Colorado antitrust case seeking to block grocery merger comes to a close

Members of the United Food and Commercial Workers Local 7 and other labor groups rallied against the proposed $24.6 billion merger between grocery giants Kroger and Albertsons in Denver on Sept. 30. (Chase Woodruff/Colorado Newsline)

A four-week trial over the proposed $24.6 billion merger of Colorado’s two largest grocery chains wrapped up in Denver on Thursday, setting the stage for a state court ruling in the coming weeks that could have implications nationwide.

Colorado Attorney General Phil Weiser in February sued to block the merger between grocery giant Kroger, which operates King Soopers and City Market stores in Colorado, and Albertsons, which operates the Safeway brand. Weiser’s lawsuit alleges that the deal violates state antitrust laws and would inflict “substantial harm” on Colorado consumers and workers.

During closing arguments before Denver District Court Judge Andrew Luxen, attorneys for Kroger and Albertsons continued to assert that the merger was the only way their companies could effectively compete with larger big-box retailers that have expanded into the grocery market. The deal, argued Kroger attorney Matt Wolf, would mean “lower prices, higher pay for union and non-union associates alike, and cleaner, better-stocked stores (for) hundreds of thousands of Coloradans.”

“While Walmart and Costco and Amazon might be pleased with the state’s efforts today, grocery shoppers in Colorado will pay more and get less if the state has its way,” Wolf said.

Kroger, which is based in Ohio and operates more than 2,700 grocery stores nationwide, first announced plans in 2022 to acquire the Idaho-based Albertsons, which operates more than 2,200 locations. One of the largest retail mergers ever proposed, the deal has been staunchly opposed by labor unions and consumer advocates who fear that the consolidation could lead to higher prices and decreased wages and bargaining power for workers.

Both sides spent hours on Thursday casting doubt on the research, economic models and expert witnesses cited by the other during nearly a month of trial testimony, and accusing each other of lacking common sense about about the likely implications of the proposed deal.

Much of the dispute revolves around a divestiture plan announced by the companies in an effort to allay antitrust concerns. Under the plan, Kroger and Albertsons would sell 579 locations — including 91 Safeway stores in Colorado — to New Hampshire-based C&S Wholesale Grocers.

Though an established wholesaler, C&S currently operates just 23 grocery stores nationwide, and critics of the deal paint the company as wholly unprepared to compete in the retail grocery market. It would be a repeat, they say, of the divestiture of 168 stores to the small grocery chain Haggen as part of the 2015 merger between Albertsons and Safeway. Haggen quickly went bankrupt, and the divested locations were either reacquired by Albertsons or closed.

Arthur Biller, an attorney for the state, called C&S an “objectively smaller and worse competitor” for the merged Kroger-Albertsons giant, and cited expert testimony suggesting that at least 30 and potentially as many as 85 of the 91 divested Safeway stores in Colorado would be at risk of closure if the deal goes through.

“It is in Kroger’s interest to have the weakest possible divestiture plan,” he said. “And that’s what this merger is about. It’s not about Amazon or Costco. It’s about eliminating Albertsons. … They get to take Albertsons out of the market and replace it with a far inferior competitor.”

Weiser’s lawsuit followed a yearlong investigation and more than a dozen listening sessions held in communities across the state. The state’s concerns about the impact of the merger are particularly acute, officials say, when it comes to mountain towns and other rural communities with few options for grocery shopping.

“What happens to the folks living in places like Gunnison, Alamosa, Cortez, Montrose, Delta — what happens to them when C&S decides they need to raise prices at the Safeways they own?” Biller asked Thursday. “What happens when C&S decides those stores are unprofitable?”

‘No-comp’ and ‘no-poach’

Alongside disputes about the possible future effects of the merger, parts of the lengthy trial focused on what the state alleges was prior anticompetitive behavior by Kroger and Albertsons uncovered as a result of Weiser’s antitrust investigation.

That included internal references by Kroger management to a “mountain no-comp” zone, where prices were raised at stores in communities where they had little to no competition, including Breckenridge, Eagle, Granby and New Castle. While Kroger attributed those price increases to higher transportation and labor costs in those communities, Biller said that evidence and trial testimony made clear that wasn’t the case.

“Whatever those costs are, Kroger’s other City Market stores in the mountains face the same costs,” Biller said. “Costs to deliver goods to places like Vail and Gunnison are also high, but stores in those locations face competition from other supermarkets, and they were not selected as ‘mountain no-comp’ stores.”

Weiser’s lawsuit also alleges a separate antitrust violation in relation what it calls an unlawful “no-poach agreement” between Kroger and Albertsons during a 2022 strike of King Soopers stores by the United Food and Commercial Workers Local 7.

Emails show that at the time, Albertstons’ senior vice president of labor relations, in response to a communication from his counterpart at Kroger, committed not to hire any King Soopers employees or solicit King Soopers pharmacy customers.

Wolf, who said that Kroger “take(s) seriously our obligations under the labor laws,” argued that the communication did not represent an agreement or “quid pro quo,” characterizing it instead as an attempt by the two companies to understand each other’s intent.

“That’s all my client did — asked Albertsons, ‘This is what your folks are doing. This is what our folks are doing. What is your intent?’” he said. “That is not an unlawful question. Responding to that question is not unlawful. That is not an agreement.”

Parties in the case are due to file their proposed findings by Nov. 7, after which Luxen will issue his ruling. Separate antitrust proceedings are underway in Washington State and in U.S. District Court in a case brought by the Federal Trade Commission.

In a press release Thursday, UFCW Local 7 praised the “excellent work” of Weiser’s office in taking up the case, and reiterated their fears about the “obvious threat (the merger) poses to workers and shoppers across the nation and at home here in Colorado.”

“Instead of wasting more time and more money on this bad idea, these companies should be investing in better stores and better staffing to improve the experience of workers and shoppers alike,” said UFCW Local 7 President Kim Cordova. “We hope that AG Weiser’s case is successful in blocking this mega-merger.”

Editor’s note: This story first appeared on Colorado Newsline, which is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Colorado Newsline maintains editorial independence. Contact Editor Quentin Young for questions: info@coloradonewsline.com. Follow Colorado Newsline on Facebook and X.