Attorney General Rob Bonta Announces He May Sue To Prevent a Merger Between Kroger, Albertson’s

Attorney General Rob Bonta announced late on Thursday that he may sue to stope the merger between the second and fourth largest food store chains in the U.S., Kroger and Albertsons, because of concerns over issues  the merger could create, such as higher consumer prices and more food deserts within the state.

The proposed merger between Kroger and Albertsons was first announced in October 2022. The deal, worth $24.6 billion, would formally create a grocery chain of nearly 5,000 stores. While there were many reasons behind the merger, the need for both Kroger and Albertsons to expand online because of increased competition from large companies such as Walmart and Amazon was shown to be the primary concern.

In California, Albertsons subsidiaries such as Pavilions, Vons, and Safeway would now be under the same company as Kroger subsidiaries in the state such as Food 4 Less and Ralphs. To meet Federal Trade Commission (FTC) approval of the merger, Kroger announced earlier this year that  several subsidiaries would be sold off to avoid any possible anti-trust violations. While the combined company would not be larger than the number one food retailer in the country, Walmart, the companies involved in the merger wanted to avoid any challenges against them.

Despite the caution, Attorney General Bonta said on Thursday that he still may sue to stop the Kroger-Albertsons merger. His office noted that Bonta was concerned that the merger could lead to overall higher prices for consumers, as well as the creation of larger food deserts in the state because of the consolidation, negative repercussions for workers, and California farmers facing lower payments because less competition. In a statement, Bonta pointed out that while nothing had been set in stone yet, he was leaning towards suing.

“The decision has not been made, but right now there’s not a lot of reason not to sue,” said Bonta in Washington on Thursday. “We are moving toward acting. We are very concerned about it.”

Bonta also highlighted his meeting with FTC Chairwoman Lina Khan in a tweet on Thursday, further backing up that he was serious about stopping the merger.

Had an excellent meeting with @linakhanFTC. 
 
From defending tenants to fighting for a competitive market, the California Department of Justice is incredibly proud to work with the @FTC to protect consumers across the country. pic.twitter.com/yJ63VGYbi7

— Rob Bonta (@AGRobBonta) October 12, 2023

In addition to Bonta, 10 other states have urged Khan not to go along with the deal because of similar concerns. Several unions, such as the United Food and Commercial Workers union, have also joined them in opposition against the merger.

Kroger, Albertsons fire back

Both Kroger and Albertsons defended themselves on Thursday and Friday, pointing out benefits from the merger as well as calling out some of Bonta’s concerns about the merger as wrong.

“Kroger joining with Albertsons will mean lower prices for customers, secure union jobs and more food directed to hungry families, with 10 billion meals committed to people in need across America by 2030,” said Kroger on Friday. “Only non-unionized retailers, like Walmart and Amazon, will benefit if the merger is blocked.”

Albertsons added, “The deal would ensure that our neighborhood supermarkets, some of which have been serving their communities for over 100 years, can better compete with these retailing giants.”

With Bonta’s likely lawsuit now looming over the merger, experts told the Globe on Friday that blocking it would likely only hurt food retailers as a result, especially in razor-thin margin areas such as the Bay Area and Southern California.

“When you look at this deal, you need to put yourself in the mindset of these companies,” explained Louisa Caballo, an analyst of food retailers in Western and Southwestern states. “So profit margins are thin. We’re talking only a couple of percentage points. And the largest food retailer, Amazon, has a quarter of the U.S. market. Kroger has 11%, Costco has 10%, Albertsons 7%, and then others like Amazon, Giant Eagle, and Sam’s Club are 5% or less. Granted, even 1% is huge there, so being one of the biggest means tons and tons of stores.”

“Also, we are emerging into a post-COVID world where more and more people want food to be delivered. Now food deliveries have always been around dating back to when general stores were everywhere, but this really boosted those sales up through online orders. Walmart has that built-in, as does Amazon. Kroger and Albertson’s do too, but not nearly to that extent. To really tackle it, they need more resources, so a merger was deemed necessary. You also get more buying power, not spending nearly as much on operations, and being big enough to take on the giants in the industry.”

“Working against this are store closures, since Albertsons and Kroger have many close by stores or subsidiary stores, especially in California. And a huge merger goes against the Biden administrations greater scrutiny against mergers. The key point will be if consumer prices go up as a result, as that is the big weight on the scale here. The Biden administration has stressed more antitrust scrutiny against mergers that would lead to higher prices, and higher prices in an essential like food doesn’t look good and affects everyone.”

“But if Bonta manages to block this, food retailers would suffer as a result. Kroger and Albertsons would continue to be stretched and they would be in an even lower position to compete against Walmart and other big companies. That possibly means store closures down the line anyway. Bonta really needs to step back and take a look at this deal before suing, because he is missing the big picture here. Because this is about surviving and competing.”

Bonta is expected to announce soon if a lawsuit is to go forward against the merger formally.