If the merger with Kroger doesn’t go through, the CEO of Albertsons Cos. Inc. said in court Wednesday that his company might have to consider layoffs and leave certain markets to remain competitive and financially secure in the long term.
Vivek Sankaran testified for several hours in Denver District Court during the second week of the trial in the state of Colorado’s lawsuit that seeks to block the consolidation of the two supermarket chains. The Colorado Attorney General’s Office contends that the $24.6 billion merger would harm customers, store employees and suppliers to the chains because it would reduce competition.
Kroger, which owns King Soopers and City Markets in Colorado, and Albertsons, which owns Safeway, account for more than 50% of the supermarket sales in Colorado, according to state attorneys. A merger of the two competitors would violate state antitrust laws, the attorney general’s office said.
But Sankaran said the two chains see merging as the best way to compete against Walmart, first nationally in grocery sales, as well as such fast-growing food sellers as Amazon and Costco. Walmart and Sam’s Club, owned by Walmart, account for about a quarter of the country’s grocery business, he said.
“We can do many things to improve the company, but at some point the ability to compete with the Amazons and Costcos and Walmarts of the world, you just need added scale. We knew we wouldn’t be able to get that by ourselves,” Sankaran said.
Albertsons began looking for ways to grow and merging with another company was one of the possibilities. Soon after Albertsons and Kroger announced consolidation plans in October 2022, several United Food and Commercial Workers locals, state and local officials came out in opposition.
The Federal Trade Commission has sued to put the merger on hold until it can finish its proceedings aimed at stopping the companies’ plan. A decision in the FTC’s lawsuit is pending.
A trial is underway in the lawsuit by Attorney General Bob Ferguson of Washington state, whose complaints against the merger are similar to Colorado’s.
In Colorado, Albertsons and Kroger are prime rivals in the grocery industry, according to an analysis presented by the state last week in court. The analysis produced by an expert witness for the state played down the competition posed by Costco, Amazon, Whole Foods and other retailers.
But asked who he sees as Albertsons’ biggest threat, Sankaran said Walmart, Amazon and Costco are among his biggest worries. “These competitors are growing so fast and they’re already large. They’re who I worry about in the long run.”
Sankaran said data on where customers in Colorado shop shows that for every $1 spent on groceries, Albertsons reaps 14 cents. Kroger takes in 16 cents and Amazon gets about 5 cents. Walmart captures the biggest share: 20 cents on the dollar. The rest of the money goes to a variety of entities, including Whole Foods and Trader Joe’s.
To try to ensure there will be competition in the market after the merger, Kroger and Albertsons have struck a $2.9 billion deal with C&S Wholesale Grocers, which would buy 579 of their stores nationwide. In Colorado, C&S would buy 91 Safeway and Albertsons stores and a dairy plant. Kroger would retain 14 of the stores in the state.
Kroger and Albertsons have said C&S, a grocery distributor that now operates just 25 retail grocery stores, has the resources to take over the stores. But Roger Davidson, an industry consultant testifying Wednesday for the state, said he expects that stores bought by C&S will see declining revenue and some will likely close.
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Davidson said C&S won’t have enough people or a strong enough retail infrastructure to successfully run all the stores it plans to acquire.
Jason Slothouber with the attorney general’s office asked Sankaran about the potential impacts on communities and workers if stores in more remote parts of the state close after the merger.
“Even if C&S crashes and burns, you have this golden parachute for yourself,” Slothouber said.
Sankaran acknowledged that he will receive a total of $43 million in equity and severance if the merger is completed. “I realize it’s a lot of money for a guy who came from India with a suitcase. I don’t take that lightly,” he said.
But he called Slothhouber’s questions about stores closing and people losing their jobs “hypotheticals” that he couldn’t answer.
Kroger and Albertsons have said that stores won’t close, people won’t lose their jobs and wages will increase if the merger goes through. Prices will drop because Kroger’s prices are 10% to 12% lower than Albertsons’ prices, the companies have said.
Kroger has pledged to invest $1 billion in improvements, wages and benefits, including $40 million in Colorado to lower prices.