Kroger CEO defends potential merger with Albertsons in federal court testimony: ‘We’ll start by lowering prices’

Kroger’s CEO stressed Wednesday that a merger with rival Albertsons would allow the two grocery chains to offer lower prices and compete more effectively with retail giants like Walmart and Amazon.

Kroger CEO Rodney McMullen argued during his testimony in favor of what would be the largest merger of supermarket chains in U.S. history during a hearing in federal court in Oregon over the U.S. government’s request for a preliminary injunction that would block the $24.6 billion deal.

“The day we merge is the day we start lowering prices,” McMullen said during questioning by an attorney representing his company.

The two companies proposed joining of forces in October 2022 after Kroger agreed to purchase Albertsons. The Federal Trade Commission charged earlier this year to prevent the deal, arguing that the merger would eliminate competition and raise food prices, which were already high.

McMullen countered that argument by saying that Albertsons’ prices are 10-12 percent higher than Kroger’s and that the merged company would try to reduce that disparity as part of a strategy to retain customers. Walmart now controls about 22 percent of U.S. grocery sales. Together, Kroger and Albertsons would control about 13 percent.

“We know prices will continue to fall,” McMullen said.

His comments and upcoming testimony from Albertsons CEO Vivek Sankaran are expected to be key parts of the three-week hearing, now halfway through. What the two say under oath about pricing, potential store closures and the impact on workers will likely be scrutinized in the coming years if the merger goes through.

Kroger, based in Cincinnati, Ohio, operates 2,800 stores in 35 states, including brands such as Ralphs, Smith’s and Harris Teeter. Albertsons, based in Boise, Idaho, operates 2,273 stores in 34 states, including brands such as Safeway, Jewel Osco and Shaw’s. Together, the companies employ about 710,000 people.

In the U.S. District Court proceedings, FTC lawyers argued that in the 22 states where the two companies now compete, they closely match each other on price, quality, private-label products and services such as in-store pickup. Buyers benefit from that competition and would lose out if the merger goes through, they said.

Anthony Dukes, a marketing professor at USC, told CBS News he doesn’t think the FTC’s claim is necessarily true.

“I’m not convinced by that argument,” Dukes said. “So if they can somehow consolidate their stores, some of those cost savings can be passed on to consumers through lower wholesale prices.”

According to the CBS MoneyWatch price trackerSince 2019, the average price of a dozen eggs has increased by 126%, while the price of a loaf of bread has increased by 54% and a pound of chicken breast has increased by 33%.

But according to the Bureau of Labor Statistics, wages also rose 23% during that period.

“But that’s not how a lot of consumers think, they just see that grocery bill at the end,” Leo Feler, chief economist at consumer data firm Numerator, told CBS News. “And they think, ‘Oh my gosh, this is so expensive.’ And they’re right.”

The FTC and union leaders also argue that workers’ wages and benefits would decline if Kroger and Albertsons stopped competing with each other. They have also raised concerns that potential store closures could create so-called food and drug “deserts” for consumers.

Albertsons argues the deal could actually create more union jobs, as many of its deals and those of Kroger’s competitors, such as Walmart, have few unionized workers.

Under the agreement, Kroger and Albertsons would sell 579 stores where their locations overlap to C&S Wholesale Grocers, a New Hampshire-based supplier of independent supermarkets that also owns the Grand Union and Piggly Wiggly private labels.

In a 2022 speech before the U.S. Senate Subcommittee on Competition Policy, Antimonopoly and Consumer Rights, Albertsons CEO said his company was able to expand its store count from 192 to 2,300 over the past decade thanks to its acquisitions of brands like Safeway.

“The intention is not to close stores. The intention is to divest stores,” Sankaran said at the time.

The FTC alleges that C&S is ill-prepared to acquire those stores. Laura Hall, the FTC’s senior litigator, cited internal documents showing that C&S executives were skeptical about the quality of the stores they would acquire and may want the option to sell or close them.

Eric Winn, CEO of C&S, testified last week in Portland that he believes his company can be successful in this endeavor.

The FTC is seeking a preliminary injunction to block the merger while the lawsuit challenging the deal proceeds before an administrative law judge. U.S. District Judge Adrienne Nelson is expected to hear from about 40 witnesses before deciding whether to grant the injunction.

If it decides to temporarily block the merger, the FTC’s internal hearings are scheduled to begin Oct. 1. But Kroger sued the FTC last month, claiming the agency’s internal procedures are unconstitutional and seeking a federal court hearing on the merits of the merger.

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 to block the merger.