Kroger CEO defends potential Albertsons merger in federal court testimony: "We will begin lowering prices"
The chief executive officer of Kroger insisted Wednesday that merging with rival Albertsons would allow the two supermarket companies to lower prices and more effectively compete with retail giants like Walmart and Amazon.
Kroger CEO Rodney McMullen argued in favor of what would be the largest grocery chain merger in U.S. history while testifying during a federal court hearing in Oregon on the U.S. government's request for a preliminary injunction that would block the $24.6 billion deal.
"The day that we merge is the day that we will begin lowering prices," McMullen said while under questioning by a lawyer representing his company.
The two companies proposed joining forces in October 2022 after Kroger agreed to purchase Albertsons. The Federal Trade Commission sued early this year to prevent the deal, alleging the merger would eliminate competition and raise grocery prices at a time of already high food price inflation.
McMullen countered that argument by saying that Albertsons prices are 10-12% higher than Kroger's and that the merged company would try to reduce that disparity as part of a strategy for keeping customers. Walmart now controls around 22% of U.S. grocery sales. Combined, Kroger and Albertsons would control around 13%.
"We know that pricing is going to continue to go down," McMullen said.
His statements and the upcoming testimony of Albertsons CEO Vivek Sankaran were expected to be critical components of the three-week hearing, which is at its mid-point. What the two say under oath about prices, potential store closures and the impact on workers will likely be scrutinized in the years ahead if the merger goes through.
Kroger, based in Cincinnati, Ohio, operates 2,800 stores in 35 states, including brands like Ralphs, Smith's and Harris Teeter. Albertsons, based in Boise, Idaho, operates 2,273 stores in 34 states, including brands like Safeway, Jewel Osco and Shaw's. Together, the companies employ around 710,000 people.
During the U.S. District Court proceedings, FTC attorneys argued that in the 22 states where the two companies compete now, they closely match each other on price, quality, private label products and services like store pickup. Shoppers benefit from that competition and would lose out if the merger is allowed to proceed, they said.
USC marketing professor Anthony Dukes told CBS News that he believes the FTC's argument isn't necessarily accurate.
"I'm not convinced of that argument," Dukes said. "So if they're somehow able to combine their stores, some of those cost savings through lower wholesale prices could be passed on to consumers."
According to the CBS MoneyWatch price tracker, since 2019, the average price of a dozen eggs has risen 126%, while the price of a loaf of bread jumped 54%, and a pound of chicken breast rose 33%.
But wages also rose 23% over that period, according to the Bureau of Labor Statistics.
"But that's not how a lot of consumers think, they just see that grocery bill at the end," Leo Feler, chief economist for the consumer data company Numerator, told CBS News. "And they're like, 'Oh my gosh, this is so expensive.' And they're right."
The FTC and labor union leaders also claim that workers' wages and benefits would decline if Kroger and Albertsons no longer compete with each other. They've additionally expressed concern that potential store closures could create so-called food and pharmacy "deserts" for consumers.
Albertsons has argued the deal could actually bolster union jobs, since many of it and Kroger's competitors, like Walmart, have few unionized workers.
Under the deal, Kroger and Albertsons would sell 579 stores in places where their locations overlap to C&S Wholesale Grocers, a New Hampshire-based supplier to independent supermarkets that also owns the Grand Union and Piggly Wiggly store brands.
Speaking in 2022 before the U.S. Senate subcommittee on competition policy, antitrust and consumer rights, the Albertsons CEO said his company's acquisition of brands such as Safeway over the previous decade had allowed it to increase the number of its stores from 192 to 2,300.
"The intent is not to close stores. The intent is to divest stores," Sankaran said at the time.
The FTC alleges that C&S is ill-prepared to take on those stores. Laura Hall, the FTC's senior trial counsel, cited internal documents that indicated C&S executives were skeptical about the quality of the stores they would get and may want the option to sell or close them.
C&S CEO Eric Winn, for his part, testified last week in Portland that he thinks his company can be successful in the venture.
The FTC is seeking a preliminary injunction to block the merger while its lawsuit against the deal goes before an administrative law judge. U.S. District Judge Adrienne Nelson was expected to hear from around 40 witnesses before deciding whether to issue the injunction.
If she does decide to temporarily block the merger, the FTC plans to hold the in-house hearings starting Oct. 1. Kroger sued the FTC last month, however, alleging the agency's internal proceedings are unconstitutional and saying it wants the merger's merits decided in federal court.
The attorneys general of Arizona, California, the District of Columbia, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming all joined the FTC's lawsuit on the commission's side. Washington and Colorado filed separate cases in state courts seeking to block the merger.