Grocery market competition, price reduction strategies for consumers, a sustainable plan for necessary divestments and the potential impact on the companies’ combined workforce were key points of contention as the CEOs of Kroger and Albertsons Companies each appeared before the Senate Judiciary Antitrust Committee last week to face tough questions about their companies’ proposed $24.6 billion merger.
The hearing was held ahead of the Federal Trade Commission and Department of Justice antitrust division’s review of the $24.6 billion merger with Albertsons which was first announced on October 14. Earlier this week, the FTC filed its second request for more information on the deal, delaying the review process another 30 days. If approved by regulators, the deal would mark the largest shift in the grocery landscape since Amazon purchased Whole Foods in 2017.
Alongside the merger proposal, Kroger outlined plans for a special dividend payment for shareholders, which was largely unmentioned during the Senate hearing. The $4 billion cash dividend payment to shareholders has been halted several times due to pushback, lawsuits and temporary restraining orders filed by upwards of state attorneys general.
While the dividend discussion was sidelined, Senate committee members attempted to extract Kroger and Albertsons’ “side of the story” during the hearing in order to assess the deal’s impact on the broader grocery market landscape. Here are some highlights from the two and a half hour testimony.
Claiming that competition is often what helps keep prices low, antitrust division members expressed concern that Kroger will have little to no incentive to reduce prices for consumers if it eliminates its largest competitor. According to Kroger CEO, Rodney McMullen, $500 million would be allocated toward reducing prices and countering inflation over a period of four years if the deal closes. Yet, members of the committee remained unconvinced, claiming that the deal would more likely result in a “traumatic” increase in the price consumers pay for basic pantry staples. Watch the clip for key commentary about the retailer’s strategy to reduce prices.
Bringing the two largest grocery chains together will require the divestment of a certain number of stores, determined by the FTC and in accordance with antitrust laws, so that the retailer does not create a grocery monopoly in local markets. However, the system led to a failed divestment strategy by Albertsons in 2015 when it acquired Safeway. While the retailers claim they have developed “a better plan,” including the development of a spin off company for divestments, committee members and expert witnesses remain skeptical. This is what came up when the committee and witnesses discussed a divestment strategy.
Antitrust members also questioned the way in which the proposed $1 billion investment in employees would impact take-home pay and benefit plans for workers. McMullen claimed the investment would be spread out over a four-year period and would go toward a combination of pay and benefits. Additionally, both grocery giants have unionized workforces and while multiple unions have opposed the transaction due to concern over the possibility of closures and being let go, McMullen stated no frontline workers will be laid off as a result of the deal. Here is what Senators Richard Blumenthal and Josh Hawley had to say about the impact on employees.