KROGER IN COURT: Grocery CEOs Testify in Washington State
Day five of the Washington state trial that's trying to block the biggest proposed supermarket merger commenced on Mon., Sept. 23 with the CEOs of the two grocery retailers taking the stand in Seattle.
Kroger Chairman and CEO Rodney McMullen and Albertsons CEO Vivek Sankaran argued that their $24.6 billion merger is justified, as it will allow them to better compete with diverse yet powerful companies like Walmart, Amazon and Costco, which have moved rapidly to dominate grocery retailing.
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As reported by The Seattle Times, both retailers pushed back on Monday against the argument that Kroger and Albertsons are each other’s most significant rivals.
In the Seattle-area market, Costco is the bigger competitor for Albertsons, Sankaran said. He noted that Seattle-area Albertsons customers spend only 17 cents of each grocery dollar at Albertsons locations, but around 20 cents at Costco.
Around 17 cents goes to Walmart, with Kroger third among Albertsons’ competitors, at around 14 cents, Sankaran said. “I’m losing more of our customers’ dollars to Costco and Walmart than I am to Kroger,” he added.
Regardless, Washington state contended that both companies are highly profitable and, based on their own financial statements, would continue to be profitable even if the merger is blocked.
For its second-quarter results ending Aug. 17, Kroger noted how its Leading with Fresh and Accelerating with Digital strategies continue to position the grocer for long-term sustainable growth. The company logged a 1.2% increase in identical sales without fuel, adjusted FIFO operating profit of $984 million, adjusted EPS of 93 cents, and digital sales growth of 11% during the quarter. Kroger also saw strong adjusted free cash flow and increased total households, customer visits and loyal households in Q2.
According to the grocer, lower prices are the foundation of its business model.
In the past 20 years, Kroger said that its margin decreased 5%, resulting in $5 billion in savings for customers. During that same period, Walmart’s margin increased 1%, Dollar General’s margin rose 2% and Ahold Delhaize USA’s margin grew 4%.
Kroger said that affordable groceries would be made available to more customers if the merger is approved, by bringing Kroger’s lower-pricing model to Albertson stores. Currently, Albertsons’ prices are significantly higher than other players, including Kroger’s.
[RELATED: Kroger Doubles Planned Price Cuts to $1B If Merger Goes Through]
For its part, Albertsons contended that its future looks bleak without the proposed merger. Sankaran testified in the recent FTC trial that without the merger, Albertsons will have to consider job cuts, closures and abandoning markets entirely if it can’t find other ways to lower costs, adding, “It’s a dramatically different picture with the merger than without it.”
While loyalty was up for Albertsons during its latest quarter, profits were down. For Q1, ending June 15, adjusted net income was $391.6 million, or 66 cents per share, compared with last year’s $545.7 million, or 93 cents per share. Adjusted EBITDA was $1,183.9 million, or 4.9% of net sales and other revenue. Last year, it was $1,318.5 million, or 5.5% of net sales and other revenue.
Last week, the FTC, Kroger and Albertsons wrapped up their hearing in federal court in Portland, Ore. They await a ruling on whether the merger should be blocked until the FTC can evaluate whether the deal violates federal antitrust laws.
Another hearing in Denver is scheduled to begin Monday, Sept. 30. In February, Colorado Attorney General Phil Weiser filed the lawsuit to block the mega-merger, also citing competition concerns.
Cincinnati-based Kroger serves more than 11 million customers daily through a digital shopping experience and retail food stores under a variety of banner names. The grocer is No. 4 on The PG 100, Progressive Grocer’s 2024 list of the top food and consumables retailers in North America.
As of June 15, Albertsons Cos. operated 2,269 retail food and drug stores with 1,725 pharmacies, 403 associated fuel centers, 22 dedicated distribution centers and 19 manufacturing facilities. The Boise, Idaho-based company operates stores under more than 20 banners. Albertsons is No. 9 on The PG 100.
