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Kroger and Albertsons were already separately the two largest grocery-only companies in the United States, and a combined company would control about 13 percent of the grocery market.
The Federal Trade Commission (FTC) has sued to block the $24.6 billion merger between Kroger and Albertsons, arguing that the deal would lead to higher prices for consumers and reduced wages for grocery workers.
Foregrounding a monopsony basis for the merger challenge follows in the footsteps of the Justice Department’s successful rejection of the merger between Penguin Random House and Simon & Schuster, which claimed that authors would see smaller advances for their work if the publishing industry was more heavily concentrated.
But this lawsuit goes a step further than previous monopsony invocations. It not only points to potential harms to labor markets but also affirms that the bargaining table between unions and employers is a relevant antitrust concern. In citing the opposition of the United Food and Commercial Workers (UFCW) to the merger, the FTC argues that unions can successfully pit competing grocery store chains against one another as a strategy to gain leverage during bargaining negotiations.
“In some regions, such as in Denver, the combined Kroger/Albertsons would be the only employer of union grocery labor,” the FTC pointed out in its announcement. “Union grocery workers’ ability to leverage the threat of a boycott or strike to negotiate better CBA terms would also be weakened.”
In the partially redacted complaint, released later Monday afternoon, the FTC expressed a similar sentiment: “By eliminating the current competition for union grocery labor between Kroger and
Albertsons, the proposed acquisition would prevent the unions from being able to play them off
each other during collective bargaining negotiations, substantially increasing Kroger’s negotiating
leverage.”
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This argument for the positive effects of competition for union bargaining was made directly by University of Utah economics professor Marshall Steinbaum in a paper published last year evaluating the merger. “A large body of evidence shows that labor markets are imperfectly competitive and that the concentration of employers in labor markets worsens wages and terms and conditions of work,” Steinbaum wrote in the paper.
Eight states and the District of Columbia are joining the FTC on the suit, including the Republican attorney general of Wyoming, Bridget Hill. Earlier this month, the attorneys general of Washington state and Colorado separately sued to block the merger, with Colorado unearthing evidence that Albertsons executives agreed to not hire striking workers at King Soopers, a Kroger chain, in a form of collusion.
The FTC complaint refers to the no-poach agreement, though the information is currently redacted. Colorado Attorney General Phil Weiser asserts that such agreements were undertaken on more than one occasion by both Albertsons and Kroger. Weiser has sought a civil fine over the misconduct, and at least one union local has filed an unfair labor practice over the charge.
Kroger and Albertsons will now have to win all three lawsuits—in Washington, Colorado, and federal district court in Oregon, where the FTC filed—to get their merger through.
The lawsuit affirms that the bargaining table between unions and employers is a relevant antitrust concern.
The FTC does note that Kroger and Albertsons have planned a divestment of 413 stores, eight distribution centers, two offices, and some intellectual property to C&S Wholesale Grocers, mainly a warehouse company that only operates 23 supermarkets and one retail pharmacy, and doesn’t have the kind of IT or private brand network to make a large grocery chain operation viable. Many have speculated that C&S wants the stores for the real estate, which it can then flip at a profit.
The complaint states that the C&S “mix and match” divestiture, which includes some Albertsons and some Kroger assets, is unlikely to succeed and doesn’t mitigate the competitive harms.
As Allen Grunes and Rosa Baum recently wrote for the Prospect, the divestiture also raises labor concerns, as C&S has a history of acquiring unionized distribution centers and closing them, funneling the business to its own non-union warehouses.
While one UFCW local in the Pacific Northwest has supported the merger, the national union and most other locals are opposed. UFCW Local 555 got pushback from its own members for its support, which it justified by saying that Cerberus, the private equity owner of Albertsons, will sell the grocery chain anyway if it is blocked from selling to Kroger, and that they believed C&S would maintain union jobs.
As one UFCW worker for a Fred Meyer store in Portland’s Hawthorne neighborhood put it in response to the local’s support, “I don’t know a single employee here [at my store] that is for the merger … we were not asked and if it was brought to a union vote it would be handily defeated.”
By rejecting the divestiture as a competition remedy, the FTC did not fall into the trap of “litigating the fix” by trying to change elements of the divestiture to create something regulators could live with. The merger between Albertsons and Safeway is a cautionary tale on litigating the fix; the FTC approved a divestiture to a small grocer named Haggen, which went out of business within a year of the merger approval.
The lawsuit cites more traditional reasons for opposing the merger beyond monopsony, like limiting choices for consumers. Among the pieces of evidence is an Albertsons vice president, who wrote in reaction to the initial announcement, “you are basically creating a monopoly in grocery with the merger.”
Kroger and Albertsons were already separately the two largest grocery-only companies in the United States, and a combined company would control about 13 percent of the grocery market. (Walmart has about 22 percent.) The deal was announced in late 2022.
“There was no upside to this merger for anybody other than the top executives at these two companies and their investors,” said Stacy Mitchell of the Institute for Local Self-Reliance in a statement. “This decision shows that the FTC understands how the outsized power of big retailers is damaging the entire food system.”
Agricultural groups representing the interests of farmers also applauded the lawsuit. The consolidation of both agribusiness middlemen and grocery stores has not only increased prices for consumers but also squeezed the farmers who have to sell their goods to fewer corporate buyers.
“A handful of huge corporations’ stranglehold on our food system means that consumers are paying too much for too little choice in supermarkets, and farmers and ranchers cannot get fair prices for their crops and livestock. We applaud the administration’s common-sense decision to challenge this egregious mega-merger plan,” said Food & Water Watch Managing Director of Policy and Litigation Mitch Jones.