Attorney general to investigate proposed merger of Kroger and Albertsons

PHOENIX — Attorney General Kris Mayes is investigating whether to try to block the proposed merger of the state's two largest grocery chains.

Mayes said Thursday she wants to know what will be the effects of allowing the combination of Kroger Co., the parent of Smith's and Fry's Foods, with Albertsons Companies, which operates not just stores under its own name but purchased Safeway and all the stores that company owned in 2015.

It starts, she said, with whether that combination will be able to drive up prices for consumers who already are suffering under high inflation.

"The impacts of this merger, in particular at a time when people are struggling to pay for groceries and prices are high, could be huge," she said.

Then there's the question of whether the merged company will close stores, forcing some people to travel farther. And Mayes wants to know how all of this would affect the 35,000 workers now employed by both.

Much of that, she said, will come from "listening sessions" her office will conduct to hear what Arizonans think of the deal and how it will affect them.

Mayes is not the only one looking at the deal announced last year.

The Federal Trade Commission is doing its own inquiry into the $24.6 billion deal where Kroger would purchase its competitor. And a group of consumers has filed suit in California to block the deal.

Mayes, however, is focused more on what the combination of the two giants would mean here. In fact, she told Capitol Media Services that, on a per capita basis, the merger will have a greater effect on Arizonans than any other state.

What she's able to do about it, however, remains to be seen.

State law forbids any "contract, combination or conspiracy by two or more persons in restraint of, or to monopolize trade or commerce."

What Mayes said she needs to study is whether what the two grocery giants are doing, at least in Arizona, meets that definition.

"The people of Arizona have important input to make here, people who live in the neighborhoods where a Fry's or a Safeway or a Smith's could be shut down," she said.

That goes not just to the question of whether the combined operation, no longer competing for customers with each other, would be free to raise prices. Mayes said that decisions by the new company to shutter some of the stores could mean much longer drives to get food.

But she said it isn't just the people shopping there who might be affected.

"We're going to be getting input from the dairy operators in Arizona and the farmers and cattle growers who are worried about the reduction in competition in Arizona and the reduction in the number of outlets for their products," Mayes said.

The attorney general said she also wants to look at how many workers at the two companies will end up unemployed if the deal goes through.

A spokesman for Albertsons said there would be no comment.

Kroger, in a statement, said the merger "provides meaningful, measurable benefit to all stakeholders, including lowering prices, providing more choices and establishing a more competitive alternative to large, non-union retailers." That last comment is in reference to Walmart, though not all Kroger stores are unionized, either.

And on a website set up by the two chains, Kroger CEO Rodney McMullen said the deal will "deliver superior value to customers, associates, communities and shareholders."

It also claims that after the deal is closed, Kroger will invest $500 million to lower prices, $1.3 billion into Albertsons stores "to enhance the customer experience," and $1 billion "to continue raising associate wages and comprehensive benefits."

Mayes, for her part, said she wants details.

Beyond that, she wants to hear not just from the corporations who will be getting questioned by her investigators, but from those living in the affected communities.

"I think there's value involved in bringing to light what this potential merger means to the state of Arizona and offering a forum for Arizonans to express what it means to them," Mayes said.

"We're talking about neighborhoods that could experience the closure of a grocery store, entire communities that might have to drive 100 miles or more to get to a grocery store, and potentially the layoff of thousands of people," she continued.

That gets into one of the details that Mayes wants and could affect any decision on whether there would be violations of Arizona's antitrust laws.

In its announcement, the retailers said they are willing to divest up to 650 of the stores to overcome regulatory concerns. None of the possible locations have been announced.

But even if that happens, that is no guarantee the stores will stay open.

When Albertsons bought Safeway, it agreed to sell 146 stores to Haggen, a regional grocer. But Haggen eventually went bankrupt and Albertson's bought back many of the stores.

Then there's the question of whether anyone would be willing to buy the stores the new company is willing to shed, what with the possibility they are likely to offer up those which are least profitable.

There is, however, a backup plan: If a buyer can't be found for the stores the new company is willing to sell, there is an offer to create a spin-off, still owned by Albertsons shareholders, which would operate independently and compete with the newly merged operation.

The merger – and whether it violates state antitrust laws – isn't occurring in a vacuum. What also needs to be considered is what competition would remain in Arizona.

Bashas' operates 118 stores, mostly in Arizona, under that name as well as Food City and AJ's Fine Foods.

Then there's Walmart, which generally has more aggressive pricing than either Kroger or Safeway, though it does not put items on sale.

"We will obviously take into consideration the presence of Walmart and Target Super Stores in some communities," Mayes said, the latter which carries groceries.

"But they're not everywhere," she said. "That's one of the things we need to understand in the listening sessions."

Mayes said these will be conducted in the next few months, with her office probably having to make a decision on what action to take, if any, within six months. That should still be enough time to intercede, given that the two companies are looking to finalize the deal sometime in 2024.