Kroger, Albertsons CEOs defend grocery tie-up, say deal won't hurt competition

The conflict implicit whether market giants Kroger and Albertsons should beryllium allowed to harvester is heating up.

On Tuesday, leaders of the 2 companies defended their projected merger astatine a legislature proceeding successful Washington, wherever they faced a bid of questions astir however the woody could shingle up the competitory scenery — and perchance the prices that consumers wage astatine the store.

"I conscionable don't spot little contention going forward," Kroger CEO Rodney McMullen said astatine the proceeding by the Senate Judiciary Subcommittee connected Competition Policy, Antitrust, and Consumer Rights. "It's casual for customers to marque a close crook oregon a near turn."

Kroger announced plans successful October to get Albertsons successful a woody valued astatine $24.6 billion. The Cincinnati-based institution is the second-largest grocer by marketplace stock successful the United States, behind Walmart, and Albertsons is fourth, after Costco, according to marketplace researcher Numerator. Together, Kroger and Albertsons would beryllium a person 2nd to Walmart.

At the proceeding Tuesday, McMullen said that the combined institution could assistance little nutrient prices and amended the lawsuit experience, particularly astatine a clip erstwhile grocers are racing to accommodate to changes similar online shopping. He said retailers person to support reinventing themselves to enactment applicable and person customers to thrust to their stores.

Yet the projected merger has faced aggravated pushback from elected officials of some governmental parties and absorption from the United Food and Commercial Workers, a large market national that represents thousands of the grocers' employees.

Sen. Amy Klobuchar, a Democrat from Minnesota, led the proceeding Tuesday on with Sen. Mike Lee, a Republican from Utah. Both challenged the companies connected their actions, including Kroger's $1 cardinal successful stock buybacks announced past twelvemonth and plans to wage dividends to shareholders arsenic good arsenic erstwhile deals, specified arsenic Albertsons' acquisition of Safeway.

They emphasized that the projected woody comes astatine a clip erstwhile groceries are taking up much of American families' budgets. Food prices person surged as ostentation hovers adjacent four-decade highs. Prices of mundane items, including butter, eggs, poultry and beverage person jumped by double-digits from the year-ago period arsenic of October, according to the astir caller national information available.

The proceeding offers a preview of the bigger antitrust conflict ahead.

For Kroger and Albertsons, the statement is clear: combining volition assistance them upwind melodramatic manufacture changes. Online market income are eating into already bladed margins. New players, specified arsenic heavy discounters similar Aldi and e-commerce players similar Amazon, are besides pressuring accepted grocers.

"The marketplace for groceries implicit the past decennary has wholly transformed making the contention for consumers fierce," said Albertsons CEO Vivek Sankaran said astatine the hearing. "The champion mode to vie with mega stores similar Walmart and highly capitalized online companies similar Amazon volition beryllium done a merger with Kroger."

He argued that adjacent arsenic a combined company, Kroger and Albertsons volition inactive beryllium tiny compared to Walmart, Costco and Amazon.

Ahead of the hearing, members of the UCFW — which represents implicit 100,000 Kroger and Albertsons workers — shared their worries astatine a property league connected Capitol Hill. Their concerns ranged from the imaginable nonaccomplishment of their pension plans to higher nutrient prices to occupation losses.

Albertsons employees who beryllium to the national remembered the interaction of past mergers. Judy Wood, a longtime barroom decorator for the market giant, said she and her coworkers were shocked by the store closures that resulted aft Safeway's merger with Albertsons, which was announced successful 2014.

Union members besides railed against the backstage equity firms that volition payment from the projected $4 per stock peculiar dividend for Albertsons shareholders announced successful conjunction with the deal. Cerberus Capital Management owns a 28.4% involvement successful Albertsons, according to Factset. For now, the dividend payout is connected clasp until astatine slightest Dec. 9 owed to a ruling successful Washington authorities court.

McMullen said connected Tuesday that the institution does not program to adjacent stores oregon laic disconnected employees, but said it volition enactment with the Federal Trade Commission, if needed, to rotation disconnected stores for competitory reasons.

As portion of its archetypal proposal, Kroger said it already had a program to flooded concerns astir the merger − divesting betwixt 100 and 375 stores successful a spinoff. Kroger and Albertsons would enactment unneurotic — and with the FTC — to determine which stores would beryllium portion of the spinoff company.

On Tuesday, McMullen said the institution is successful "active conversations" with unions astir the woody and what it means for its workforce. He said the woody would yet grow opportunities for employees. Kroger volition besides walk $1 cardinal connected higher wages and amended benefits for store employees aft the woody closes, helium said.

"A palmy concern is what creates his occupation security," helium said. "And we judge we'll person an incredibly palmy concern that creates occupation security."

Some market competitors and manufacture experts besides opposed the woody astatine the hearing.

Michael Needler, main enforcement serviceman of Fresh Encounter, an autarkic market concatenation based successful Northwest Ohio, said companies similar Walmart and Amazon usage their size to unit suppliers for little prices and amended terms. Instead of creating an adjacent playing field, helium said, the Kroger-Albertsons woody would make yet different powerfulness subordinate who makes it hard — if not intolerable — for smaller grocers to compete.

For instance, helium said, larger grocers person tally predatory campaigns against his ain concatenation by offering coupons for escaped groceries.

"I don't cognize immoderate different mode to constituent retired predatory pricing than buying your competition," helium said.

Sumit Sharma, a elder researcher who specializes successful antitrust matters and contention astatine Consumer Reports, besides said astatine the proceeding that helium does not spot immoderate benefits to combining the companies. Instead, helium said retailers would person little crushed to summation worker wages. Shoppers would person less choices and much sticker shock.

"Even if they merchantability a fewer stores, that is going to instrumentality contention retired of the market," helium said. "So prices volition spell up."

CNBC's Amelia Lucas contributed to this report.