Kroger, Albertsons CEOs defend grocery tie-up, say deal won’t hurt competition

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Albertsons and Kroger Supermarkets

Bridget Bennett | Bloomberg | Getty Images; Brandon Bell | Getty Images

battle over grocery giants hooks And Albertsons The combine should be allowed to warm up.

On Tuesday, leaders of both companies defended their proposed merger at a congressional hearing in Washington, where they faced a range of questions about how the deal could shake up the competitive landscape — and potentially the prices that consumers would face. Pay at the store.

“I don’t see less competition going forward,” Kroger CEO Rodney McMullen said during a hearing by the Senate Judiciary Subcommittee on Competition Policy, Antitrust and Consumer Rights. “It’s easier for customers to turn right or turn left.”

Kroger announced plans in October to acquire Albertsons In a deal worth $24.6 billion. The Cincinnati-based company is the second largest grocery company by market share in the United States walmartand albertson is in fourth place costco, according to market researcher Numerator. Together, Kroger and Albertsons would be a close second to Walmart.

At Tuesday’s hearing, McMullen said the combined company could help drive down food prices and improve the customer experience, especially at a time when grocers are racing to adapt to changes such as online shopping. He added that retailers will have to keep reinventing themselves to stay relevant and persuade customers to drive to their stores.

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Yet the proposed merger has faced opposition from elected officials of both political parties and from the United Food and Commercial Workers, a major grocery union that represents thousands of grocer employees.

Sen. Amy Klobuchar, a Democrat from Minnesota, led the hearing on Tuesday along with Sen. Mike Lee, a Republican from Utah. Both challenged the companies on their actions, which included Kroger’s $1 billion share buyback announced last year and plans to pay dividends to shareholders, as well as past deals, such as Safeway’s acquisition by Albertsons.

He emphasized that the proposed deal comes at a time when groceries are taking up a greater share of American households’ budgets. Food prices have skyrocketed As inflation nears four-decade high, Prices of everyday items including butter, eggs, poultry and milk have gone up double-digit jump from the year-ago period According to the latest federal data available, as of Oct.

skeptical senator, activist

The hearing offers a preview of the larger antitrust battle ahead.

For Kroger and Albertsons, the logic is clear: The combination will help them weather dramatic industry change. Online grocery sales are eating up already low margins. New players, such as deep discounters like Aldi and e-commerce players like Amazon, are also putting pressure on traditional grocers.

Albertsons CEO Vivek Sankaran said during the hearing, “Over the past decade the market for groceries has completely transformed the competition for consumers.” “The best way to compete with mega stores like Walmart and highly capitalized online companies like Amazon would be through a merger with Kroger.”

He argued that even as a combined company, Kroger and Albertsons would still be small compared to Walmart, Costco and Amazon.

Before the hearing, members of UCFW – which represent more than 100,000 Kroger and Albertsons workers – shared their concerns at a news conference on Capitol Hill. Their concerns ranged from the potential loss of their pension plans to higher food prices to job losses.

Albertsons employees who belong to the union recall the impact of the previous merger. Judy Wood, a longtime cake decorator for the grocery giant, said she and her co-workers were surprised by the store closings that resulted from Safeway’s merger with Albertsons, which was announced in 2014.

Union members also railed against private equity firms that would benefit from a proposed $4 per share special dividend for Albertsons shareholders announced in conjunction with the deal. According to FactSet, Cerberus Capital Management holds a 28.4% stake in Albertsons. For now, dividend payments have been put on hold until at least December 9 due to a ruling in a Washington state court.

McMullen said Tuesday that the company does not plan to close stores or lay off employees, but said it would work with the Federal Trade Commission to close stores for competitive reasons if needed.

As part of its original proposal, Kroger said There was already a plan in place to address concerns about the merger. – Divested between 100 and 375 stores in the spinoff. Kroger and Albertsons will work together — and with the FTC — to decide which stores will be part of the spinoff company.

On Tuesday, McMullen said the company is in “active dialogue” with unions about the deal and what it means for its workforce. He said the deal would ultimately expand opportunities for employees. He said Kroger would spend $1 billion on higher wages and better benefits for store employees after the deal is complete.

“A successful business is one that builds on its job security,” he said. “And we believe we will have an incredibly successful business that creates job security.”

Some grocery competitors and industry experts also opposed the deal at the hearing.

Michael Neidler, chief executive officer of Fresh Encounter, an independent grocery chain based in Northwest Ohio, said companies like Walmart and Amazon use their size to pressure suppliers for lower prices and better terms. Instead of creating an even playing field, he said, the Kroger-Albertson deal would create yet another power player that makes it difficult — if not impossible — for smaller grocers to compete.

For example, he said, big grocers have waged violent campaigns against their own chains by giving out coupons for free groceries.

“I don’t know any other way to indicate predatory pricing than by buying your competition,” he said.

Sumit Sharma, a senior researcher specializing in antitrust matters and competition at Consumer Reports, also said during the hearing that he does not see any benefit to the combination of the companies. Instead, he said retailers would have less reason to raise employee wages. Shoppers will have fewer choices and more sticker shock.

“Even if they sell a few stores, it’s going to eliminate competition from the market,” he said. “So prices will go up.”

of cnbc Amelia Lucas contributed to this report.