Colorado Closes the Door on Kroger-Albertsons Merger Challenge

Colorado attorneys concluded their case on Monday contesting Kroger’s proposed $24.6 billion acquisition of Albertsons, a merger that would unite the state’s largest grocery chains.

Economist Nitin Dua testified, emphasizing that the merger would diminish competitive intensity in the market. He serves as a crucial witness for the state, which is taking a stand against the deal.

Kroger, operating 2,719 grocery stores across the nation, announced its intent to purchase 2,271 Albertsons locations in October 2022. In Colorado, Kroger’s King Soopers and City Market stores compete with Albertsons’ Safeway and Walmart.

Colorado Attorney General Phil Weiser initiated legal action against Kroger and Albertsons on February 14, claiming the merger would hamper competition and lead to higher prices. Subsequently, Judge Andrew Luxen issued a temporary injunction in July, halting the merger until the trial’s conclusion.

To address competition concerns, Albertsons has proposed divesting numerous stores to third-party C&S Wholesale. However, Dua’s analysis raised skepticism regarding the effectiveness of this plan, recalling Albertsons’ previous acquisition of Safeway. He noted that stores divested to Haggen subsequently faced bankruptcy and returned to Albertsons within a year.

Dua warned of significant risks associated with the C&S acquisition potentially failing to preserve competitive dynamics in Colorado. In his testimony, he stated, “There’s significant risk that C&S will not operate as expected and it will not replace the competitive intensity of Albertsons in Colorado.”

Kroger’s attorney, David Wolf, challenged Dua’s prognosis, suggesting that C&S’s acquisition included essential assets such as executives and a dairy plant aimed at ensuring success. He argued for a broader market view, noting that Dua’s analysis focused narrowly on Walmart and Safeway while overlooking competitors like Costco, Whole Foods, and Amazon.

Wolf contended that the court should acknowledge these companies as real competition and noted that they are not only building substantial growth strategies but also increasing their presence in the grocery space.

Kroger CEO Rodney McMullen emphasized the competitive landscape has evolved significantly. He recalled a time when A&P was Kroger’s main competitor, and now, he asserts Amazon’s encroachment represents a considerable threat. “Now Amazon is a creeping competitor,” he remarked, highlighting the company’s rapid expansion from books to a vast array of products.

McMullen expressed concerns over Amazon potentially capturing significant market share if not addressed, stating, “I don’t want it to be something where in 20 years they have a 20% business share, and you’ve just let them take it away from you.”

He positioned the merger as a strategic move to access consumer data and enhance tailored advertising, ultimately aimed at reducing prices to keep pace with Amazon’s growth.

The court proceedings are set to continue through the week, with closing arguments anticipated on October 24.