U.S. lawmakers skeptical grocery merger will mean lower prices

William Rodney McMullen
Kroger CEO William Rodney McMullen speaks during a Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights hearing on the proposed Kroger-Albertsons grocery store merger, at the Capitol in Washington, Tuesday, Nov. 29, 2022.
Mariam Zuhaib | AP

U.S. senators from both parties expressed skepticism Tuesday that a proposed merger between grocery giants Kroger and Albertsons would result in lower prices for consumers.

“Fewer local options mean less competition to keep prices low,” said Sen. Alex Padilla, a California Democrat, in a hearing before the antitrust subcommittee of the Senate Judiciary Committee. Padilla said Kroger and Albertsons compete in many California cities.

But the CEOs of Kroger and Albertsons insisted there will still be competition, and said a merger will help them counter growing rivals like Walmart, Costco and Amazon.

Kroger CEO Rodney McMullen said the days of shoppers buying all their groceries at one store once a week are gone. Shoppers often get their groceries at five or six different locations, he said.

“I just don’t see less competition going forward,” McMullen said. “It’s easy for customers to take a left turn or a right turn.”

Kroger announced its plan to acquire Albertsons for $20 billion in mid-October. Together, the companies would control about 13% of the U.S. grocery market. If it's approved by U.S. antitrust regulators, the deal is expected to close in early 2024.

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Sen. Mike Lee, a Utah Republican, noted the subcommittee would have little say in whether the merger will go through. That will be a decision for the Federal Trade Commission and the Justice Department. But he said the hearing was an important opportunity for the public to understand a merger that could impact their lives.

Lee needled Kroger for approving a $1 billion stock buyback last year even as food prices were jumping for consumers. Lee said U.S. households paid an average of $110 more for food in October than they did a year ago.

“If Kroger wasn’t passing on savings to consumers when it was competing with Albertsons, then why would we think it would pass on savings after it eliminates competition?” he said.

But McMullen said Kroger has lowered prices after other mergers, like its 2013 acquisition of Harris Teeter.

“From a business standpoint, that is our commitment,” he said.

McMullen reiterated Kroger’s plan to spend $500 million reducing prices, $1.3 billion updating Albertsons stores and $1 billion on higher employee wages and improved benefits if the merger goes through.

Sen. Amy Klobuchar, a Minnesota Democrat, asked about the timeframe for that spending and wondered who would make sure the company met its commitments. McMullen said those investments would be spread over four years.

Others peppered the companies with questions about potential store closures or employee layoffs. Kroger and Albertsons have said they will sell or spin off up to 375 Albertsons stores in markets where they currently compete.

“The intent is not to close stores. The intent is to divest stores,” Albertsons President and CEO Vivek Sankaran said.

But that didn’t ease lawmakers’ concerns. Several noted that when Albertsons acquired Safeway in 2015 for $9.2 billion, the FTC required it to divest 168 stores. The largest buyer of those stores filed for bankruptcy protection nine months later and Albertsons wound up buying back some of the locations.

“When divested assets head into bankruptcy in less than a year, that remedy is an embarrassing failure," Lee said.

Sankaran said the FTC approved the buyer in that merger. This time, he said, Albertsons __ pending the FTC's approval __ may spin off stores into a separate company that would be led by experienced leaders.

Kroger, based in Cincinnati, Ohio, operates 2,800 stores in 35 states, including brands like Ralphs, Smith’s and Harris Teeter. Alberstons, based in Boise, Idaho, operates 2,273 stores in 34 states, including brands like Safeway, Jewel Osco and Shaw’s. Together the companies employ around 710,000 people.

Federal lawmakers aren't the only ones scrutinizing the merger plan. Earlier this month, a bipartisan group of state attorneys general sued to block Albertsons from paying a $4 billion dividend to its shareholders until they have reviewed the merger.

That payout is temporarily on hold after a state judge in Washington said he needed more time to consider the matter.