Kroger-Albertsons Antitrust Review Likely to Focus on Local Store Overlap

Kroger’s plan to acquire rival Albertsons, announced last week, would combine the biggest and second-biggest supermarket companies in the country by sales, which operate a combined total of about 5,000 stores stretching from California to Washington, D.C.

The companies’ combined market share of 13% of U.S. grocery sales would rank below Walmart’s 22%, and their combined annual sales of more than $200 billion would remain below the nearly $500 billion generated by Amazon, which has been pushing into the U.S. grocery market via its 2017 deal for Whole Foods Market and other services.

“The merger will accelerate our position as a more compelling alternative to larger and nonunion competitors,” Kroger Chief Executive

Rodney McMullen

said when the deal was announced, without naming specific rivals. Kroger and Albertsons said that merging will give them more of a national footprint and a wider network of suppliers, in addition to greater manufacturing capabilities.

U.S. Sens.

Amy Klobuchar

(D., Minn.),

Richard Blumenthal

(D., Conn.) and

Cory Booker

(D., N.J.) this week urged the Federal Trade Commission to investigate the proposed merger, warning about its potential effect on consumers. Ms. Klobuchar, chairwoman of the Senate Judiciary Subcommittee on Competition Policy, Antitrust and Consumer Rights, and Sen.

Mike Lee

(R., Utah) said they would hold a hearing on the proposed deal next month.

FTC representatives declined to comment. Under the Biden administration, the FTC and the Justice Department have challenged mergers including

UnitedHealth Group Inc.’s

acquisition of Change Healthcare and

Lockheed Martin Corp.’s

purchase of Aerojet Rocketdyne Holdings Inc. A federal judge ruled against the government’s challenge to the UnitedHealth deal, allowing the acquisition to proceed, while Lockheed abandoned its deal for Aerojet.

The antitrust enforcers who could decide the Kroger-Albertson deal’s fate have tended in other cases to examine potential impacts at a local level, according to antitrust lawyers and industry advisers. That includes considering market share and overlaps in specific geographic regions, including some big-box retailers that sell groceries along with other goods, they said.

Benjamin Dryden, a partner at Foley & Lardner LLP, said that competition authorities have typically looked within a radius of between two to 10 miles to measure grocery markets and exclude discounters, such as dollar stores, from their analysis. “The FTC is going to take this very seriously,” he said.

The companies have said that they believe they have a path to regulatory approval with divestitures. When announcing the deal, they said that they are prepared to establish a subsidiary with 100 to 375 stores that would be spun off to Albertsons shareholders and that they have agreed to determine which stores to potentially divest. The companies have agreed to sell up to 650 stores.

In some markets, Kroger and Albertsons-owned supermarkets compete head-to-head for shoppers’ dollars. Kroger in Southern California operates Ralphs supermarkets while Albertsons runs its eponymous chain as well as Vons. In Chicago, Kroger runs the Mariano’s chain and Albertsons operates the competing Jewel-Osco stores, and in Seattle, Albertsons owns Albertsons and Safeway while Kroger runs Fred Meyer and QFC.

Kroger and Albertsons would compete more effectively as a combined entity, the companies said, as new competitors push into the market and shoppers increasingly buy groceries online.

Walmart has long been the top food seller in the U.S., often securing more favorable supply arrangements and deals that allow the country’s biggest retailer to offer better availability and lower prices, industry executives have said. Walmart representatives had no comment.

E-commerce giant Amazon has separately sought to expand into food sales, adding technology to Whole Foods since buying it and expanding its private-label business. German discounters Aldi Inc. and Lidl US LLC have also pushed into the U.S. market.

As Kroger and Albertsons discuss their deal with antitrust officials, “it will be interesting to see if they try to argue to broaden that” definition, said Logan Breed, global co-head of antitrust, competition and economic regulation practice at Hogan Lovells US LLP. He advised New York-based supermarket chain Tops Markets LLC on its 2021 merger with Price Chopper-owner Golub Corp., and the companies agreed to sell 12 stores to secure FTC approval.

Kroger and Albertsons likely had anticipated a lengthy and thorough antitrust review and are trying to get ahead of issues the FTC may be concerned about, said Alexis Gilman, a partner at Crowell & Moring LLP who previously spent seven years at the agency.

Some stores that were divested to secure approval for past supermarket deals have struggled within months of being separated. The agency would likely look at the range of stores that Kroger and Albertsons will propose selling, and the executive teams of those stores, antitrust lawyers said, as well as whether prospective buyers have the expertise and financial resources to ensure healthy competition.

“The FTC is a lot more rigorous in their review of remedy packages and divestiture buyers,” Mr. Gilman said, versus how the agency approached deals under administrations over the past few decades. He said there is a heightened chance the agency chooses to litigate a case, rather than settling it.

Justin Dye,

a former Albertsons executive who now serves as chief executive of cannabis company

Medicine Man Technologies Inc.,

said private-equity firms and other grocery operators could be prospective buyers for Albertsons or Kroger stores that are to be divested. Some prospective buyers could try to negotiate by asking for locations that aren’t part of the company’s planned divestiture package, he said.

The current FTC has been more skeptical of private equity-buyers, which could complicate the divestiture, antitrust lawyers said.

Write to Jaewon Kang at [email protected]

Kroger’s plan to acquire rival Albertsons, announced last week, would combine the biggest and second-biggest supermarket companies in the country by sales, which operate a combined total of about 5,000 stores stretching from California to Washington, D.C.

The companies’ combined market share of 13% of U.S. grocery sales would rank below Walmart’s 22%, and their combined annual sales of more than $200 billion would remain below the nearly $500 billion generated by Amazon, which has been pushing into the U.S. grocery market via its 2017 deal for Whole Foods Market and other services.

“The merger will accelerate our position as a more compelling alternative to larger and nonunion competitors,” Kroger Chief Executive

Rodney McMullen

said when the deal was announced, without naming specific rivals. Kroger and Albertsons said that merging will give them more of a national footprint and a wider network of suppliers, in addition to greater manufacturing capabilities.

U.S. Sens.

Amy Klobuchar

(D., Minn.),

Richard Blumenthal

(D., Conn.) and

Cory Booker

(D., N.J.) this week urged the Federal Trade Commission to investigate the proposed merger, warning about its potential effect on consumers. Ms. Klobuchar, chairwoman of the Senate Judiciary Subcommittee on Competition Policy, Antitrust and Consumer Rights, and Sen.

Mike Lee

(R., Utah) said they would hold a hearing on the proposed deal next month.

FTC representatives declined to comment. Under the Biden administration, the FTC and the Justice Department have challenged mergers including

UnitedHealth Group Inc.’s

acquisition of Change Healthcare and

Lockheed Martin Corp.’s

purchase of Aerojet Rocketdyne Holdings Inc. A federal judge ruled against the government’s challenge to the UnitedHealth deal, allowing the acquisition to proceed, while Lockheed abandoned its deal for Aerojet.

The antitrust enforcers who could decide the Kroger-Albertson deal’s fate have tended in other cases to examine potential impacts at a local level, according to antitrust lawyers and industry advisers. That includes considering market share and overlaps in specific geographic regions, including some big-box retailers that sell groceries along with other goods, they said.

Benjamin Dryden, a partner at Foley & Lardner LLP, said that competition authorities have typically looked within a radius of between two to 10 miles to measure grocery markets and exclude discounters, such as dollar stores, from their analysis. “The FTC is going to take this very seriously,” he said.

The companies have said that they believe they have a path to regulatory approval with divestitures. When announcing the deal, they said that they are prepared to establish a subsidiary with 100 to 375 stores that would be spun off to Albertsons shareholders and that they have agreed to determine which stores to potentially divest. The companies have agreed to sell up to 650 stores.

In some markets, Kroger and Albertsons-owned supermarkets compete head-to-head for shoppers’ dollars. Kroger in Southern California operates Ralphs supermarkets while Albertsons runs its eponymous chain as well as Vons. In Chicago, Kroger runs the Mariano’s chain and Albertsons operates the competing Jewel-Osco stores, and in Seattle, Albertsons owns Albertsons and Safeway while Kroger runs Fred Meyer and QFC.

Kroger and Albertsons would compete more effectively as a combined entity, the companies said, as new competitors push into the market and shoppers increasingly buy groceries online.

Walmart has long been the top food seller in the U.S., often securing more favorable supply arrangements and deals that allow the country’s biggest retailer to offer better availability and lower prices, industry executives have said. Walmart representatives had no comment.

E-commerce giant Amazon has separately sought to expand into food sales, adding technology to Whole Foods since buying it and expanding its private-label business. German discounters Aldi Inc. and Lidl US LLC have also pushed into the U.S. market.

As Kroger and Albertsons discuss their deal with antitrust officials, “it will be interesting to see if they try to argue to broaden that” definition, said Logan Breed, global co-head of antitrust, competition and economic regulation practice at Hogan Lovells US LLP. He advised New York-based supermarket chain Tops Markets LLC on its 2021 merger with Price Chopper-owner Golub Corp., and the companies agreed to sell 12 stores to secure FTC approval.

Kroger and Albertsons likely had anticipated a lengthy and thorough antitrust review and are trying to get ahead of issues the FTC may be concerned about, said Alexis Gilman, a partner at Crowell & Moring LLP who previously spent seven years at the agency.

Some stores that were divested to secure approval for past supermarket deals have struggled within months of being separated. The agency would likely look at the range of stores that Kroger and Albertsons will propose selling, and the executive teams of those stores, antitrust lawyers said, as well as whether prospective buyers have the expertise and financial resources to ensure healthy competition.

“The FTC is a lot more rigorous in their review of remedy packages and divestiture buyers,” Mr. Gilman said, versus how the agency approached deals under administrations over the past few decades. He said there is a heightened chance the agency chooses to litigate a case, rather than settling it.

Justin Dye,

a former Albertsons executive who now serves as chief executive of cannabis company

Medicine Man Technologies Inc.,

said private-equity firms and other grocery operators could be prospective buyers for Albertsons or Kroger stores that are to be divested. Some prospective buyers could try to negotiate by asking for locations that aren’t part of the company’s planned divestiture package, he said.

The current FTC has been more skeptical of private equity-buyers, which could complicate the divestiture, antitrust lawyers said.

Write to Jaewon Kang at [email protected]