own if the deal goes through. Part of the process will focus on whether buyer C&S Wholesale Grocers can successfully run them.
Kroger has also pledged to cut food prices by $1 billion after the merger.
Retailers use multiple levers to reduce prices, including negotiating better deals with suppliers, investing in supply chain automation, or changing the way they label and package products.
While Kroger declined to provide details, a source familiar with the matter said the reductions will likely focus first on essential and high-demand items.
Musser said the investment represents just 0.5% of Kroger and Albertsons' combined total revenue.
Nelson is considering pausing the deal while an internal FTC judge examines how it would affect competition.
These reviews can take years and companies often abandon suspended agreements rather than complete the process.
Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, Wyoming, and the District of Columbia have filed lawsuits alongside the FTC.
Washington and Colorado have filed their own lawsuits to block the merger, which is scheduled to go to trial after the FTC case.
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