A federal judge has blocked the $24.6 billion merger of two U.S. supermarket leaders, Kroger and Albertsons Cos., rejecting their claim that retail giants Walmart and Amazon are their direct competitors and ruling that their store-divestiture plan doesn't satisfy antitrust concerns.
The ruling derails what would have been the largest supermarket merger in U.S. history, marking the latest chapter in a deal that was announced in October 2022 when Kroger, based in Cincinnati, said it planned to acquire Albertsons, which is headquartered in Boise, Idaho. Combined they have roughly 5,000 stores.
In a 71-page opinion, U.S. District Court Judge Adrienne Nelson in Oregon granted the Federal Trade Commission's request for a preliminary injunction to prevent Kroger from acquiring Albertsons before that agency holds an administrative hearing on the proposed deal. The proposed transaction has centered on the real estate occupied by the businesses around the country and how much would have to be sold.
"Based on the evidence presented, the court finds that the merger would lead to undue market concentration in multiple geographic markets in both the supermarkets and large-format-stores markets that would presumptively lessen competition," Nelson said.
In separate statements, Kroger and Albertsons said they were "disappointed" with the ruling and are weighing how to proceed.
The two large chains have argued that their merger was necessary for them to effectively compete in a vastly changed world for grocery sales, one that now includes competitors such as discounter Walmart, e-commerce behemoth Amazon, expanding international players such as Lidl and Aldi, and specialty grocers like Whole Foods Market and Sprouts Farmers Market.
Kroger officials maintained that through greater efficiencies and economies of scale, they could cut grocery prices for consumers and planned to spend $1 billion to lower those costs.
But the court sided with the FTC, finding that the merger would eliminate competition by combining two chains that now battle head-to-head against each other in markets. Nelson found that Kroger and Albertsons operate in a distinct retail category, supermarkets, that offer one-stop-shopping for Americans, satisfying all of a customer's grocery needs in a single visit, far different from a Walmart or a Costco.
"Both defendants [Kroger and Albertsons] gestured toward a future in which they would not be able to compete against ever-growing Walmart, Amazon, or Costco," Nelson said. "Without the scale afforded by the merger, defendants argue, it will be more difficult for traditional supermarkets to survive in the long term. The overarching goals of antitrust law are not met, however, by permitting an otherwise unlawful merger in order to permit firms to compete with an industry giant."
Divestiture concerns
The court also expressed skepticism about Kroger and Albertsons divestiture plan, in which the chain agreed to sell 579 stores to C&S Wholesale Grocers of Keene, New Hampshire, for $2.9 billion. C&S only owns 25 grocery stores now.
"There are serious concerns about C&S' ability to run a large-scale retail grocery business that can successfully compete against the proposed merged business, as would be required to offset the competitive harm of the merger," Nelson said. "C&S does not have any experience running a large portfolio of retail grocery businesses."
The judge also pointed out that C&S would not be buying a functional standalone company, but rather "a mix of stores, banners, private labels, and other assets." And C&S's prior acquisitions of stores ended up with many of them closing, according to Nelson.
The court also voiced concern about the Kroger and Alberstons assertion that the merger would result in lower grocery prices.
"A significant portion of the purported merger efficiencies are neither merger-specific nor verifiable," Nelson said. "Without evidence of merger-specific, verifiable efficiencies, the benefits of which will be passed through to consumers, defendants cannot rebut the presumption of anticompetitive effects."
The court said that its injunction "simply pauses the merger," and that Kroger and Albertsons can go forward with the administrative proceedings at the FTC in an attempt to pursue the merger. However, the judge said the FTC is "likely to succeed on the merits and the equities weigh in favor of an injunction."
Both Kroger and Albertsons said they are reviewing their options.
“Through its proposed merger with Albertsons, Kroger would invest more than $1 billion in lower grocery prices, invest an additional $1 billion in higher grocery worker wages, and invest an additional $1.3 billion to improve Albertsons stores," a Kroger spokeswoman said in an email to CoStar News.
There was substantial evidence at court hearings "showing that a merger between Kroger and Albertsons would advance the company’s decades-long commitment to lowering prices, respecting collective bargaining agreements, and is in the best interests of customers, associates, and the broader competitive environment in a rapidly evolving grocery landscape," according to the spokeswoman.
Albertsons is reviewing the court's opinion, according to a company spokesman.
“We believe we clearly outlined during the proceedings how the proposed merger would expand competition, lower prices, increase associate wages, protect union jobs, and enhance customers’ shopping experience," the Albertsons' spokesman said in an email to CoStar News.
'Uphill battle'
Neil Saunders, a retail analyst and managing director of analytics firm GlobalData, said in a note after the court's decision that the move could eventually mean an end to the deal.
"The Kroger-Albertsons deal always faced an uphill battle in its bid for approval," he said. "Of all the cases the FTC has litigated over the past few years, this one was the most sensitive as it involved two huge firms supplying essential goods. While some of the FTC’s arguments were debatable, it operated from a position of strength and has ultimately won the backing of U.S. District Judge Adrienne Nelson. In our view, her ruling today effectively ends the likelihood of a deal taking place."
At a national level there are relatively few competition concerns, according to Saunders.
"However, the problems really lie at a local level where there are a lot of overlaps between the Kroger and Albertsons store estates," he said. "Offering to sell off a basket of stores to C&S Wholesale Grocers — a player with no real experience of running a supermarket — did not cut much ice with the FTC nor the judge. Both saw it as a flimsy way to maintain competition. To be fair, from the past experience of spinning off parts of a merged grocery chain, their caution is justified. ... For both firms, it is now a case of putting this distraction behind them and going back to the drawing board."
Kroger didn't respond to an email from CoStar News seeking comment on Saunders' remarks, and Albertsons declined to comment.
In response to the district court’s order, FTC Bureau of Competition Director Henry Liu said the decision helps consumers.
“The FTC, along with our state partners, scored a major victory for the American people, successfully blocking Kroger’s acquisition of Albertsons," he said. "This historic win protects millions of Americans across the country from higher prices for essential groceries — from milk, to bread, to eggs — ultimately allowing consumers to keep more money in their pockets. This victory has a direct, tangible impact on the lives of millions of Americans who shop at Kroger or Albertsons-owned grocery stores for their everyday needs, whether that’s a Fry’s in Arizona, a Von’s in Southern California, or a Jewel-Osco in Illinois."
The FTC challenged the deal alongside a bipartisan group of nine state attorneys general.