KROGER IN COURT: Washington State Wants to Avoid Another Haggen Fiasco
Another trial to block a proposed $24.6 billion merger between The Kroger Co. and Albertsons Cos. started in Seattle on Sept. 16. Washington state claimed that the merger would result in shoppers paying hundreds of millions more for groceries each year if the giant supermarket chains are no longer closely competing.
For its part, Kroger maintained that its merger with Albertsons will provide customers nationwide with lower prices and better shopping experiences. “We have detailed plans already. On day one, there will be 28 SKUs that we planned for already that will reduce the prices. Within 90 days, we have 650 items that we have planned we will reduce the prices of those items,” asserted Stuart Aitken, Kroger chief merchant and marketing officer.
As part of its plans, Kroger will dedicate $1 billion dollars in pricing investments, of which more than $100 million will specifically be invested to lower prices in stores across the state of Washington.
Both grocers said that teaming up to lower prices will allow them to better compete with the dominant firms in grocery retail, like Walmart, Costco and Amazon, to which Albertsons is currently losing share of wallet even more than Kroger.
This increased nontraditional supermarket competition has placed more importance on scale and prices, which is why Albertsons said that it sought a merger.
Albertsons stores currently charge 10%-12% more for groceries than Kroger stores do nationwide. The price differences are similar in Washington state.
If the proposed merger with Kroger doesn’t go through, a go-it-alone Albertsons would need to “fundamentally change its cost structure,” which could mean layoffs, closing stores and exiting certain markets altogether.
Meanwhile, according to KomoNews.com, Washington state is also seeking to avoid the situation it found itself in a decade ago, when Albertsons bought the Safeway chain. To satisfy regulators concerned about that deal's potential impact on supermarket competition and consumers, Albertsons sold 146 stores to Haggen, a small grocery chain based in Bellingham, Wash.
Haggen struggled to regain its footing throughout its rapid expansion from a two-state grocer to a major West Coast regional chain. It soon closed 127 stores, including 14 in Washington state; laid off thousands of workers; and filed for Chapter 11 bankruptcy.
Kroger contended that its merger with Albertsons will be different. From the beginning, Kroger set out to find a divestiture buyer that was the “anti-Haggen.” The national grocer said that it found this in C&S Wholesale Grocers.
C&S is the largest grocery wholesale distributor in the United States, and the eighth- largest privately owned company in the country. The company has a nationwide distribution network that serves three times the number of stores as Albertsons operates today. C&S currently operates 25 retail supermarkets and is a franchisor of 165 additional locations.
Kroger and Albertsons agreed to divest 579 stores, as well as other assets, in a variety of geographic locations to C&S as part of its planned merger.
According to Kroger, C&S will have three years to rebanner its stores. To ensure its success, C&S will be supported by Kroger in private label brands, IT infrastructure, customer data and distribution management for several years following the merger.
Albertsons COO Susan Morris has been tapped to lead C&S’ new retail business. She has more than 38 years of experience in the retail grocery industry and has held a variety of leadership roles across Albertsons.
The Washington state trial is one of three efforts to block the Kroger-Albertsons merger. The Federal Trade Commission (FTC) is currently fighting the deal in federal court in Oregon, where closing arguments are expected Sept. 17. Colorado has also sued to block the merger.
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.
Keene, N.H.-based C&S is No. 18 on PG’s list.
