Future of Colorado Safeway stores up to Denver judge as antitrust trial over merger ends
Colorado Sun
Watching the nearly four-week antitrust trial pitting the state of Colorado against Kroger and Albertsons’ planned megamerger may not have been the most riveting of shows. But lawyers from the state Attorney General’s Office and the corporate parents of King Soopers and Safeway had plenty to say, and took a week longer than planned to make their cases.
Their last chance came Thursday during closing arguments.
“When it comes to defendants’ assurances and promises, watch what they do, not what they say,” said state attorney Arthur Biller, repeating the maxim he used in his opening statement. He went on to summarize Kroger’s creation of a noncompetitive zone of City Markets on the Western Slope, where prices were raised. He questioned how the much-smaller divestiture partner C&S Wholesale Grocer could succeed where Albertsons could not. He pointed to C&S’s history of closing under-performing stores.
But as with the rest of the trial, lawyers for the grocery companies pushed back during their closings, especially on the claims that the proposed $24.6 billion merger violates antitrust law or that post merger, shoppers will see higher prices.
“Given that it’s undisputed that Kroger’s prices are 10% lower than Albertsons,” Kroger’s lead attorney Matthew Wolf said, “the attentive shopper might ask, why has the state spent million of dollars and tens of thousands of valuable state employee hours trying to prevent Kroger from bringing lower prices, higher pay for union and nonunion associations and cleaner, better-stocked shelves to hundreds of thousands of Coloradans?”
Raising prices to cover higher transportation and labor costs in Colorado’s mountain towns isn’t illegal, Wolf said. If Albertsons were to close a low-performing store today, it could do so without violating laws. And even though prices were raised in the “low comp” zones, those “Kroger stores are 9% cheaper than Albertsons,” he said.
The case is now up to Denver District Court Judge Andrew J. Luxen, appointed by Gov. Jared Polis in 2022. The state AG’s case to stop the supermarket merger is different from a similar challenge by the Federal Trade Commission, which wrapped its trial in September and awaits a decision. A third trial also aiming to block the merger in the state of Washington had closing arguments earlier this week.
But what we’ve learned in the Colorado trial is that all of Albertsons’ 105 stores in Colorado would be sold to Kroger, which would keep 14 Safeways and sell the other 91 to C&S. Albertsons’ grocery prices were undisputed during the trial to be 10% to 12% higher than Kroger stores. If the merger goes through, both new owners plan to invest $1 billion each nationwide to lower prices in those 105 stores. For Kroger, that’s a $40 million investment in the stores it’ll acquire in Colorado.
Nationwide, the union would increase Kroger’s size to nearly 5,000 grocery stores in all but two states. C&S would buy 579 stores to build a new retail business. It currently has about two dozen retail grocery stores, including a few Piggly Wiggly stores. The company suffered when its largest customer left a few years ago and caused C&S to rethink its future. It plans to use its wholesale grocery business, which supplies products to 7,500 independent grocery stores, to expand into the more lucrative retail grocery business.
While Kroger’s newly acquired stores would be converted to King Soopers or City Markets over the next 18 months, C&S plans to take its time — up to three years, according to the merger agreement. C&S would have a perpetual license to the Safeway brand, which would be owned by Kroger. (Kroger also would own the Safeway-branded stores outside of Colorado and Arizona.)
The concern for the AG’s office, however, is that Kroger picked a weak divestiture partner in C&S, which has a track record of closing poorly performing stores. In past testimony, Albertsons and C&S executives acknowledged that 40 unprofitable locations would go to C&S, including eight in Colorado. Biller also mentioned in his closing that when C&S officials were writing up the press release of the divestiture, one person commented, “Do we have to say we won’t close stores?” Biller said.
“We’re told that Albertsons needs this merger because they don’t have enough scale to compete (even with their) award-winning loyalty program, great promotions to the point that customers perceive Albertsons is actually the lower price than Kroger. We’re told they just can’t survive. Even Kroger with their even larger scale and their ultimate profit streams … says they need this merger to compete,” he said. “So, these two giants don’t have enough scale but C&S does?”
C&S’s lawyer denied the company planned to close stores, dismissing Biller’s reference to a discussion about the press release as a debate over wording.
And Wolf iterated his points that the grocery business isn’t just neighborhood supermarkets anymore. Top competitors are Walmart, Costco and even Amazon. There were many other offers for the divestiture plan, but they picked C&S because the New Hampshire company is well capitalized, plans to invest in the stores, expand the number of private brands offered to customers and work with the employee labor unions.
“C&S is not a puppet of Kroger. C&S will be operating from day one, the day after the merger as an independent company, independently competing with Kroger,” Wolf said. “And there will still be just as many competitors in the market.”
As all arguments closed after 5 p.m. Thursday, Judge Luxen advised attorneys that they’ll have until Nov. 7 to get all exhibit documents filed. Should a decision come down from the FTC or Washington state, he’ll hold a conference with all the sides. He did not say when he would rule on the case.
And with that, he thanked everyone for their professionalism and courtesy to one another and said, “Have a nice evening.”