Last week, Alaska Congresswoman Mary Peltolajoined27 other D.C. lawmakers from 16 states ina legal brief backing a lawsuitbyfederal regulatorsto block a massive, national grocery store merger.
MostAlaskans live in a communitywhere a Fred Meyer store competes directly with a Carrs or a Safeway, so the proposal for one parent company to buy the other for $24.6 billion has a lot of Alaska consumers worried.
Here’s what we know about where the proposal is now, after it wasfirst announcedin October of 2022.
What’s at stake?
If you takewhat the companies are sayingin good faith, not much. They’ve madesweeping promisesabout the good things that will happen and the bad things that won’t if Kroger, which owns Fred Meyer, is allowed to buy Albertsons, which owns Safeway and Carrs. The companies sayinvestors,customers,workersandcommunitiesare all supposed to benefit.
“We are confident our transaction with the proposed divestitures will mean lower prices and more choices for customers,” Kroger CEO Rodney McMullen said in a video about the proposed merger. “It will mean more opportunities for retail associates to grow their career while we secure the future of good paying union jobs.”
Here are some of the specificpromisesKroger and Albertsons have made:
- No store closures
- No pharmacy closures
- No front-line job losses with protection for worker pay and benefits
- A $500 million investment in reducing prices
- A $1 billion investment in employee benefits
- A $1.3 billion investment to improve Albertsons stores
Kroger points to its20-year track recordthat includes lowering its profit margins to keep prices down amid past acquisitions.
How can all of these promises be possible?
The idea is if Kroger and Albertsons merge, they’ll be in better shape to compete with even bigger retailers, like Costco and Walmart, as well asgrowing competitors, like dollar stores that now sell groceries and even Amazon. Bigger scale means bigger efficiencies, and that’s where the upside is supposed to come from.
Of course, most Alaskans live in communities where Fred Meyer competes with Carrs or Safeway. Specifically, that’s Anchorage, Eagle River, Palmer, Wasilla, Fairbanks, Juneau and Soldotna.
Federal regulators are wary of mergers because they can be anticompetitive, concentrating too much market power and hurting regular shoppers. To try to win regulators’ approval, Kroger and Albertsons say they’re prepared to sell off all 15 of the Carrs and Safeway stores in those Alaska communities, plus three more in Girdwood, Kenai and North Pole, to a company calledC&S Wholesale Grocersbased in New Hampshire.
The Safeways in Seward, Valdez, Kodiak, Ketchikan, Nome and Unalaska are not onthe divestment listand would remain with the merged company.
Nationally, Kroger and Albertsons plan to sell a total of579 stores, plus six distribution centers and a dairy plant, to C&S.
Again, McMullen says these divested stores won’t close, because C&S is committed to running them as they are today.
Albertsons CEO Vivek Sankoran says C&S will make the landscape more competitive.
“Their deep industry knowledge and experience gives us great confidence in their ability to become even fiercer competitors moving forward,” Sankoran said in the video.
C&S CEO Eric Winn also says his company is playing the long game.
“We are confident thisexpanded divestiture packagewill provide the stores, supporting assets and expert operators needed to ensure these stores continue to successfully serve their communities for many generations to come,” Winn saidin an April press release.
The United Food and Commercial Workers Local 555, which represents 30,000 grocery store workers in Oregon, Idaho and Washington, came out insupport of the mergerin February. However, the parent union, which represents 1.2 million workers, voted last yearto oppose the merger. Other UFCW locals,including Alaska’s, also oppose the merger.
So what’s the problem? Why do people oppose the merge?
Basically, opponents just don’t believe the companies, and there isn’t anything in place to hold them to their promises.
In Alaska, the opponents include Democratic Congresswoman Mary Peltola,24 state lawmakers, thegrocery store workers’ unionandlots of regular Alaskans.
“It’s a huge issue for Alaskans that resonates. It’s not a political issue, it’s a pocketbook issue,” said Veri di Suvero, executive director of the Alaska Public Interest Research Group, a statewide consumer advocacy nonprofit thatalso opposes the merger. “Whether or not it’s in good faith, about these spinoffs, we’ve seen over and over again that they don’t work.”
Di Suvero points back to 1999, whenSafeway bought out Carrs.AKPIRGand Alaska’s attorney general got involved, and theyworked out a deal to sell off seven storesto let the merger go through.
Six of those stores became Alaska Marketplace grocery stores. Theyall closed within about a year.
The seventh, at the University Center mall in Midtown Anchorage, survived and became a different grocery store, Natural Pantry, which eventuallyoutgrew the spaceand built its current, standalone location off 36th Avenue.
Fast forward to 2015, and Safeway gotswallowed up by Albertsons. Federal regulatorsapproved that dealafter the companies agreed to divest 168 stores. 146 went to a small Washington grocery retailer called Haggen.
Haggen wasn’t successful, either. Within a year,Haggen sued Albertsonsand accused it of sabotaging stores it bought. It gotsued back by Albertsonsandfiled for bankruptcy. In the ensuing firesale, Albertsons ended upbuying back many of its divested stores, and ultimately what remained ofHaggen itself.
Di Suvero is also concerned about how unique Alaska’s supply chain is, particularly its heavy dependence on a single port. Di Suvero and other opponents question if C&S has the expertise and wherewithal to step in and run its new grocery stores successfully.
So critics think C&S is setting itself up for failure, like Haggen?
Yes.
C&S isn’t a national player in the world of retail groceries. It owns the Piggly Wiggly brand and runs some Piggly Wiggly stores directly, but most are independently owned and operated under a franchise license. It also runs 11 Grand Union markets.
But C&S is a big deal nationally in grocery wholesaling, supplying more than 7,500 supermarkets.Forbes saysit’s an industry leader in supply chain innovation, the largest wholesale grocery supply company in the country and the eighth biggest privately held company in the country. So C&S is in a totally different league from Haggen.
That said, theFederal Trade Commission saysC&S doesn’t have its own store brand product lines, loyalty programs or e-commerce platforms it needs to successfully compete.
Does Alaska figure prominently into the overall merger?
No.
Kroger and Albertsons combined have36 stores in the state. That’s 11 Fred Meyers, and 24 Carrs or Safeways plus Crow Creek Mercantile in Girdwood. Across the country, they have about 5,000.
And unlike in the Safeway-Carrs merger in 1999, the governor’s office has been hands off. Gov. Mike Dunleavy has not weighed in. The state Department of Law, which has its ownconsumer protection unit, says it’s monitoring the merger and the Federal Trade Commission’slegal fight to stop it.
Outside of Alaska, eight states and the District of Columbia have joined the FTC’s lawsuit in federal court in Oregon.
And the attorneys general ofColoradoandWashingtonhave their own similar lawsuits.
What happens if the merger gets shot down?
There’s a lot invested in this merger. Areporter with WCPOin Cincinnati, where Kroger is headquartered, dug through financial filings and found that through March, the two parent companies had already spent $864 million in merger-related expenses.
WCPO also found that Kroger had agreed to pay Albertsons $600 million if the merger fails.
So that’s a big incentive for Kroger to appeal if these legal fights don’t go its way.
So what’s next?
Thelegal stuff.
Hearings in the FTC case at the U.S. District Court of Oregon begin Aug. 26. This case is important, but won’t necessarily make or break the merger. The judge there is supposed to rule on whether or not to pause the merger, whilemore substantive argumentsgo before an administrative law judge in Washington, D.C.
The trial in the Washington state court is scheduled to begin Sept. 16, and, separately, a Colorado state judge last monthimposed his own order to pause the merger, pending a legal challenge there. That trial is scheduled to begin Sept. 30.
