Federal Trade Commission attorneys in federal court on Monday aimed to poke holes in claims from grocery giants Kroger and Albertsons that their long-sought merger would lower prices for customers.
In the earliest hours of a hearing expected to last several weeks, the commission’s lawyers sought to show how Kroger, the owner of the Northwest chains Fred Meyer and QFC, and Albertsons, which owns Safeway, used each others’ prices to set their own — all in a bid to be competitive and attract customers.
The arguments came in a hearing over whether Kroger’s proposed $24.6 billion acquisition of Albertsons would create a monopoly on groceries in cities and towns across the country. The case is being heard in U.S. District Court in Portland, and even though federal regulators seek only a temporary injunction, Judge Adrienne Nelson’s decision is widely expected to be the final word.
The government lawyers offered as an example Kroger’s “High Priced Retailer” rule, which used bargain prices at Walmart to set the floor and turned to Kroger’s traditional supermarket competitors to set a price ceiling.
For that ceiling, the FTC said, Kroger often turned to Albertsons or one of its banners. According to the government attorneys, that meant Kroger typically lowered its prices in response to Albertsons.
“This is competition in action,” said FTC attorney Susan Musser.
The FTC says its analysis shows Albertsons and Kroger frequently price check each other. Kroger price checks against Albertsons in 79% of its markets, the FTC said, whereas Albertsons prices checks itself against Kroger in 99% of the markets where it operates.
As a result, the FTC argued the merger would cause anticompetitive harm in 1,472 local markets it analyzed.
An attorney for Kroger, though, said Albertsons’ prices rarely move the needle for Kroger. Instead, attorneys for the grocer said it looks solely to one competitor: Walmart.
“Kroger is monomaniacally focused on closing the price gap with Walmart,” said Kroger attorney Matthew Wolf. The government, he said, “ignores Kroger’s real-world competitive strategy.”
Kroger has long argued the merger would result in lower grocery prices as its distribution grew more efficient, cutting costs that could be passed on to consumers. The grocer additionally said it would invest $1 billion in lowering prices when the merger closes.
The merger fight comes as consumers are reeling from inflation in grocery prices. The Consumer Price Index has climbed nearly 25% since 2019. Even as inflation has slowed, food prices have remained stubbornly high.
Anthony Silva, vice president of strategic initiatives at Albertsons who also leads the company’s national pricing, testified the company uses software to recommend pricing on products. The software compares prices at Albertsons against Kroger stores for roughly 40,000 items.
Silva said under questioning that his company checks prices against other competitors, but primarily Kroger because Kroger’s data is readily available.
Albertsons also compares its prices with Walmart but typically can’t beat the discount chain’s prices. Walmart, he said, can sell Kraft Mac & Cheese for a lower price than Albertsons can buy it for at wholesale.
Andrew Groff, Kroger’s senior director for retail insight and strategy, said under questioning the company routinely benchmarks its prices to competitors, including Walmart and traditional supermarket competitors like Albertsons.
He said, though, that Kroger’s nine core pricing programs do not price check against Costco, Sam’s Club, Dollar General or Trader Joe’s or convenience stores like CVS or 7-Eleven.
Kroger had argued that federal regulators — and the judge hearing the case in Portland — need to consider those chains in its analysis of whether the merger would reduce competition.
The FTC attorneys also keyed in on Kroger’s recent price increases, drawing attention to a corporate initiative called “Strategic Price Increase” that was intended to improve Kroger’s gross margins.
Under questioning, Groff said Kroger’s corporate pricing team built a model to identify “price gaps” with its competition where it could raise prices.
As a result, Groff said under questioning by an FTC attorney, as milk and egg prices rose across the country, Kroger prices rose too — but by more than its cost to buy those products.
Groff’s testimony is set to continue Tuesday. Kroger officials declined to comment on Monday’s testimony.
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