Court Ruling to Decide Fate of Albertsons
Following day one of The Kroger Co. and Albertson Cos.' trial with the FTC, it has become clear that this proceeding will decide the fate of the merger. And possibly the future of Albertsons.
U.S. District Judge Adrienne Nelson of Oregon is overseeing the FTC’s request for preliminary injunction against the proposed $24.6 billion merger, which, if granted, would put the merger on hold while the FTC undertakes an administrative hearing against the deal.
According to the two grocers, if the injunction is granted to pause the merger, it will likely end the merger outright. This presents a real issue for Albertsons, which is having difficulty competing against the “Goliaths” of food retailing, i.e. Walmart, Costco, Target and Amazon. The grocer's lawyers spoke about how the company will try to compete for the next two to four years but would need to fundamentally change its cost structure to operate on its own longer term – which could include layoffs, closures, a market exit or a sale to another competitor.
Albertsons is currently priced relatively high compared to competitors, 10-12% higher than Kroger, despite trying to change its pricing strategy in recent years – and the FTC acknowledged as much. In its opening statement, Albertsons admitted it could not reduce their prices on their own.
However, Kroger argues that its $1 billion price investment would benefit Albertsons customers beginning day 1 of the merger and move Albertsons closer to Kroger’s lower price model over time by starting to chip away at the higher price model they employ.
Kroger also emphasized the fact that there will be no store closures, no front-line job losses, and enhanced local food sourcing benefits both the farmer and the shopper when the merger goes through.
The hearing is expected to last three weeks.
Cincinnati-based Kroger serves over 11 million customers daily through a digital shopping experience and retail food stores under a variety of banner names.
As of June 15, Albertsons Cos. operated 2,269 retail food and drug stores with 1,725 pharmacies, 403 associated fuel centers, 22 dedicated distribution centers and 19 manufacturing facilities. The Boise, Idaho-based company operates stores across 34 states and the District of Columbia under more than 20 well-known banners.
This article was originally covered in sister publication Progressive Grocer.