Dive Brief:

• Colorado Attorney General Philip J. Weiser filed a lawsuit Wednesday seeking to block the proposed Kroger-Albertsons merger following a multistate investigation into the merger led by Weiser’s office. 
• The lawsuit claims that the deal violates the Colorado Antitrust Act of 2023 and outlines “a “history of collusion” between the two grocery companies with unlawful no-poach and non-solicitation agreements. 
• “We need to remember lessons from past grocery store mergers, notably the 2015 merger between Albertsons and Safeway led to closing stores, people losing their jobs and consumers being worse off,” Weiser said in a press conference, according to local news station KKTV.

Dive Insight:

The lawsuit claims that in an already concentrated supermarket industry, the combination of Kroger and Albertsons — the first and third largest, respectively, grocers in the state — would result in those companies controlling more than half of Colorado’s supermarket industry. 

Kroger operates 148 King Soopers and City Market stores across Colorado while Albertsons runs 105 Safeway and Albertsons stores, according to an emailed press release from Weiser’s office.

The lawsuit says that Kroger and Albertsons are “fierce head-to-head competitors” in not only the state but also across the country, which results in competitive prices for customers and wages and benefits for workers. 

The lawsuit claims that the merger’s divestiture plan, which includes selling 52 Albertsons stores in Colorado to C&S Wholesale Grocers, doesn’t fix anticompetition concerns because the “assets included in the proposed divestiture are woefully insufficient to restore the competition eliminated” by the deal. 

“[E]ven if the divestiture package were more robust, C&S is not well situated to be a viable competitor because of its complete lack of experience as a national-scale retailer, lack of any experience in Colorado, and its lack of the infrastructure needed to replace the competition lost from [Albertsons] — infrastructure that Kroger plans to keep for itself,” the complaint says. 

The suit also alleges that Kroger and Albertsons struck unlawful “no-poach” and “non-solicitation” agreements in early 2022 when unionized employees at 78 King Soopers stores in Colorado went on strike.

“The companies agreed that for the duration of the strike, ACI would not hire King Soopers employees, and that ACI would not solicit King Soopers pharmacy customers. Executives at the very highest levels of both companies knew of this unlawful arrangement and allowed it to go forward,” according to the suit.

“It is disheartening for Coloradans that General Weiser would mischaracterize the facts because there was not then, and there is not now, non-solicitation or so-called no-poach agreements between Kroger and Albertsons,” a Kroger spokesperson said in a statement. “Employees at both companies regularly join our teams from - and exit our companies for opportunities to work at – Albertsons, Kroger, Walmart, Amazon, Costco and other retailers as well as restaurants, food service companies, convenience stores, warehouses and more.”

The lawsuit, which was filed in a Denver district court, is asking the court to stop the merger, restrain the grocers from agreeing not to hire each other’s workers nor solicit each other’s customers, and order Kroger and Albertsons to each pay a $1 million civil penalty.

UFCW Local 7, which represents about 18,000 workers at Kroger and Albertsons stores across Colorado and Wyoming, said in an emailed statement it supports Weiser’s lawsuit. 

“We are disappointed in Attorney General Weiser’s premature decision to file a lawsuit while the merger is still under regulatory review, and we remain in active dialogue with the FTC and the other state Attorneys General,” Kroger said in an emailed statement. 

Kroger said that the grocers will fight the lawsuit and said that preventing the merger would “only serve to strengthen larger, non-unionized retailers like Walmart, Costco and Amazon.” Kroger also noted that C&S “is led by an experienced management team with an extensive background in food retail and distribution and has the financial strength to continue investing in associates and the business.”

The lawsuit follows a similar one filed by Washington state Attorney General Bob Ferguson last month, posing more hurdles to Kroger and Albertsons’ quest to close their deal. 

In recent months, Kroger has aimed to sweeten its deal by saying it will expand employee resources and boost its local assortment if the merger goes through. This week, Kroger outlined its plans to lower prices and improve Albertsons stores if the merger closes, noting that it has repeatedly made investments to lower prices after completing previous mergers.