Two rulings, made about 30 minutes and 145 miles apart, deal huge blows to grocery-giant Kroger to gobble up its competitor, Albertsons.
At around 1 p.m. Tuesday in a Federal Courthouse in Oregon, Federal Judge Adrienne Nelson enacted a temporary injunction, pausing the merger until a federal trade administrative judge can review and weigh in on the case.
At 1:30 p.m. at the King County Superior Court in Seattle, attorneys representing Kroger, Albertsons, and the Washington Attorney General’s Office gathered for Judge Marshall Ferguson’s ruling on whether the merger can go forward, applying solely to the Evergreen State. Ferguson completely blocked the merger.
“In my view, the evidence convincingly shows that the current competition between Kroger and Albertsons is fierce in the State of Washington,” Ferguson said.
The $24.6 Billion merger would have combined the around 5,000 stores between the two giants. In the King County Hearing, the Washington AG’s office showed that Kroger, which owns Fred Meyer and QFC and Albertsons, which also owns brands Safeway and Haggen, are the largest and second-largest grocery chains in the state respectively.
“We’re going to celebrate this is a win for workers this is a win for consumers this is a win for all of us, it’s a win for the people,” said Faye Guenther, the president of UCFW 3000, the union representing Kroger and Albertsons stores in Washington, Oregon, and Idaho.
To address competition concerns, Kroger proposed selling more than 500 stores, 124 of them in Washington, to C&S Wholesalers, a company whose website boasts “supply chain solutions” for grocery stores, with no reported experience running the stores themselves.
“The divestiture buyer wholesaler C&S with its limited retail experience and infrastructure will not be able to replicate the ferocity of that competition or compete effectively in Washington against the colossus of merged Kroger and Albertsons,” Marshall ruled.
The divestiture plan smelled eerily similar to Guenther, as a similar plan in 2015. Then, when Albertsons bought Safeway, the FTC ordered the company to divest 168 stores. About a year after the ruling, the company that bought the stores was forced to close or sell them, many sold back to Albertsons.
“We didn’t want another Haggen,” Guenther said. “We think the merger was a much larger threat to closing stores than blocking the merger.”
Kroger had tried to contend that stores like Costco, Walmart and Trader Joe’s amount to competition, but internal documents and communications inside the grocery chain showed differently.
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It showed neither grocery chain regularly compared prices to Costco and Target, mostly using each other to set prices. Evidence used an example of a Super Bowl promotion where Albertsons dropped the price of beer below the cost it buys it at, and Kroger stores followed suit shortly after.
The AG’s office argued, and Ferguson agreed, that Kroger and Albertsons mainly use each other to set prices, with Walmart creating a price “floor”
Generally, the argument said Kroger will look to Safeway to set QFC prices, and vis-versa for Albertsons. Kroger will use Walmart as a floor for its Fred Meyer brand, while again looking to Safeway prices as a price ‘ceiling.’
Judge Ferguson spent several pages evaluating several grocery brands to determine if they were a true competitor. For example, Trader Joe’s is considered a specialty store, similar to what Whole Foods is considered in the industry.
It also cited Kroger’s willingness to “profitably raise prices” at a store in Glenwood Springs, Colorado when both Target, Walmart and Costco were within five miles.
“Kroger was able to profitably raise prices even though there were stores of other formats within a 3-5 mile radius,” Marshall wrote in his ruling.
Kroger maintains the merger would have benefited consumers and employees, saying it and Albertsons are facing stiff competition from “non-union” chains.
“Kroger is disappointed in the opinions issued by the U.S. District Court for the District of Oregon and the Washington State Court, which overlook the substantial evidence presented at trial,” a spokesperson said in a statement.
The spokesperson claimed Kroger would have invested $3.3 billion in lower prices, improving stores, and raising wages. Guenther argues they still can.
“There’s $12-13 Billion that’s sitting in a fund to go to pay off Albertson’s shareholders,” she said. “Use that money to invest in the stores.”