The Federal Trade Commission (FTC) has reached the halfway point in a trial where it is trying to convince an Oregon federal judge to grant an injunction that would prevent two of the largest grocers — The Kroger Co. (NYSE:KR) and Alberstons Companies, Inc. (NYSE:ACI) — from carrying out a $25 billion merger.
What Happened: According to the Wall Street Journal, the FTC retained expert witnesses to testify that groceries could get more expensive if Kroger and Albertsons combined.
Last week, the FTC attacked both companies' proposal to sell more than 500 stores to C&S Wholesale Grocers to placate regulators.
FTC lawyers are focusing on the troubles that C&S would have in implementing new brands, technology systems and supply chains in the stores it would acquire from Kroger’s and Albertsons.
C&S could run some of the stores it acquires under their current names (i.e., Safeway in Colorado and Arizona). However, it would need to change the name of 286 stores and bring in new unknown brands to local shoppers.
C&S estimated that sales at renamed stores could fall by as much as 22% because it would have to set up new customer loyalty programs and introduce new private-label brands.
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Why It Matters: The high-profile case comes as data shows consumers continue to grow frustrated over pricey groceries. In July, for example, there was a sharp 5.5% increase in egg prices, contributing to a 0.7% rise in the broader meats, poultry and fish category.
The FTC is also scrutinizing whether C&S would run the stores long-term or is buying them to bolster its wholesale business, which lost its biggest grocery customer in 2019.
C&S executives testified that the grocer has limited market coverage in the Rocky Mountain states and the southwest, but the $2.9 billion deal with Kroger and Albertsons would give C&S 101 Albertsons-owned stores in Arizona and 91 in Colorado.
C&S also said it is committed to becoming a major supermarket operator. The company's owner, Rick Cohen, is funding $500 million of the deal.
The FTC warned U.S. District Judge Adrienne Nelson said that Albertson’s 2015 acquisition of Albertsons resulted in Haggen, a small West Coast grocery chain, going bankrupt and closing 83 stores of 146 Albertsons stores it bought as a condition for the deal.
The FTC trial against the Kroger-Alberstons merger is taking place as Democratic presidential candidate Kamala Harris proposes a price-gouging plan against grocers.
Price Action: Kroger gained 0.85% to $53.66 into Tuesday’s mid-morning trading. Albertsons dipped 0.61% to $19.50.
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