The Federal Trade Commission (FTC) is suing to block the proposed $24.6 billion merger between supermarket giants Kroger and ACI, the parent company of Albertsons and Safeway, among other brands. The FTC has initiated two challenges to the merger on parallel tracks, filing a charge before the FTC’s administrative tribunal and a complaint in the U.S. District Court for the District of Oregon.[1]

This is just the latest example of the FTC’s  ambitious approach to merger enforcement under Chair Lina Khan, having brought several suits to block high-profile mergers with mixed success. The commission contends that two product markets would be harmed by the merger: “traditional supermarkets and supercenters” and “union grocery labor.” It asserts that, “[i]f allowed, this merger would substantially lessen competition, likely resulting in Americans paying millions of dollars more for food and other essential household goods, as well as reducing the ability of hundreds of thousands of workers to secure better wages and benefits.” In its press release announcing the suit, the commission further claimed that “[t]he loss of competition will also lead to lower quality products and services, while also narrowing consumers’ choices for where to shop for .”[2]

Notably, the FTC’s challenges come notwithstanding efforts by Kroger and ACI to preempt regulatory scrutiny. Back in September 2023, Kroger and ACI entered into a $1.9 billion agreement with C&S Wholesale Grocers to sell 413 stores and eight distribution centers across 17 states and Washington, D.C. The divestiture plan also requires C&S to “purchase up to an additional 237 stores in certain geographies” to facilitate FTC and other governmental clearance. In all, the proposed divestiture amounted to about 8% of the 4,996 stores and about 12% of the 66 distribution centers that the post-merger entity will own.[3]

Predictably, the proposed divestitures did not assuage regulators’ antitrust concerns. Indeed, the Biden administration has signaled skepticism that divestitures can adequately protect competition. Assistant Attorney General for Antitrust Jonathan Kanter believes that circumstances “where divestiture has a high degree of success … are the exception, not the rule[,]” meaning that the DOJ will often be unable to “accept anything less than an injunction blocking the merger – full stop.” Thus, the FTC’s assertion that “[d]ivesting these individual assets to a grocery wholesaler with limited experience operating retail supermarkets will fail to mitigate the substantial harm to consumers and workers from lost competition between Kroger and Albertsons” is unsurprising.[4]

The merger is also facing scrutiny from several state attorneys general. Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon, and Wyoming have all joined the FTC’s federal suit. Earlier this year, Colorado AG Phillip Weiser sued in state court to block the merger under Colorado’s antitrust laws. The Colorado complaint includes a long preamble in which Kroger and ACI are painted as “fierce head-to-head competitors” who “constantly monitor each other’s prices and they compete in all aspects of grocery operations including on price, customer service, store quality, shopping experience, product depth and variety, availability of local supply, private label brands, customer loyalty and rewards programs, and data analytics.”

Kroger and ACI are now facing litigation in administrative, state, and federal courts. Bradley will continue to monitor the existing and potential litigation arising out of this merger.

[1] Case No. 3:24-cv-00347 (D. Or. 2024).

[2] The FTC suggests a product market comprised of “supermarket chains,” which excludes chains like Costco, Aldi, and Whole Foods. The proposed geographic markets are various metro areas in Alaska, Arizona, California, Colorado, Virginia/D.C., Idaho, Illinois/Indiana, Louisiana, Maryland, Montana, New Mexico, Nevada, Oregon, Texas, Utah, Washington, and Wyoming. Using these markets, the FTC asserts that the merger is presumptively unlawful using the Herfindahl-Hirschman Index (HHI), a “well-established method for calculating concentration in a market.”

[3] If C&S is required to purchase the additional 237 stores, the total divestiture will amount to 650 stores, about 13% of the total.

[4] Perhaps more surprising is the FTC’s language dismissing the proposed divestiture as “a patchwork of assets cobbled together by Kroger’s antitrust lawyers, not a standalone business likely to succeed.”