A bipartisan Senate panel on Tuesday expressed skepticism toward the planned merger of grocery-store chains Kroger Co. and Albertsons Cos., with lawmakers raising questions about the prospect of higher food prices, stifled competition and an expansion of so-called “food deserts” where supermarket access is scarce.
The chief executives from both companies, over the course of a Senate subcommittee hearing, argued that their companies still faced competition. And they said the deal would keep prices lower and would not result in store closures or layoffs in supermarkets, warehouses or manufacturing facilities.
“A lack of competition in the industry means higher prices and lower quality,” said Sen. Amy Klobuchar, D-Minn. “And yet this proposed merger, worth over $24 billion, combines the two largest grocery-store chains in the country.”
The merger agreement between Kroger KR, +1.06% and Albertsons ACI, +0.96% — a $24.6 billion deal struck in October that would create a company with nearly 5,000 stores — has landed after a year in which food prices have surged and inflation is coming off four-decade highs. The price increases, which also follow years of consolidation in the grocery industry, have padded grocery stores’ bottom lines and led to big investor payouts.
“Inflation, to put it gently, is wreaking havoc on out entire economy,” said Sen. Mike Lee, R-Utah. “But not in the grocery industry.”
Rodney McMullen, Kroger’s chief executive, said during the hearing that the grocery-store industry had become far more complex since he first began working at a Kroger store stocking shelves in 1978. And he said hefty investor rewards, like stock buybacks, were part of an effort to balance the needs of consumers and shareholders.
“Today the industry is larger, more complex and more competitive, with near endless opportunities and options of where and how to shop,” he said. “Customers purchase food everywhere from Walmart and Trader Joe’s to Costco and Aldi, to Dollar General, 7-Eleven, Walgreens and restaurants, for example.”
He said that Kroger overall had lowered its pricing by “over 3%” since 2003. Kroger and Albertsons have said the combined company would spend $500 million to lower prices, and $1 billion to raise employee wages and strengthen benefits. McMullen said he expected those investments to take hold over a four-year period. Vivek Sankaran, chief executive at Albertsons, said stores could either be divested or spun off into a separate company as part of the merger process.
During the hearing, lawmakers noted that in 2015, Albertsons bought Safeway, and regulators forced the chain to offload stores as part of the deal in an effort to preserve competition. But they noted that the company that bought most of those stores ended up filing for bankruptcy shortly after, and Albertsons reabsorbed some of those same stores.
Sumit Sharma, a senior researcher at Consumer Reports, told lawmakers that the companies’ plans to lower prices weren’t a given. And he said store divestments don’t always work.
“Merging parties have incentives to make sure that the purchaser of the divested assets is not an effective competitor,” he said.
Up to 42 million Americans in January said they didn’t have enough money to buy an adequate amount of food, according to a government survey. Stacy Mitchell, co-director at the nonprofit Institute for Local Self-Reliance, said in a statement in October that a combined Kroger and Albertsons would handle nearly a fifth of U.S. grocery sales, putting it on par with Walmart Inc. WMT, -0.35%.
“If it’s allowed to go through, this deal would almost certainly put more rural towns and Black and Latino neighborhoods in cities at risk of becoming ‘food deserts’ as more local grocers are driven out of business,” she said.
Kroger is among the few stocks to have actually posted year-to-date gains. Shares of Kroger are up 8% over that time. However, Albertsons is down 8%. The S&P 500 Index SPX, -0.16% has fallen 17% since the beginning of the year.