A state’s experience with grocery chain mergers spurs a fight to stop Albertsons’ deal with Kroger

AP Business Writer

Washington state went to court Monday to try to block a proposed merger between Albertsons and Kroger, saying shoppers would pay hundreds of millions more for groceries each year if the supermarket chains are no longer closely competing.

Albertsons and Kroger insist a merger would help them lower prices and better compete with big rivals like Walmart, Costco and Amazon.

“This is the real competition,” Kroger attorney Mark Perry said in his opening arguments in King County Superior Court in Seattle. “The evidence will establish that Kroger and Albertsons do face an existential threat from these behemoths and that this merger is their response to that threat.”

But Glenn Pomerantz, an attorney for Washington, noted that there are no Walmarts in Seattle or in many of the other markets in which Albertsons and Kroger currently operate. Albertsons and Kroger own more than 300 stores in the state and control more than half of grocery sales there.

“There is no existential threat going on here. There is just healthy competition,” Pomerantz said. “Kroger and Albertsons don’t need to merge to be successful. They’re already successful.”

The case is one of three challenging the $24.6 billion deal, which was announced nearly two years ago. The Federal Trade Commission is currently fighting the merger in federal court in Oregon, where closing arguments were expected Tuesday. Colorado has also sued to block the merger.

Washington seeks to block the merger nationwide. Pomerantz said Monday that the merger proposal is an “all-or-nothing deal,” and if Kroger and Albertsons want to preserve the merger, their agreement needs to conform to Washington’s consumer protection laws.

But Kroger and Albertsons said one state can’t have the power to block a nationwide merger.

“The laws at the state of Washington stop at the borders of Washington,” Perry said.

Under a plan to ease regulators’ concerns, Kroger and Albertsons would sell 579 overlapping stores, 124 of them in Washington, if the merger goes through. That’s the highest number among the 19 states with stores on the list. Washington says the proposed buyer, C&S Wholesale Grocers, has little experience running stores or pharmacies and would likely close stores.

Pomerantz said Washington has learned some hard lessons from past grocery mergers. A decade ago, Albertsons bought the Safeway chain. To satisfy regulators concerned about that deal’s potential impact on supermarket competition and consumers, Albertsons sold 146 stores to Haggen, a small grocery chain based in Bellingham, Washington.

But Haggen struggled with the expansion. Within six months, it had closed 127 stores — including 14 in Washington — and laid off thousands of workers. Haggen sold its remaining stores to Albertsons in 2016. Now, 10 Haggen stores in Washington are on the list to be sold if the merger with Kroger happens.

Perry said this merger would be different, and C&S would receive a portfolio of stores, brands and executive talent that would make it a robust competitor.

“Haggen was essentially left to swim on its own,” Perry said.

But some Washington resident remain skeptical.

“It’s pretty terrifying,” said Tina McKim, a founding member of Birchwood Food Desert Fighters. The group sprang up in 2016 after Albertsons acquired a Haggen store and then closed one of its own stores about a mile away in Bellingham’s Birchwood neighborhood.

When it sold its former Birchwood store two years later, Albertsons included a restriction: for the next 20 years, no grocery store could open in the Birchwood shopping plaza. Albertsons says these types of restrictions — occasionally used when there is a store close to one that’s closing — can help grocery companies stay competitive.

But it was a huge blow to the community, McKim said. For 35 years, the Birchwood store had served older adults, students, people with disabilities and lower-income residents who suddenly had no easy access to fresh food.

“We were all really shocked by that. How is it possible to deny food access to a neighborhood?” McKim said. “It made it really hard for anyone without a car to be able to go to another grocery store.”

McKim’s group tries to fill the void by collecting food donations and bringing in produce from local farms, but “it’s nowhere near the level of access people need,” she said.

This summer, after an investigation by Washington’s attorney general, Albertsons removed the restriction on the shopping plaza. A Big Lots that moved into the former grocery store is closing soon, McKim said, and she hopes the space will attract another supermarket. But even if it does, the community may never get back the unionized jobs it lost when Albertsons shut its doors, she said.

McKim said her area does have a Walmart, but it’s even further away from Birchwood than the Albertsons-run Haggen store, which is on the list of stores that would be sold to C&S. She’s also not convinced Kroger and Albertsons need to merge to compete with Walmart.

“This city is growing so quickly, the need for food is absolutely critical everywhere,” McKim said. “When you see other stores succeed, it’s because they curate to the neighborhood’s needs.”