Senators scrutinize proposed $24.6 billion Kroger-Albertson merger

Top officials at Kroger and Albertsons tried to reassure senators worried about food prices and industry consolidation on Tuesday that consumers would benefit from the supermarket giants’ proposed $24.6 billion merger.

“We will not be closing any stores, distribution centers or manufacturing facilities or laying off any employees as a result of this merger,” Kroger CEO Rodney McMullen told senators.

Sen. Amy Klobuchar, R-Minnesota, chaired a hearing before the Senate Judiciary Committee’s Subcommittee on Competitive Policy on a proposed merger that would combine the nation’s two largest grocery chains. This includes Kroger stores and Kroger-owned stores, including Harris Teeter and Fred Meyer. The Albertsons stable includes Safeway, Shaw’s and Vons.

Together, the companies employ more than 710,000 people and operate approximately 5,000 stores, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies and 2,015 fuel stations. in the merger announcement.

McMullen’s promise, which was echoed by Albertsons’ CEO Vivek Sankaran came later Klobuchar’s opening remarks, where she warned that if “the two stores are run by the same owner, there is no incentive to compete for customers and prices. They might even close one of the stores, and that would certainly eliminate jobs in those communities.”

Sen. Mike Lee, D-Utah

The subcommittee’s top Republican, Mike Lee of Utah, also raised concerns about food prices in his opening remarks. “Inflation is hurting our economy,” he said. “But it doesn’t seem like the grocery industry.” He quoted McMullen as saying earlier this year: “A little inflation is always good for our business.”

“Well, it must have been a very good year because Kroger saved up enough to spend $24.6 billion to buy one of its biggest competitors, Albertsons,” Lee said.

McMullen, however, said the companies have a “firm belief that this merger will increase competition, lower prices, improve the customer experience and create investment in our partners, while ensuring the long-term future of union jobs.” He said Kroger’s core business model “is built around lowering prices to attract more customers, not increasing margins on fewer customers.”

He said Kroger plans to invest $1.3 billion over the next four years in Albertsons stores to improve customer service, $1 billion to continue increasing employee wages and comprehensive benefits and $500 million to lower prices.

In the statement of Art United International Food and Commercial Workers Union (UFCW), which represents 1.3 million grocery store and meatpacking workers, said it would “oppose any merger that undermines the wages, jobs, benefits and safety of Kroger and Albertsons workers.” The UFCW did not participate in the hearing.

McMullen said the companies are in “active conversations” with both the UFCW and the Riders’ Union. “We see the unions in the U.S. as incredibly important partners, and we will work together with the unions,” he said.

McMullen said Kroger has the fourth largest total revenue behind Walmart, Amazon and Costco, and the merger will help the new company compete. Even after adding the Albertsons stores, the expanded business will remain No. 4, he said.

“These same three competitors have nearly three times the grocery sales share of Kroger and Albertsons combined,” he said.

When asked by Lee, Sankaran defended the company’s previously announced decision to distribute $4 billion to shareholders, on top of $2.8 billion in merger-related proceeds. “The Albertsons companies are in excellent financial shape,” Sankaran said, adding that the dividend payout rewards shareholders who have supported the company over the past decade.

Sumit Sharma, senior researcher at Consumer Reports, said the transaction would reduce competition “which would be bad for consumers.” He added that the claimed benefits of the merger were “uncertain”.

McMullen, however, cited a 2021 study by the National Grocers Association that said independent grocers accounted for 33% of total U.S. grocery sales, up from 25% nearly a decade ago. Sales of independent grocers grew by nearly 94% from 2012 to 2020. “These stores will remain formidable competitors,” Kroger’s CEO said.

Michael Needler Jr., on behalf of the National Grocers Association and president and CEO of Findlay, Ohio-based Fresh Encounter, which operates 100 grocery stores in Ohio, Indiana, Kentucky and Florida, said he is concerned about what could happen to the industry. , if there is no further control.

Vivek Sankaran.jpegVivek Sankaran, CEO, Albertsons

“We’re agnostic about the deal,” Needler said. – We are not afraid to compete with anyone, no matter how big it is. but we oppose the absence of limits on purchasing power, which supports our ability to compete on price.’

In 2015, Albertsons acquired Safeway for $9.2 billion. As a condition of approval of the merger, the FTC required Albertsons to divest 168 stores. When the largest buyer of the foreclosed stores went bankrupt nine months later, Albertsons bought back some of the very stores it had been forced to divest to avoid violating antitrust laws, Lee said in his opening remarks.

“The FTC official who signed off on this seizure now leads the antitrust practice at the law firm representing Kroger in its purchase of Albertsons,” Lee said. “Hollywood couldn’t have written a more cynical plot.”

Sankaran said what happened to the Safeway stores was approved by the FTC, and Albertsons did everything it could to help the stores affected by the problem. “If you step back and look at the bigger picture, the merger is a success by any measure where we’ve brought two struggling companies together and turned them around.”

While the FTC has not determined how many stores may need to be divested, it could range from 100 to 375. Sankaran said the FTC is examining potential sales that may go to bona fide buyers, as defined by the FTC, who have the ability to take these stores and add franchises to them.

“We must learn from the failures of Safeway and Albertsons, which means the FTC must use its microscope on a market-by-market basis all the way down to the street corner to ensure that the combination does not harm consumers or leave society vulnerable,” Needler said. said, adding that the sales should give capable local operators the opportunity to acquire these divested assets.

Both Lee and Klobuchar noted that while the Senate does not have the power to stop or change the course of the merger, it does have the ability to shed light on the discussion and decision now before the FTC.

“Simply put, hearings like this are an important opportunity for the American people to better understand an economic deal over which they have little say, but which so closely affects their lives and livelihoods. That’s definitely the case today,” Lee said.

Klobuchar and Sen. Chuck Grassley, D-Iowa, introduced the Merger Filing Fee Modernization Act in June 2021 to update merger filing fees that have been unchanged for 20 years.

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