CEOs of Jewel, Mariano’s parent companies defend proposed megamerger before Senate lawmakers

The chief executives of Kroger and Albertsons defended the proposed merger of their grocery companies before a group of skeptical senators Tuesday, saying the deal to combine the two largest traditional grocery companies in the U.S. would not lead to higher food prices for consumers.

At a hearing before the Senate Judiciary Committee’s panel on Competition Policy, Antitrust, and Consumer Rights, U.S. Sens. Amy Klobuchar, D-Minn., and Mike Lee, R-Utah, expressed concern that the proposed merger would lead to higher food prices at a time when Americans are already facing inflated food costs. Groceries were up 12.4% in October when compared to the same time last year, according to the Bureau of Labor Statistics.

Kroger announced plans to acquire Albertsons for $20 billion in October. The grocery companies have said the merger will allow them to better compete with larger, nonunion competitors such as Walmart. Together, Kroger and Albertsons operate nearly 5,000 grocery stores and employ more than 710,000 people across the U.S., the company has said.

In Illinois, Kroger owns 44 Mariano’s and about 10 Food 4 Less locations in the region. Albertsons operates more than 180 Jewel-Osco grocery stores throughout the state.

On Tuesday, Klobuchar, chair of the antitrust subcommittee, pointed to communities “all across the country” where shoppers have the choice to shop at either a Kroger-owned or Albertsons-owned grocery store. “If those two stores are operated by the same owner, there’s no incentive to compete for customers or prices,” she said.

On Tuesday, Kroger’s chief executive officer, Rodney McMullen, and Albertsons’s CEO, Vivek Sankaran, argued the merger would increase competition, not suppress it.

“I just don’t see less competition going forward,” McMullen said.

Kroger has said it will invest half a billion dollars of cost savings from the merger into lower prices for consumers. On Tuesday, McMullen said the timeline for implementing price cuts would start “immediately on day one.”

When asked by Lee if the company’s commitment to lowering prices was “binding,” McMullen said, “from a legal standpoint, sir, I don’t know the answer to that, but from a business standpoint, that is our commitment.”

McMullen said Kroger would not close any grocery stores and would not lay off any workers in stores or in warehouses and manufacturing.

On Tuesday morning, members of six local units of the United Food and Commercial Workers, which represents Kroger and Albertsons workers around the country, held a news conference on Capitol Hill denouncing the merger. UFCW Local 881, which represents workers at Kroger and Albertsons in the Chicago area, was not at the conference but has said previously it “strongly opposes” the merger.

The Federal Trade Commission will likely require the combined companies to sell off stores before the merger can move forward; the agency could also sue to block the merger entirely. The companies have said they are prepared to spin off 100 to 375 stores into a stand-alone publicly-traded company. McMullen said Tuesday the company was in “active conversations with the FTC.”

[ Timeline: From horse-drawn delivery service to grocery empire, tracing Jewel-Osco’s history as Chicago’s hometown grocer ]

Because of the high amount of overlap between Kroger- and Albertsons-owned stores in and around Chicago, the area is likely to see divestitures. Some antitrust and grocery experts have expressed doubt that divested stores would be able to compete with the combined Kroger-Albertsons behemoth, concerns echoed by senators at Tuesday’s hearing.

“If [Kroger and Albertsons] can’t compete with Walmart, how would the spinoff company survive with only a few hundred stores?” said Lee, ranking Republican of the subcommittee.

Klobuchar pointed to divested stores that went bankrupt after Albertsons purchased Safeway in 2015. “They couldn’t compete against the actual Albertsons down the street,” she said.

Sen. Dick Durbin of Illinois pressed McMullen on the issue of grocery access, pointing to areas in Illinois that are facing supermarket closures. Some places have dollar stores but not grocery stores, which can make it harder for people in those areas to access fresh produce, he said.

“It’s desperately needed in these towns with dwindling populations and in the inner city areas, and I worry that the merger is going to just consolidate the operations to the point where there’s not a chance for these towns in the future,” said Durbin, chair of the judiciary committee.

McMullen said the company was testing solutions in rural communities, such as smaller format stores. “If you look at the Dollar General example, they have 18,000 locations. We see that as a business opportunity in terms of serving where they serve,” he said.

Senators pressed Sankaran on a planned $4 billion payout to Albertsons shareholders that has been delayed until at least Dec. 9 after the attorney general for Washington state filed a lawsuit seeking to halt the payout. Albertsons has denied claims that paying the dividend would prevent it from competing against other grocery companies, calling the lawsuits “meritless.”

Sankaran said Tuesday that Albertsons was in “excellent financial condition” and that the payout has “nothing to do with the merger itself.”