Kroger, Albertsons Merger Could Hurt CA Economy, Critics Warn

CALIFORNIA — A proposed merger between the nation’s two largest grocery corporations, Albertsons and Kroger, threatens to make a bad economic situation even worse, opponents of the merger wrote Monday.

A Washington court has issued a temporary restraining order, putting a pause on a $4 billion payout to executives and shareholders as part of the deal. A hearing is scheduled for Wednesday and Thursday on the matter. At stake, argue critics of the deal which include California's attorney general, are potentially hundreds or thousands of jobs and price instability. Customers already contending with high inflation could face even higher prices after the deal forces some store closures, the merger's opponents warned.

In an essay published by CalMatters, critics of the merger said it only makes sense for executives and shareholders who stand to benefit from a $4 billion payout — or $6.85 a share — Albertson's sought to make to shareholders on Nov. 7 ahead of the deal closing in 2024.

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The nearly $25 billion merger has been tied up in legal wrangling after attorneys general in California and five other states filed lawsuits to halt the $4 billion payout until a federal regulatory review of the merger is completed.

“Californians are feeling the high cost of inflation every time they pull out their wallet at the grocery store checkout,” said California Attorney General Rob Bonta. “With nearly 5,000 stores between them, Albertsons and Kroger are two of the largest grocery chains in the United States. Their proposed merger requires careful review — to ensure their customers and employees do not pay a price through higher grocery bills, food deserts, and lower wages. My colleagues and I demand that Albertsons delay its planned $4 billion payout to investors until review of the proposed merger is complete. I, frankly, have a hard time seeing how Albertsons would be able to continue to compete — as it is obliged to do during the pendency of merger review — after giving away a third of its market share.”

The attorneys general say the dividend which equals nearly one-third of Albertsons’ $11 billion market value would deprive the company of cash it needs to operate while regulators review the merger.

The attorneys general also say it’s unclear if the deal would be approved since federal and state laws forbid mergers that substantially lessen competition. Together, Albertsons and Cincinnati-based Kroger would control around 13 percent of the U.S. grocery market.

Albertsons said the dividend was approved by its board and should be paid whether or not regulators approve the merger. The company denied that the dividend will hamper its ability to invest in its stores. It had nearly $29 billion in assets at the end of September, including $3.4 billion in cash and cash equivalents.

“Given our financial strength and positive business outlook, we are confident that we will maintain our strong financial position as we work toward the closing of the merger,” Albertsons said in a statement.

Daniel Fleming, president of Economic Roundtable, and Judy Wood, a cake decorator at Albertson's who helped conduct research that surveyed 37,000 grocery store workers in the West, wrote in a CalMatters guest commentary:

"Consumers depend on fair play when they go to the grocery store. Elected leaders from the local to federal level must urge the Federal Trade Commission and Securities and Exchange Commission to stop this merger to protect shoppers, jobs and communities.

"Kroger has become the nation’s largest grocer by relying on poorly-paid, part-time workers with constantly changing schedules, according to a report by the Economic Roundtable, which partnered with grocery store workers in Southern California.

"The company’s corporate culture was laid bare during the pandemic. The company chose to close stores rather than provide so-called “Hero Pay” to essential workers who helped create their record profits. Meanwhile, Kroger increased executive compensation, bought back its stock to benefit shareholders, and last year paid its CEO 679 times more than the median employee wage.

As a requirement for the merger, Kroger and Albertsons will have to divest up to 400 stores and – as history shows us – they’ll likely be underperforming stores near others, and in low-income or disadvantaged areas.

"In Los Angeles and Orange counties, 115 of 159 Albertsons, or 72%, are within two miles of a Kroger store and are targets for closure. That means 5,750 jobs could be lost in the Los Angeles region alone.

"Their lost wages would eliminate purchasing power from the local economy. Their need for public income and housing support would be an added burden for our already tattered social safety net.

"Additionally, millions of customers will face price increases during a time of high inflation because of the lack of competition – which executive suite talking points try to dispute. The companies’ greed also threatens suppliers throughout the supply chain by decreasing competition since the companies would gain even more leverage over the producers that feed our nation.

"Profiteering stands out at Kroger and Albertsons, with profits far outpacing worker wage growth or the cost of food. Their outsize price hikes are at least partially responsible for inflation. Even while they were competing with each other, these companies jacked up prices and had record profits, a consumer watchdog group reported. If they merge and no longer have to compete with each other, they will be less constrained and free to be more rapacious.

"It is urgent to act now because Albertsons is providing Kroger with a powerful “failing firm” defense of the merger. The $4 billion dividend Albertsons wants to pay out to its private equity shareholders is one-third of its current value, and sets up a potential Albertsons bankruptcy since the company is ravaged by debt.

"Instead of having workers struggle with wages below the cost of living and disrespectful work requirements, Kroger and Albertsons can use the $4 billion dividend to pay their workers more, make stores safer or lower prices for customers pinching every penny they can.

"This merger will just bring more pain to California’s communities – more families struggling to buy groceries, more understaffed and unsafe stores, and more jobs lost."

The Associated Press contributed to this report.