The trial in Washington state's first-in-the-nation lawsuit against the proposed Kroger-Albertsons merger got underway Monday, with each side presenting starkly different scenarios of how the $25 billion deal would affect Washingtonians.
In the state's telling, merging two of the nation's biggest grocery retailers, would "extinguish" the "intense, head-to-head competition" that now helps lower prices.
A merger would have massive implications for Washington, where Kroger — which owns QFC and Fred Meyer — and Albertsons — which owns Safeway and Haggen — collectively account for around half of all supermarket sales.
Offering opening statements Monday, lawyers for the state also said plans by Kroger and Albertsons to preserve competition by selling hundreds of stores, including 124 in Washington, to a third company, C&S Wholesale Grocers, could result in many of those locations being resold or even shuttered.
"Selling and closing stores is on the table," Glenn Pomerantz warned a packed King County Superior Court courtroom. Pomerantz is an attorney with Los Angeles-based Munger Tolles, which was hired last year by the state Attorney General's Office to help with the suit.
For lawyers representing Kroger and Albertsons, the merger itself is what could prevent store closures.
A combined Kroger and Albertsons will have the scale and efficiency to cut prices and fend off competitors like Walmart, Costco and Amazon, which are disrupting the grocery market.
Absent that scale, Albertsons in particular would eventually have to consider "fundamentally" changing its structure, potentially via "layoffs and store closings and ... exiting certain markets altogether," said Enu Mainigi, an attorney with Williams & Connolly, which is representing Albertsons.
Washington's suit against the merger, filed Jan. 15, was the first by any government seeking to block the deal. Since then, separate suits have been filed by Colorado and by the Federal Trade Commission, whose Feb. 26 action was joined by nine states, but not Washington.
The lawsuits have led to overlapping trials and colliding schedules.
This week, the FTC, Kroger and Albertsons will wrap up a hearing in federal court in Portland to decide whether the merger should be temporarily blocked until the federal agency can evaluate whether the deal violates federal laws.
Many of the attorneys for Kroger and Albertson in Seattle Monday had traveled from Portland for opening arguments in Washington's case, and were returning to Portland for closing arguments in the federal case on Tuesday.
Both trials have potentially massive implications for Washington. The state has a disproportionate share of Kroger and Albertsons locations, many of them in close proximity, and would also see the largest number of sales, or "divestitures", to C&S, of any state.
As the state trial broke for noon recess, Attorney General Bob Ferguson, the Democratic candidate for governor, joined a nearby rally of around 100 members of United Food & Commercial Workers 3000, which also opposes the merger.
As in the federal case, much of the state trial will likely hinge on the meaning of competition in the rapidly evolving grocery businesses.
Attorneys for the state contend that Kroger and Albertsons are each other's main competitors in many Washington communities — and in some cases are the only full-service grocery stores in town — meaning that the merger will leave Kroger with too much "market concentration" in many communities.
But Kroger and Albertsons say the modern grocery market is no longer dominated by traditional "one-stop" grocery retailers like themselves, but increasingly by a welter of non-traditional players, ranging from Walmart and Costco, to Amazon and Trader Joe's, and to newcomers like Aldi.
"Consumers ... are now making multiple trips a week and buying food from stores in all different formats," Kroger attorney Mark Perry, with Weil, Gotshal & Manges, told King County Superior Court Judge Marshall Ferguson.
Much of the case will turn on the question of perceived competence of C&S Wholesale.
State lawyers say the New Hampshire-based company is primarily a wholesaler and lacks the capability to run hundreds of divested Kroger and Albertsons stores effectively.
The state also contends that proposed divestiture includes underperforming stores and a "weak" store brand — QFC, according to opening arguments and court filings.
"Kroger is keeping the best assets for itself, saddling C&S with a mix-and-match package that will require it to take on multiple monumental transitions to stand up this new business," the state argues in court filings.
But attorneys for Kroger and Albertsons said the divestiture is sound in part because C&S has substantial financial resources and will also acquire operating expertise along the stores, including Susan Morris, currently Albertsons chief operating officer.
Under the proposed Kroger-Albertsons merger, "C&S is getting a robust, dynamic package of resources, assets and talents that will allow it to stand up a competitive divestiture."
Kroger has stated it "will ensure that no stores close as a result of the merger, that all store-level associates remain employed, that all collective bargaining agreements are assumed, and that associates continue to receive industry-leading wages and benefits," according to filings.
Kroger and Albertsons have also vowed to make $1 billion in investments to lower prices, though state lawyers have called such "price investment" promises "unenforceable, impossible to verify, and temporary."
Although the state is asking the court to permanently block the merger as currently proposed, lawyers for the state left open the possibility of some kind of merger. Kroger and Albertsons "could go back to the drawing board and come up with a new deal that doesn't violate the laws of this state," Pomerantz told the court.
Certainly, some shoppers and workers have expressed skepticism in assurances by Kroger and Albertsons.
The state's efforts to block the suit have been popular among Washington consumers. Some store workers also want to merger blocked.
Yasmin Ashur, an Albertson's employee from Port Orchard who has worked for the chain for 25 years, said she's not comforted much by assurances that no stores will close.
Ashur, who spoke at the midday rally Monday, also worries that the merger will make it harder for union members to bargain for higher wages.
"They make us fight for every penny that we earn," Ashur said of the current situation.
The trial is scheduled to last three weeks, though that could change depending on the outcome of the federal trial in Portland.
Some experts think that if the federal judge blocks the merger even temporarily, Kroger and Albertsons may abandon the deal rather than wait for the FTC's review, which could last many months.
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