The State of Colorado is seeking to block a proposed merger between two of the state’s biggest supermarket chains, Kroger (King Soopers and City Market) and Albertsons (Safeway). On Monday, the Attorney General’s office will face off with the companies’ lawyers in a Denver District courtroom.
The state’s case is centered on the argument that the merger will eliminate healthy competition between grocers, allowing the new company to raise prices, mistreat workers and squeeze suppliers and farmers. Kroger, on the other hand, has argued that it will reinvest profits into lowering prices at Albertsons locations. It has also argued that its closest competitors are not other supermarkets, but other grocery retailers like Walmart, Costco and Amazon.
In addition to an end to the deal, the state is requesting that the court enforce a civil penalty of $1 million on each company for entering into an anti-competitive agreement. According to the Attorney General’s complaint, Albertsons agreed not to hire Kroger employees or solicit Kroger pharmacy customers during the 2022 United Food and Commercial Workers Strike at King Soopers.
Union Leaders will gather for a “stop the merger rally” outside of the courtroom at noon on Monday. A Friday press release from United Food and Commercial Workers argued that the merger will “lead to job losses; food and pharmacy deserts; negative economic impacts on the supply chain including farmers, ranchers, and transport; and less power for workers at the negotiating table.”
Shoppers are concerned about prices
Attorney General Phil Weiser held nine community listening sessions and solicited 6,000 online comments on the merger last year, prior to filing the case. At a Thursday press conference, Weiser said that the feedback his office received was overwhelmingly negative.
“Coloradans are concerned about this merger, about food deserts, about a lack of choices, about a lack of competition,” he told attendees.
Earlier this week, shoppers at Safeway’s Arapahoe Avenue location in Boulder echoed Weiser’s claims.
“Their position is that they’re going to combine to reduce pricing,” Boulder resident and CU Boulder student Eric Reid said. “But, history has shown that when monopolies occur, prices go up.”
Boulder resident Jacob Graber cited elevated grocery prices during the COVID-19 pandemic as an example of the chains’ lack of concern for consumers.
“They kind of screwed everybody during COVID. They made record profits,” he said. “Everything is expensive. It’s going to stay up.”
While it’s true that the grocery industry’s profits reached a high point during the pandemic, they have since fallen back to pre-COVID levels, according to a report from the Food Industry Association.
Some shoppers, though, were tentatively optimistic that the merger could provide benefits.
“I’ve had so many instances at Safeway of not being able to find what I need,” said Spencer Taliaferro. “If they could converge supply chains, I think that it could be better for Safeway.”
Kroger, which will buy out Albertsons in the proposed deal, has pledged to protect front-line jobs and lower prices by 10 to 12 percent in the stores it purchases. But, according to Weiser, these claims are not legally binding.
“They’re not subject to legal oversight. They are literally paper promises,” he said.
Local grocers say Kroger is already to big
Kroger already dominates the grocery market in the Front Range and the Western Slope, with Albertsons as a close competitor. Locally owned grocery stores are rare, and the ones that are left cannot outcompete supermarket chains’ prices.
The reasons behind this are complex, but one driving force is the outsized negotiating power that mega chains hold. Suppliers are willing to cut deals with chains in exchange for access to their market share, while small stores are left to pay higher prices.
Alison Steele’s family has owned local grocery stores in the front range for 80 years, starting with her grandfather. Today, she runs Niwot Market in Niwot. She said the mark-ups that local grocers have to pay have increased over time, making it harder to compete with mega chains outside of niche markets.
“It used to be the same price for everybody, and it’s just not like that anymore,” Steele said. “Sometimes I’ll go into those stores and I’m like, “we can’t even buy it for what these stores are selling it for. It’s kind of hard to stomach.”
Steele and others are concerned that further consolidation of the grocery industry will make it even harder for small stores. Rachel Irons is the co-founder of Nude Foods Market, a health food store that sells zero-waste bulk foods at locations in Boulder and Denver. She says that the merger could exacerbate forces that already make it hard to draw shoppers away from chains.
“It’s set up in a way that is really disadvantageous to the small people,” said Irons. “Merging these bigger companies just compounds the problem.”
‘We have work to do,’ says Colorado attorney general Phil Weiser
Perhaps in anticipation of antitrust litigation, Kroger made plans to sell off some stores, plants and distribution centers to a third company, C&S Wholesale Grocers, if the merger goes through. The plan is meant to create a new, much smaller competitor to replace Albertsons.
Albertsons made a similar deal to sell a portion of its stores to the grocery chain Haggen when it bought Safeway in 2014. Two years later, Haggen filed for bankruptcy and sold the stores back to Albersons. At Thursday’s press conference, Weiser warned that a similar fate could befall C&S.
“C&S is a national distribution company. It operates very few stores. It doesn't have the infrastructure or the platform to do so.” he said. “We’re worried about a repeat of what we saw last time.”
Colorado’s case is one of three legal challenges that Kroger and Albertsons face — the Federal Trade Commission and the State of Washington have also brought legal action against the merger. The federal trial was the first to wrap up last week, but none of the trials have reached a verdict yet.
Weiser warned that, even if a verdict is reached on the federal case before the Colorado trial is over, the companies are likely to appeal.
“Until the parties walk away from the merger, or a court stops it and the parties accept the ruling of the court, we have work to do,” he said.
