Albertsons brand would no longer exist in Colorado after merger with Kroger (2024)

As week two of the State of Colorado v. Kroger trial begins Tuesday (Monday is a state holiday), last week’s testimony gave onlookers a peek behind the corporate grocery curtain in Colorado.

If the merger moves forward, Albertsons would no longer exist in Colorado, as it hands most of its local stores, which include mostly Safeways, to a little-known grocer and food distributor called C&S Wholesale Grocers in New Hampshire. Lawyers with the state Attorney General’s Office questioned whether the small company with a spotty history managing acquisitions can handle the $2.9 billion divestiture. But C&S, whose chairman also cofounded Symbotic, a warehouse robotics company, has big plans to invest in the stores, lower prices and grow overnight from about two dozen supermarkets to more than 600.

“This notion that one would buy for $2.9 billion based on money borrowed from banks to a large extent and invest another $1.2 billion (and then) sell it for (less) would be a Harvard Business School case study in how to not run a business,” said C&S attorney Steven L. Holley. “C&S is buying these stores because it wants to run them.”

Kroger, which owns about 150 King Soopers and City Market grocery stores statewide, will scoop up 14 Albertsons stores (all Safeways) in Colorado and lower their prices. That’s part of an additional billion-dollar investment Kroger committed to nationwide. A spokesperson said in Colorado, there will be a $40 million investment reserved for the 14 new stores.

As Kroger officials said in court, lowering prices at Safeway or Albertsons locations won’t be much of a challenge because Kroger’s prices are already “10 to 12% lower than Albertsons,” said Matthew M. Wolf, Kroger’s lead attorney, in his opening statement.

While there are two more weeks of scheduled testimony left in the Colorado case, two other trials are ongoing. The Federal Trade Commission went first with opening arguments in late August. The state of Washington began its trial as the FTC wrapped up on Sept. 17. Washington wants to avoid what happened when Albertsons merged with Safeway in 2014 and offloaded nearly 150 stores to a small chain that struggled with the expansion and ended up selling most of the stores back to Albertsons two years later.

Colorado’s trial began Sept. 30 and is expected to wrap Oct. 18.

Albertsons brand would no longer exist in Colorado after merger with Kroger (1)

Colorado Attorney General Phil Weiser has said plenty about why he filed the lawsuit on Valentine’s Day to block the merger. Following a listening tour in 19 stops statewide — including one where FTC Chair Lina Khan joined him — Weiser said he heard from consumers, union workers, farmers and suppliers. Fewer grocery stores, especially in the more rural parts of the state, could translate to fewer customers for farmers and food suppliers, as well as higher prices and less selection on store shelves for shoppers.

“We brought this case in Colorado, under our laws, because we want to control our own destiny and protect Coloradans,” Weiser said before the trial began. “The type of harm of higher prices is one core concern. We know these two chains monitor each other’s prices. And when there’s a lack of competition, prices go up.”

Kroger’s view is that traditional grocery stores like it face greater competition from retail giants like Walmart, Costco and Amazon, plus smaller chains like Trader Joe’s, Sprouts and Natural Grocers. Combining Kroger’s and Albertsons’ nearly 5,000 stores and 710,000 employees nationwide would help the grocer scale operations to better compete with Walmart to get better pricing on supplies and use its technology to improve operations locally and nationwide.

Can’t compete with Walmart

In Colorado, a merger would create a similar-sized competitor to Walmart, said Jack Buffington, an associate professor at University of Denver Daniels College of Business who specializes in supply-chain management and marketing.

“Walmart’s the largest grocery store with about 30% of the market, and Albertsons and Safeway and, as we have here, King Soopers, would be about the same,” Buffington said. “If the merger goes through in Colorado … you would have two grocery store chains that are about 60% of the entire market.”

Walmart tends to build its own stores as needed. Its supply chain is so sophisticated that it doesn’t gain much from converting a traditional store into one of its own, he said.

“Here’s the real dilemma,” Buffington added. “It is a problem for the consumers who have less choice. But it’s also a problem for these chains if they can’t compete against Walmart. And so organically, they’re not going to catch Walmart. They’re just not that good. So their model is, instead of catching Walmart organically, they’re going to just do it through mergers and acquisitions. … And they’re right. But the root cause of the problem is they can’t do it on their own so they’re saying the only way we can do it is by offering less options for consumers and less ability to sell for suppliers.”

Albertsons brand would no longer exist in Colorado after merger with Kroger (2)

Outside the Front Range metro areas, grocery choices are already slim. Getting groceries delivered by Amazon may not be available outside the Front Range. Not everyone wants to pay for a membership or make bulk food purchases at a Costco or Sam’s Club, or opt for organic produce from Natural Grocers and other specialty markets.

For cities with both supermarkets, there’s a concern that even if both brands stay put (Kroger officials promised no stores would close after the merger), the C&S-owned location won’t be equipped to compete since Albertsons already struggles to do so today.

“My concerns personally are that we’re a vulnerable community and that when it comes to food that became very clear during the COVID-19 pandemic when supply chain issues … became visible,” Liz Smith, a Gunnison County commissioner, said during the trial. “There were items that people relied on that were out for long periods of time. And the possibility of one of those grocery stores going away, I don’t know that we have the ability to supply our community with groceries from a single grocery store.”

On cross examination, Smith acknowledged that it’s better to have two grocery stores, including one like C&S that its attorneys said has a stronger supply chain. There’s also a Natural Grocers in town that opened late last year, though Smith said she isn’t a patron.

In areas with little to no competition, Kroger officials acknowledged they raised prices and didn’t lose customers at eight stores they put in the “no-comp” zone. Andy Groff, Kroger’s senior director of pricing, testified that some of the reason eight stores were targeted was the high cost of labor and the cost to transport goods to the mountain towns. The stores are mostly not unionized.

When questioned by the state about whether costs at similar City Markets that were not in the “mountain no-comp zone” were sustainable, Groff replied, “They’re less profitable.”

Three trials aiming to block merger

In July, Denver District Court Judge Andrew J. Luxen ruled the merger could violate the state’s Antitrust Act and put a temporary pause on the merger. Luxen is overseeing the Colorado case.

Of course, the merger hasn’t been approved yet. The FTC’s own case — joined by AGs in California, Arizona, Wyoming and five other states plus D.C. — picked away at how the merger would “eliminate fierce competition” and leave C&S with “significant obstacles stitching together the various parts and pieces from Kroger and Albertsons into a functioning business — let alone a successful competitor against a combined Kroger and Albertsons.”

The AGs office declined to comment on what would happen should the judge in the FTC case rule one way while the Colorado judge rules the opposite. In each case, the decisions are left up to a single judge.

Buffington, with DU, said that his sense is that Colorado is going after this as all or nothing, which means if the Colorado judge rules to block the merger, “that would put the merger on ice or kill it.”

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But John A. Francis, an antitrust lawyer and professor at the University of Colorado’s law school, said that if Weiser wins his case but the FTC does not, Kroger could move ahead with the national merger and sell off the other 14 Albertsons stores it had planned to keep in Colorado.

Francis, who isn’t working on the case but said he’s talked to Weiser about it, said that the AG’s case has different merits that may help it prevail if the national one does not. The Colorado case revealed possible collusion between the companies that occurred during the King Soopers workers strike in January 2022. Messaging between an Albertsons president and a Kroger vice president implied that Albertsons agreed not to hire any of its rival’s workers who were on strike nor would it try to market to King Soopers pharmacy customers who wanted to avoid crossing a picket line.

“It does make Phil’s case seem a little bit unique and actually stronger,” he said. “The merger issue only focuses on Section 7 of the Clayton Act and whether the merger would reduce competition substantially or tend to create a monopoly. … But there’s an entirely different merger law (that) prohibits competitors from colluding, from agreeing on price fixing or agreeing on any of the terms of competition between prices charged or on the other side, salaries, wages paid to workers. Competitors can never, under Section One of the Sherman Act, agree on terms to either charge their customers or pay their workers.”

This week, Kim Cordova, president of the United Food & Commercial Workers Local 7, which represented King Soopers workers during the 2022 strike, is expected to testify.

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An FTC spokesperson said Friday that the agency doesn’t know when the U.S. District Judge for Oregon Adrienne Nelson will issue her ruling. The judge noted she is working “as expeditiously as possible, because everyone is anticipating a decision,” reported Progressive Grocer.

While Weiser felt that a speedy ruling in the FTC case was “vanishingly small,” should a decision be made before the Colorado trial ends, Luxen could consider it.

But, Weiser iterated that the evidence his team is presenting is unique to Colorado. “It’s a Colorado story,” he said. “It’s Colorado harms.”

Other notable bits from the trial

  • Kroger’s merger with Albertsons impacts 255 stores in Colorado. Of those, 91 will be sold to C&S Wholesale Grocer in New Hampshire. That includes 89 Safeways and two Albertsons — one in Durango and the other in Pueblo — that will rebrand as Safeway.
  • C&S would also pick up the Albertsons dairy plant at 4301 Forest St. in Denver, and two Albertsons distribution centers in Denver, at 4350 Dahlia St. and 4600 E.Stapleton.
  • C&S plans to invest $150 million to lower prices in the 91 stores they would acquire from Albertsons.
  • Only 14 Albertsons stores (all Safeways) will go to Kroger in Colorado. Groff, Kroger’s senior director of pricing, said he wasn’t sure exactly where those would end up but said the majority are in the eastern part of the state and in “towns that are really distant, a half an hour or more from any existing King Soopers store.”
  • A few of the 14 are on the Western Slope and “none of those would go into a no-comp zone,” Groff said. Some locations mentioned include Safeways in Leadville, Monte Vista, Walsenburg and Burlington.
  • Kroger plans to invest $40 million in those 14 stores as part of its “$1 billion pledge” to invest in the stores, and that’s primarily by lowering prices. None of the investment will be in existing King Soopers or City Market stores.
  • All Albertsons-branded stores acquired by Kroger will become Safeways. In Colorado, there is not a specific time available on when the Safeways will be renamed to King Soopers or City Market.
  • Kroger is also keeping the domain Safeway.com

Type of Story: News

Based on facts, either observed and verified directly by the reporter, or reported and verified from knowledgeable sources.

Albertsons brand would no longer exist in Colorado after merger with Kroger (2024)

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