Ed Pevos/Ann Arbor News; Damian Dovarganes/AP Photo
Kroger and Albertsons are the largest unionized grocery chains in the United States. As both companies have pointed out from the day they announced their proposed merger, this fact distinguishes them from their competitors, one of which is alleging that the National Labor Relations Board is unconstitutional in a bid to stave off a union drive.
In an op-ed in The Cincinnati Enquirer (where Kroger is headquartered), the CEOs of Kroger and Albertsons pledged to protect and expand union jobs following the merger: “No frontline workers will be laid off as a result of the merger. The combined company will have one of the largest unionized workforces in the country. We are committed to protecting and expanding opportunities for union jobs.”
More recently, facing possible litigation by the Federal Trade Commission, Kroger doubled down on its pro-union messaging, contrasting itself with the growth of non-union retailers like Walmart and Amazon, which it claims has led to 200,000 union job losses over the past 20 years. “Kroger’s merger with Albertsons will mean workers gain from $1 billion in higher wages, expanded benefits, long-term job security, and a strong unionized workforce for associates,” a Kroger spokesperson said.
But actions speak louder than words. We represent a labor union in connection with the proposed merger, and we believe that workers, along with customers, will be materially harmed. There is a remedy for this, to protect good-paying jobs in this and all mergers. But it’s not the path Kroger and Albertsons have taken.
Mix and Match
Kroger and Albertsons own dozens of grocery “banners” (store names), and operate competing stores within three miles of each other in hundreds of local geographic areas. One estimate of store overlap showed that approximately 48 percent of Albertsons stores are within three miles of a Kroger store. In the neighborhood of one of the authors, for example, Harris Teeter (owned by Kroger) is directly across the street from Safeway (owned by Albertsons).
Given the massive number of overlaps, it was obvious from the beginning that there was likely to be a dramatic loss of head-to-head retail competition if the merger took place. Accordingly, in connection with the merger announcement, the companies stated that they planned to divest grocery stores to a third party.
The companies later entered an agreement with C&S Wholesale Grocers, LLC (C&S), a privately held company based in Keene, New Hampshire. Under the agreement, C&S is to acquire 413 stores, eight distribution centers, two offices, and some intellectual property currently owned or operated by either Kroger or Albertsons.
The divestiture plan was presented as a definitive agreement, without the blessing of the Federal Trade Commission. This is a prelitigation move; the intent is to make it harder for the government to win at trial by forcing the government to litigate not only the original merger agreement but also the adequacy of the proposed remedy. In antitrust jargon, the strategy is called “litigating the fix.” Through the agreement with C&S, Kroger and Albertsons are setting the stage for the FTC to “litigate the fix” if the FTC decides to challenge the merger, which at this point appears likely. (Colorado’s attorney general went ahead with a merger challenge just this week. The investigation also uncovered other unlawful activity: “Despite being competitors,” the two companies allegedly “colluded to suppress the wages and benefits of their workers” during a 2022 strike.)
The history of failed merger remedies highlights the risks to consumers. The FTC’s own study of negotiated consent decrees between 2006 and 2012 found a significant number of failures. The data indicated that there was at least some significant competitive harm in 34 percent of all horizontal merger consent decrees.
The history of failed merger remedies highlights the risks to consumers.
The selection of some of one party’s assets and some of the other party’s assets—as is the case here—is sometimes called a “mix and match” divestiture package. The antitrust agencies tend to view this with skepticism, chiefly because they assemble assets that have not been operated together by a single owner in the past, which has long been known to result in a greater risk of failure. As John Kwoka points out, the FTC’s study “found a substantially lower rate of success—about 56 percent of orders—where a divestiture remedy transferred less than the entirety of a business unit.”
The failure of grocery store divestitures during the past decade provides an object lesson in what can go wrong. Customer experience and store traffic are critical to grocery store viability—more so than in other businesses. A typical grocery store stocks thousands of items, many of them perishable, and operates on thin margins. Grocery store delivery windows are narrow.
The complaint filed by Haggen against Albertsons in 2015, after the Albertsons-Safeway merger remedy imploded within a year, suggests how many things can go wrong with divestitures in this business. As alleged by Haggen, these included saddling the buyer with outdated inventory; understocking items resulting in empty shelves; overstocking perishables; failing to do required maintenance; removing inventory, fixtures, and equipment from stores; failing to continue to advertise to existing customers in the weeks before the ownership change; saddling the buyer with inaccurate retail pricing data; and botching the transition of back-office systems. We could add to this list the disappearance of familiar goods, sizes, brands, and private labels when a new owner comes in.
A “mix and match” divestiture strategy only magnifies these risks. It is also likely to be inefficient in this case: We can assume that Kroger and Albertsons have sited, and are operating, their own warehouses to maximize efficiency.
An Anti-Union Divestiture Buyer
The divestiture buyer Kroger and Albertsons settled upon is anything but union-friendly. C&S has a long history, going back more than 20 years, of acquiring unionized distribution centers, closing them down, and moving the work to non-union facilities. A conservative estimate is that C&S has eliminated more than 5,000 Teamster jobs over the last 20 years.
For example, after acquiring three New England warehouses in an asset swap with Supervalu in 2003, C&S announced in 2004 that it was closing all the distribution centers and moving the work to its own non-union facilities. These warehouse closures in Portland, Maine; Andover, Massachusetts; and Cranston, Rhode Island, resulted in the loss of over 500 union jobs.
In April of 2010, C&S took over the dry grocery warehouse of Giant Food (now part of Ahold Delhaize) in Jessup, Maryland. In 2011, C&S announced plans to move the work to its own non-union warehouse in York, Pennsylvania, resulting in the loss of approximately 400 union jobs.
C&S took over Pathmark’s Woodbridge, New Jersey, warehouses in the late 1990s, then took over distribution for A&P in 2003. The two companies merged in 2007. The Woodbridge warehouses were closed in February of 2011, and C&S moved the work to its non-union facility in Harrisburg, Pennsylvania. More than 1,000 union members lost their jobs.
In upstate New York, the Tops supermarket chain (then owned by Ahold) sold its 880,000-square-foot distribution center in Lancaster to C&S in 2002 and contracted with C&S to operate it. When Tops repurchased the facility in 2013, C&S structured the transaction to avoid any obligation to pay into the pension plan, claiming that the responsibility lay with Tops. Some 600 union employees at the warehouse saw their pensions frozen; in 2018, the employees received a one-time payment to replace only part of the benefits they would have accumulated.
David Zalubowski/AP Photo
Colorado Attorney General Phil Weiser announces the filing of a lawsuit to block the Kroger-Albertsons merger on the basis of eliminating competition, February 14, 2024, in Denver.
C&S’s track record as a retailer also leads to the conclusion that it is not an acceptable buyer. When the divestiture plan was announced, C&S was touted as having an “extensive background in food retail,” but its experience (1) is closely connected with the bankruptcies of grocery store chains (Grand Union, Penn Traffic, A&P); (2) includes buying and reselling or closing hundreds of grocery stores (Grand Union, Bi-Lo); and (3) appears opportunistic and in aid of C&S’s primary business, which is distribution and wholesaling.
One may ask how many grocery stores does C&S actually own today? The answer is about two dozen. In short, there are ample reasons to believe that this is not a company that will grow into an effective retail competitor.
It’s not like there were zero union-friendly divestiture buyers out there. The choice of an anti-union divestiture buyer calls into question everything the two companies have claimed about their pro-union stance and alleged unwillingness to put jobs at risk.
And to hear Kroger talk critically about Walmart is pure irony, as C&S’s affiliate, Symbotic, is automating all of Walmart’s warehouses. Symbotic and C&S overlap in their principal shareholders, officers, and directors, and share a number of services. Symbotic’s largest customer, and 10 percent shareholder, is Walmart, which is such an important customer and investor that it has observer status in Symbotic board meetings.
Labor and Merger Remedies
Historically, the impact of mergers on labor has been a “blind spot” in antitrust enforcement. This blind spot developed notwithstanding the fact that antitrust laws reach two kinds of conduct: conduct that harms consumers and conduct that harms suppliers (including workers, who supply labor).
Why this blind spot? Possible reasons include: (1) legal theory has placed more emphasis on product markets; (2) there has been an assumption that labor markets are reasonably competitive; (3) labor laws, which sit “outside” of antitrust, may have seemed sufficient; and (4) litigation focused on labor markets is more challenging than litigation focused on product markets. Moreover, there has been hostility to unions in antitrust. This hostility persists when unions continue to be compared to cartels.
Due to a growing body of empirical work that has examined the impact of mergers on things like wages and employment, this tendency to overlook labor market competition has been changing in recent years in both Republican and Democratic administrations. As Eric Posner has written: “Recent studies have shown that many labor markets are concentrated, and that wages, as one would predict, are lower in concentrated labor markets than in competitive labor markets. Moreover, concentration is far more serious in labor markets than in product markets; wage suppression is much more significant than price inflation.”
In 2019, former FTC Chair Joseph Simons noted that his agency and the Justice Department’s Antitrust Division “are now devoting more attention to competition in labor markets and how certain conduct, including mergers, may impact competition in those markets.” In 2021, DOJ successfully sued to block Penguin Random House’s proposed acquisition of Simon & Schuster by alleging, among other things, that the acquisition would be likely to depress author pay. Most recently, the agencies released new Merger Guidelines that, for the first time, expressly discuss labor markets.
Antitrust agencies should start to think about labor neutrality agreements as a merger remedy.
Evaluating workers’ relative bargaining power against employers is not only consistent with antitrust law’s goals of protecting competition in labor markets, but is also aligned with the National Labor Relations Act’s policy of ensuring equal bargaining power between workers and employers, as Hiba Hafiz has written. Perhaps counterintuitively, a merger between two unionized companies may harm labor market competition and lead to a reduction in worker welfare, as Marshall Steinbaum suggested in a recent economic paper on the Kroger-Albertsons merger.
What remedies are likely to be effective and workable for workers and labor markets? First and most obvious, if divestitures are contemplated, the choice of buyer is critical. The choice of a buyer that has repeatedly eliminated union jobs and avoided responsibilities to its unionized workforce is not a buyer that can be expected to work well with unions in the future.
Second, recognition of existing contracts and successor employer responsibility need to be spelled out. Unions have bargained over recognition and successorship language for years. When parties conceal such language from the impacted unions, this is a red flag. A claim that the proposed buyer intends to “maintain” collective-bargaining agreements and not lay off any “frontline associates” should be treated just as skeptically, and examined just as critically, as the claim that the buyer “will operate as a fierce competitor.” When recognition and successorship are part of a remedy, labor needs to be at the table, not just the employer.
Third, the specific divested assets need to be identified. Lack of transparency in the Kroger-Albertsons context makes a mockery of third-party analysis—including assessing the quality and competitiveness of the divestitures—as it has to be done by guesswork. One of the benefits unions can offer to the agencies is “boots on the ground” experience. At a minimum, this experience can serve as a reality check on claims made by parties about the competitive significance of the assets. Affected employees have a need to know, as their livelihoods are at stake. The specifics should be disclosed up front so that “market testing” becomes a reality in the United States, as it is elsewhere in the world.
Fourth, antitrust agencies should start to think about labor neutrality agreements as a merger remedy. After announcing a series of labor principles, Microsoft entered into a neutrality agreement in connection with its acquisition of Activision Blizzard. The agreement provides for: (1) an explicit employer commitment to remain neutral during the union’s organizing drive; (2) a method of determining whether the union has majority status; (3) avenues for union organizers to communicate with employees, such as by allowing organizers on the employer’s premises or providing employee contact information similar to what the union would receive under an NLRB election process; and (4) a dispute resolution process to address issues of interpretation and compliance with the agreement. Such agreements are unquestionably legal under the case law.
Finally, in a merger such as Kroger-Albertsons, even if divestiture were a workable and acceptable remedy (a big if), a “mix and match” proposal is unlikely to maintain premerger efficiencies, and should be rejected for that reason. In this instance, distribution efficiencies could only be preserved if all of the grocery stores owned by a party in a local area were divested together with the distribution facility and transportation network that serves those stores. Anything else is courting disaster.
Kroger and Albertsons should have thought harder about these issues earlier. The choice of an anti-union buyer was a slap in the face to labor. Involving the affected unions in recognition and successorship discussions would have given some substance to the promises both companies made to their employees. But it’s too late now. The CEOs of both companies pledged they “would never move forward” with the merger if it placed their employees’ careers at risk. The time has come for the two companies to abandon the merger.
The authors represent a labor union in connection with the proposed Kroger-Albertsons merger. We are grateful to Jack Kirkwood for his helpful suggestions. The views expressed here are those of the authors and not necessarily those of any other person or entity.
