Federal judge blocks largest supermarket merger in history

New York (CNN) — A federal judge in Oregon blocked Kroger’s proposed $25 billion tie-up with Albertsons, ruling that the largest merger in US supermarket history would limit competition and harm consumers.

The ruling is a major setback for the chains and puts the merger’s likelihood in jeopardy. Neither company immediately commented following the ruling.

The merger, announced in 2022, sought to combine the fifth and tenth largest retailers in the country. The companies own dozens of grocery chains, including Safeway, Vons, Harris Teeter and Fred Meyer.

Supermarkets have been losing ground in recent decades to competition, and Kroger and Albertsons wanted to merge to better fight off Walmart and Amazon.

Kroger and Albertsons employ mostly unionized workforces and said they wanted to merge to be more competitive against non-union giants such as Walmart, Amazon and Costco. The grocers also face increased pressure from Aldi, the fast-growing German discount supermarket chain.

The merger would accelerate “our position as a more compelling alternative to larger and non-union competitors,” Kroger CEO Rodney McMullen said when the deal was announced in 2022. Kroger committed to lowering grocery prices by $1 billion following the merger.

But Judge Adrienne Nelson rejected that argument.

In her ruling, she said that supermarkets are “distinct from other grocery retailers” and are not direct competitors to Walmart, Amazon and other companies that sell a wider range of goods. The merger would eliminate head-to-head competition between Albertsons and Kroger, potentially raising prices for consumers, she said in the ruling.

The White House supported the ruling in a statement on Tuesday.

“The Kroger-Albertsons merger would have been the biggest supermarket merger in history — raising grocery prices for consumers and lowering wages for workers,” National Economic Council Deputy Director Jon Donenberg said. “Our Administration is proud to stand up against big corporate mergers that increase prices, undermine workers, and hurt small businesses.”

High grocery prices helped scuttle the deal

Inflation at the grocery store loomed over the proposed merger.

The proposal came as food prices skyrocketed and met stiff opposition. Unions, small grocers and a coalition of Democrats and Republicans on Capitol Hill, including Democratic Sen. Elizabeth Warren of Massachusetts and Republican Sen. Mike Lee of Utah, also strongly opposed the merger from the start.

The Federal Trade Commission in February sued to block the deal. The FTC said the merger will “result in higher grocery prices for millions of Americans and lower wages and benefits for hundreds of thousands of grocery workers.”

To allay competition concerns, Kroger and Albertsons agreed to divest 579 stores to C&S Wholesale Grocers. But the FTC said C&S was “ill-equipped” to run the divested stores and it could turn into a “non-functioning disaster.”

Judge Nelson agreed with the FTC: “There is ample evidence that the divestiture is not sufficient in scale to adequately compete” with Kroger and Albertsons together and “will significantly disadvantage C&S as a competitor,” she said in the ruling.

The case was watched closely because of its implications for future antitrust enforcement and corporate dealmaking. The FTC under outgoing chair Lina Khan has also launched landmark antitrust suits against Google, Amazon and other tech giants.

Small grocery stores struggling

Independent grocery stores strongly opposed the merger. They argued that the merger would increase the companies’ leverage with merchandise suppliers and leave independent stores unable to stock their own shelves.

Yet consolidation in the grocery sector is growing, and small grocery stores are struggling.

In 2019, the 20 largest retailers controlled 64% of total food sales, more than double the share from 1990, according to the Agriculture Department.

Traditional grocery stores have also lost ground to Walmart, Costco, dollar stores and online retailers during that span.

The share of grocery spending at traditional supermarkets dropped from 80% in 1990 to 62% in 2012, according to the Agriculture Department.

Advocates of stricter antitrust rules cheered Judge Nelson’s decision.

“Persistently high food prices are hitting Americans hard, and a Kroger-Albertsons mega-merger would have only made it worse,” Food & Water Watch senior food policy analyst Rebecca Wolf said in a statement Tuesday