Kroger, Albertsons CEOs Defend Grocery Combination, Say Deal Won't Harm Competition

Kroger, Albertsons CEOs Defend Grocery Combination, Say Deal Won’t Harm Competition

Albertsons and Kroger supermarkets

Brigitte Bennet | Bloomberg | Getty Images; Brandon Bell | Getty Images

The battle over whether grocery giants Hooks and Albertson should be allowed to combine heaters.

On Tuesday, the two companies’ executives defended their merger proposal at a congressional hearing in Washington, where they faced a series of questions about how the deal could upend the competitive landscape — and potentially prices. consumers pay at the store.

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“I just don’t see less competition going forward,” Kroger CEO Rodney McMullen said during the Senate Judiciary Subcommittee hearing on competition policy, antitrust, and antitrust. consumer rights. “It’s easy for customers to make a right turn or a left turn.”

Kroger announced in October its intention to acquire Albertsons in a deal valued at $24.6 billion. The Cincinnati-based company is the second-largest grocer by market share in the United States, behind Walmart, and Albertsons is fourth, after Costco, according to market researcher Numerator. Together, Kroger and Albertsons would be a close second to Walmart.

At Tuesday’s hearing, McMullen said the combined company could help lower food prices and improve the customer experience, especially at a time when grocers are scrambling to adapt to changes like than online shopping. He said retailers must continue to reinvent themselves to stay relevant and convince customers to visit their stores.

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Still, the proposed merger has faced intense opposition from elected officials from both political parties and opposition from the United Food and Commercial Workers, a major grocery union that represents thousands of workers. employees of grocers.

Sen. Amy Klobuchar, a Democrat from Minnesota, led the hearing Tuesday with Sen. Mike Lee, a Republican from Utah. The two have challenged the companies over their actions, including Kroger’s $1 billion share buybacks announced last year and plans to pay dividends to shareholders as well as previous deals, such as the acquisition of Safeway by Albertsons.

They pointed out that the proposed deal comes at a time when groceries are taking more of the budget of American families. Food prices have surged as inflation nears four-decade highs. Prices for everyday items, including butter, eggs, poultry and milk, jumped double digits from a year earlier in October, according to the latest available federal data.

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For Kroger and Albertsons, the argument is clear: the combination will help them weather dramatic industry changes. Online grocery sales are eating into already thin margins. New players, such as deep discounters like Aldi and e-commerce players like Amazon, are also putting pressure on traditional grocers.

“The grocery market over the past decade has completely transformed, making competition fierce for consumers,” Albertsons CEO Vivek Sankaran said during the hearing. “The best way to compete with mega-stores like Walmart and heavily capitalized online companies like Amazon will be to merge with Kroger.”

He argued that even as a merged company, Kroger and Albertsons will still be small compared to Walmart, Costco and Amazon.

Ahead of the hearing, members of UCFW — which represents more than 100,000 Kroger and Albertsons workers — shared their concerns at a press conference on Capitol Hill. Their concerns ranged from the potential loss of their pension plans to rising food prices to job losses.

Albertsons employees who belong to the union remembered the impact of past mergers. Judy Wood, a longtime cake decorator for the grocery giant, said she and her colleagues were shocked by the store closures that resulted from Safeway’s merger with Albertsons, which was announced in 2014.

Union members also railed against private equity firms that will benefit from the proposed $4 per share special dividend for Albertsons shareholders announced as part of the deal. Cerberus Capital Management owns a 28.4% stake in Albertsons, according to Factset. For now, the dividend payment is suspended until at least December 9 due to a Washington State court ruling.

McMullen said Tuesday that the company does not plan to close stores or lay off employees, but said it will work with the Federal Trade Commission, if necessary, to establish stores for competitive reasons.

As part of its initial proposal, Kroger said it already had a plan to overcome concerns about merging between 100 and 375 stores into a spin-off. Kroger and Albertsons would work together — and with the FTC — to decide which stores would be part of the spinoff.

On Tuesday, McMullen said the company was in “active conversations” with unions about the deal and what it means for its workforce. He said the deal would ultimately expand opportunities for employees. Kroger will also spend $1 billion on higher wages and better benefits for store employees after the deal closes, he said.

“A successful business is what creates their job security,” he said. “And we think we’ll have an incredibly successful business that will create job security.”

Some grocery competitors and industry experts also opposed the deal during the hearing.

Michael Needler, chief executive of Fresh Encounter, an independent grocery chain based in northwest Ohio, said companies like Walmart and Amazon use their size to pressure suppliers for lower prices. and better conditions. Instead of creating a level playing field, he said, the Kroger-Albertsons deal would create another powerful player that would make it difficult, if not impossible, for small grocers to compete.

For example, he said, larger grocers have waged predatory campaigns against his own chain by offering coupons for free groceries.

“I don’t know of any other way to report predatory pricing than to buy your competition,” he said.

Sumit Sharma, senior antitrust and competition researcher at Consumer Reports, also told the hearing that he saw no benefit in combining the companies. Instead, he said retailers would have less incentive to raise employee wages. Buyers would have less choice and more shock with stickers.

“Even if they sell a few stores, it will take the competition out of the market,” he said. “Then the prices will go up.”

CNBC Amelie Lucas contributed to this report.

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