Kroger Issues Statement on FTC Decision to Block Proposed Merger with Albertsons Companies

Rhea-AI Summary

Kroger (KR) defends its merger with Albertsons Companies, claiming it will benefit consumers and workers by lowering prices, increasing choices, and creating more union jobs. The FTC's decision is criticized for potentially raising food prices and strengthening competitors like Walmart and Amazon.

Insights

Market Research Analyst

The proposed merger between Kroger and Albertsons is a significant event in the grocery sector that could reshape the competitive landscape. From a market research perspective, the claim that the merger would result in lower prices and more choices for consumers is a core benefit that needs to be scrutinized. Historically, consolidation in a market can lead to less competition, which might not always align with the interests of consumers. However, Kroger's commitment to reducing prices and investing in local products could stimulate competition by forcing other retailers to match these benefits.

Furthermore, the investment in wages and benefits is a strategic move to strengthen the workforce and potentially improve service quality, which can be a differentiator in the retail industry. The emphasis on union jobs is particularly noteworthy, given the national trend of declining union membership. This could lead to improved employee retention and satisfaction, indirectly benefiting consumers through better service and potentially driving loyalty to the brand.

Financial Analyst

From a financial standpoint, the merger's impact on Kroger's gross margins is critical. The company's history of reducing gross margins to lower prices contrasts with the industry trend of increasing margins. This strategy could affect profitability in the short term but may be sustainable if it leads to increased market share and volume. The planned investment of $1.8 billion in price reductions and store improvements post-merger indicates a significant capital outlay with expectations for long-term returns.

The divestiture plan with C&S Wholesale Grocers also merits attention. It could mitigate antitrust concerns and enable the merger to proceed, but the success of divested stores will depend on C&S's ability to operate them effectively. This move could introduce a new dynamic in the market, as C&S expands its retail footprint, potentially increasing competition.

Legal Expert

The FTC's opposition to the merger raises questions about antitrust law and consumer protection. The legal arguments Kroger presents in favor of the merger—such as no store closures, maintaining collective bargaining agreements and investing in community initiatives—will be weighed against antitrust concerns like market concentration and potential price increases. The outcome of the litigation will set a precedent for how such mergers are viewed in the context of antitrust law, particularly in an essential service industry like grocery retail.

The companies' commitment to no store closures and maintaining employment levels post-merger is also significant. Such promises will likely be scrutinized in court to ensure they are not just short-term commitments to gain merger approval but are sustainable long-term strategies.

CINCINNATI, Feb. 26, 2024 /PRNewswire/ -- The Kroger Co. (NYSE: KR) today issued the following statement:

Contrary to the FTC's statements, blocking Kroger's merger with Albertsons Companies will actually harm the very people the FTC purports to serve: America's consumers and workers.

Kroger's business model is to take costs out of the business and invest in lowering prices for customers. Kroger has reduced prices every year since 2003, resulting in $5 billion invested to lower prices and a 5% reduction in gross margin over this period. This business model is immediately applied to merger companies. Kroger has a proven track record of lowering prices so more customers benefit from fresh, affordable food, and our proposed merger with Albertsons will mean even lower prices and more choices for America's consumers.

The FTC's decision makes it more likely that America's consumers will see higher food prices and fewer grocery stores at a time when communities across the country are already facing high inflation and food deserts. In fact, this decision only strengthens larger, non-unionized retailers like Walmart, Costco and Amazon by allowing them to further increase their overwhelming and growing dominance of the grocery industry.

The proposed merger with Albertsons Cos. will produce meaningful and measurable benefits for customers, associates and communities across the country. The combined company committed that no stores, distribution centers or manufacturing facilities will close as a result of the merger, including those divested to C&S Wholesale Grocers.

Customers will benefit from lower prices and more choices following the merger close. The company committed to investing $500 million to begin lowering prices day one post-close, and an additional $1.3 billion to improve Albertsons Cos.' stores.

This commitment builds on Kroger's long track record of reducing prices every year, with $5 billion invested to lower prices since 2003. Kroger's work to deliver better value to customers over the last 20 years has reduced its gross margins by 5%. In the same timeframe, competitors like Amazon, Ahold Delhaize, Walmart and Dollar General have increased their gross margins by 22%, 4%, 1% and 2%, respectively. Kroger's track record includes the years following past mergers, as it invested more than $125 million to lower prices following its merger with Harris Teeter and more than $100 million to lower prices after it merged with Roundy's. Additionally, Kroger invested $2.5 million and $2.4 million in capital per Harris Teeter and Roundy's store, respectively, to enhance the customer experience in the three years following each merger.

Customers will also have access to more favorite items from their own communities, as the company committed to increasing the number of local products in its stores by 10 percent post-close. As large retailers continue to squeeze suppliers and raise prices, this merger creates more opportunities for families to access the fresh, affordable foods they love.

As a combined company, Kroger committed to investing $1 billion to raise wages and comprehensive benefits. This builds on the incremental $1.9 billion Kroger invested to improve wages and comprehensive benefits since 2018. To provide the best holistic support for each associate, the company will also extend continuing education and financial literacy benefits to all associates following the merger close. As union membership continues to decline nationwide, especially in the grocery industry, this merger is the best way to secure union jobs. Kroger has added more than 100,000 good-paying union jobs since 2012.

The proposed merger will allow the combined company to invest more deeply to end hunger in communities across America. In 2023, Kroger committed to donating 10 billion meals to families across the U.S. by 2030. Bringing these companies together provides one more step toward achieving communities that are free from hunger and food waste.

The anticipated divestiture plan with C&S builds on the benefits of the merger and fulfills the commitments Kroger set out in its original merger agreement in October 2022. C&S Wholesale Grocers is an industry leader in wholesale grocery supply and supply chain solutions, with a strong track record as a successful grocery retailer. Kroger and Albertsons Cos. took considerable steps to position C&S to continue to successfully operate divested stores as part of its comprehensive plan. This includes providing C&S with strong teams, a cohesive network of stores supported by two regional headquarters, beloved banners and private label brands, and a robust operational infrastructure.

In addition to ensuring no store closures as a result of the merger, the divestiture plan will extend a competitor to new geographies and will maintain all current collective bargaining agreements, which include industry-leading healthcare and pension benefits, bargained-for wages, and ensuring frontline associates remain employed.

The merging parties look forward to litigating this action in court so we can deliver the benefits of this merger to communities across America - lower prices, more choices, and more good-paying union jobs for decades to come.

To learn more about the proposed merger between Kroger and Albertsons Cos visit here.

About Kroger
At The Kroger Co. (NYSE: KR), we are dedicated to our Purpose: To Feed the Human Spirit™. We are, across our family of companies nearly half a million associates who serve over 11 million customers daily through a seamless digital shopping experience and retail food stores under a variety of banner names, serving America through food inspiration and uplift, and creating #ZeroHungerZeroWaste communities by 2025. To learn more about us, visit our newsroom and investor relations site.

This press release contains certain statements that constitute "forward-looking statements" within the meaning of federal securities laws, including statements regarding the effects of the proposed transaction and divestiture plan. These statements are based on the assumptions and beliefs of Kroger and Albertsons management in light of the information currently available to them. Such statements are indicated by words or phrases such as "accelerate," "anticipates," "create," "committed," "confident," "continue," "deliver," "driving," "expect," "future," "guidance," "positioned," "strategy," "target," "synergies," "trends," and "will." Various uncertainties and other factors could cause actual results to differ materially from those contained in the forward-looking statements. These include the specific risk factors identified in "Risk Factors" in each of Kroger's and Albertsons' annual report on Form 10-K for the last fiscal year and any subsequent filings, as well as the following: the expected timing and likelihood of completion of the proposed transaction and divestiture plan, including the timing, receipt and terms and conditions of any required governmental and regulatory clearance of the proposed transaction and divestiture plan; the impact of the proposed divestiture plan; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement or divestiture agreement; the outcome of any legal proceedings that may be instituted against the parties and others following announcement of the merger agreement and proposed transaction or divestiture plan; the inability to consummate the proposed transaction or divestiture plan due to the failure to satisfy other conditions to complete the proposed transaction or divestiture plan; risks that the proposed transaction disrupts current plans and operations of Kroger and Albertsons Cos.; the ability to identify and recognize the anticipated benefits of the proposed transaction, including expectations and synergies; the amount of the costs, fees, expenses and charges related to the proposed transaction or divestiture plan; and the ability of Kroger and Albertsons Cos. to successfully integrate their businesses and related operations; the ability of Kroger to maintain an investment grade credit rating; risks related to the potential impact of general economic, political and market factors on the companies or the proposed transaction. The ability of Kroger and Albertsons Cos. to achieve the goals for the proposed transaction may also be affected by their ability to manage the factors identified above.

The forward-looking statements by Kroger and Albertsons included in this press release speak only as of the date the statements were made. Neither Kroger nor Albertsons assumes the obligation to update the information contained herein unless required by applicable law. Please refer to the reports and filings of Kroger and Albertsons with the Securities and Exchange Commission for a further discussion of the risks and uncertainties that affect them and their respective businesses.

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SOURCE The Kroger Co.

FAQ

How will the proposed merger between Kroger and Albertsons benefit customers?

Customers will benefit from lower prices and more choices post-merger, with $500 million invested to lower prices immediately and an additional $1.3 billion to enhance Albertsons Cos.' stores.

What commitments has Kroger made to its employees following the merger?

Kroger pledged to invest $1 billion in raising wages and comprehensive benefits, extending continuing education and financial literacy benefits to all associates, and creating more union jobs.

What impact does Kroger claim the merger will have on ending hunger in communities?

The merger will enable the combined company to invest more deeply in ending hunger, with Kroger committing to donating 10 billion meals to families across the U.S. by 2030.

How does Kroger plan to ensure no store closures as a result of the merger?

Kroger has a divestiture plan with C&S Wholesale Grocers, ensuring no store closures and maintaining all current collective bargaining agreements, including healthcare and pension benefits.