Kroger prepares to make deliveries with autonomous drones 1:16

New York (CNN) --

The Federal Trade Commission (FTC) filed a lawsuit Monday to block the $25 billion deal between Kroger and Albertsons, warning that the largest supermarket merger in the world U.S. history could lead to higher prices, store closures and job losses.

The merger, announced in 2022, sought to combine the fifth and tenth largest retail chains in the country.

The companies own dozens of chains, including Safeway, Vons, Harris Teeter and Fred Meyer.

The proposed merger was mooted as food prices soared.

Americans are spending 26% more on groceries since 2020, according to the Bureau of Labor Statistics, and devoting the highest portion of their income to food than at any point in the past 30 years.

The FTC said in a statement that the merger would eliminate competition in the grocery industry, which could further increase costs.

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Kroger and Albertsons, which employ mostly union workers, said they wanted to merge to be more competitive against non-union giants like Walmart, Amazon and Costco.

Supermarkets are also facing increasing pressure from Aldi, the fast-growing German discount supermarket chain.

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The merger would accelerate "our position as a more compelling alternative to larger, non-unionized competitors," Kroger CEO Rodney McMullen said when the deal was announced.

The two companies have 710,000 workers, almost 5,000 stores and more than US$200,000 million in sales.

The companies argued that they will be able to use $500 million in cost savings from the deal to reduce prices to buyers and tailor promotions and savings.

However, the FTC, in its lawsuit, was skeptical about this.

"This mega supermarket merger comes at a time when American consumers have seen the cost of groceries continue to rise in recent years. According to Henry Liu, director of the FTC's Bureau of Competition, the acquisition of Albertsons by Kroger would cause further increases in the prices of everyday consumer products.

Unions, small business owners and a coalition of Democrats and Republicans on Capitol Hill, including Democrat Elizabeth Warren of Massachusetts and Republican Mike Lee of Utah, also staunchly opposed the merger from the beginning.

Kroger and Albertsons criticized the FTC's decision.

A Kroger spokesperson said in a statement that the FTC's action "will actually hurt the very people the FTC aims to serve: America's consumers and workers."

The FTC's lawsuit "only strengthens the largest, non-union retailers like Walmart, Costco, and Amazon by allowing them to further increase their overwhelming and growing dominance of the grocery industry," the spokesperson said.

Kroger said it will appeal the FTC's decision.

FTC Chair Khan Skeptical About Divestments

To address antitrust concern that the merger would stifle competition in local markets where their stores overlap, Kroger and Albertsons agreed to sell about 400 stores to C&S Wholesale Grocers, the owner of Piggly Wiggly and other brands.

C&S has also tentatively agreed to buy more than 200 additional stores if the proposed deal is backed by regulators.

However, the FTC said the divestiture proposal was a "hodgepodge of stores, banners, brands and other unrelated assets that Kroger's antitrust attorneys have cobbled together" and would not be a "successful competitor to a combined Kroger and Albertsons." .

Albertsons' $9 billion merger with Safeway in 2014 loomed large over regulators, including FTC Chair Lina Khan.

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To gain approval from antitrust authorities, Albertsons and Safeway agreed to sell 168 of their stores to FTC-approved buyers.

With the FTC's blessing, Haggen, a small Northwest supermarket chain with just 18 stores, purchased 146 of the former Albertsons and Safeway stores.

But Haggen had trouble managing the stores.

Less than a year later, he declared bankruptcy and closed some stores.

Khan has been skeptical of divestments as an effective tool to foster competition.

She criticized the FTC's handling of Albertsons' deal with Safeway, pointing to it as a prime example of the limitations of divestitures.

In a 2017 law review article he wrote before leading the FTC, Khan said the agency's approval of the Haggen divestiture was "[difficult] to understand" and a "spectacular" failure.

"Even a casual observer could have predicted that Haggen would have great difficulty expanding its stores," Khan said.

"The skeptics have been proven right."

Under Khan, the FTC has also launched landmark antitrust lawsuits against Amazon and other tech giants.

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