In December, federal and state courts blocked the attempted merger between two of Colorado’s grocery store giants: Albertsons (Safeway) and Kroger (King Soopers, City Market).

The merger was challenged by the Federal Trade Commission and nine states, including Colorado.

Colorado Attorney General Phil Weiser, who led Colorado’s lawsuit to block the merger, joined a Vail Symposium panel on Monday, Feb. 24 to share his antitrust work. Weiser was accompanied by three lawyers and experts in antitrust law: Logan Breed, John Thorne and Janet McDavid, who moderated the panel.

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Weiser has a background in antitrust law; he served as Deputy Assistant Attorney General in the Justice Department’s Antitrust Division under President Barack Obama. But as attorney general of Colorado, a position he has held for the past six years, he serves as the general legal voice of Colorado’s constituents.

“I’m really close to the communities and the people I serve, and I can go to those communities and ask them what they think,” as he decides what lawsuits to bring, Weiser said.

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Why bring a lawsuit against the Albertsons-Kroger merger?

Antitrust laws are designed to promote competition.

“The whole theory is that competition in a free market will produce the best products, the best prices and the most innovation,” McDavid said.

Antitrust cases are different from most other forms of law in that judges are trying to determine a future harm, not assess a past one.

While assembling materials for the Kroger-Albertsons lawsuit, Weiser’s team concluded that there are three comparable supermarket chains in Colorado: Albertsons, Kroger and Walmart.

“There are a lot of communities where they either have two or three of those stores, and they don’t have much choice,” Weiser said.

Weiser decided to file his own lawsuit in Colorado against the Albertsons-Kroger merger because “I believed that we have a story to tell, and the facts about the merger in this county, I believed, (were) relevant to stopping the merger,” Weiser said.

In the lawsuit, Weiser used evidence that came from Eagle County’s own supermarkets.

In West Vail, the City Market and Safeway sit across from one another, separated only by a parking lot. In Eagle, there are no other supermarkets like City Market — it has no direct competition.

Weiser held a town hall in Edwards in May 2023 to ask locals what they thought about the potential merger. “I got the answer, ‘we like having these stores as rivals,'” he said.

When Weiser’s office was doing discovery for the lawsuit — gathering evidence to build its case — information pulled from Kroger itself showed that the company knows it can, and does, charge more in Eagle than in Vail.

If the two grocery giants were to merge, it can be inferred that the same price increases would occur in Vail, as well.

What did the stores argue in favor of the merger?

Breed, who was not involved in the merger or lawsuit, explained the argument made by the grocery giants in favor of their merger.

First, Kroger and Albertsons decided they were not big enough to beat Walmart in size or prices.

Next, the merging partners tried to figure out where the antitrust problems were. “Because in a deal where you’re buying thousands of stores, there may be a whole lot of stores where there’s no antitrust, where the parties don’t compete at all,” Breed said.

The merging parties’ lawyers looked at the “prop market,” a set of alternatives that consumers could go to in addition to their stores as they merge, which they claimed included Walmart and Target, Amazon and similar online grocery providers and Costco and Sam’s Club.

They also looked at the geographic market, or the distance that customers were willing to go for the product. For grocery stores, this is “really local,” Breed said. “You’re not going to fly to California to get groceries.”

Kroger and Albertsons planned to fix the geographic problem by selling the stores in competing markets — including the West Vail Safeway — to a third party that would continue to operate those stores as a competitor.

Approximately 2,300 stores were set to be acquired in the merger. Initially, Kroger and Albertsons claimed that 413 of these were in direct competition with the other company and needed to be sold. This was later upped to 579 stores during the lawsuit.

Kroger and Albertsons’ arguments failed on two fronts.

First, the judges did not buy that the suggested prop market existed — that the other ways people can get their groceries, like through Amazon, were not a viable substitute for a traditional grocery store. Costco, Weiser said, is also “not a ‘true competitor,'” because customers need to pay a membership fee, and purchase the goods in bulk.

Second, the judges also said the divestiture — the sale of the 579 stores to the third party — was not good enough, and “would not maintain the competitive significance” of the existing grocery stores, Breed said.

Weiser’s office already suspected the attempted divestiture would not hold up in court. In its research, his team found evidence of multiple past attempts by grocery giants to sell off competing grocery stores in mergers, “and they all failed, including ones involving C&S (Wholesale Grocers), the company that was going to acquire the stores from Safeway and Kroger,” Weiser said.

“The truth is, the judges, they actually gave the merging parties a lot of grace,” for adjusting the terms of the proposed fix to the merger as the case was ongoing, Weiser said.

Now, Albertsons is suing Kroger for billions of dollars, alleging that Kroger’s efforts at divestiture — selling the 579 stores to C&S — were insufficient and led to the failure of the merger.

Not Kroger and Albertsons’ first faux pas

During its investigation, Weiser’s office also uncovered prior evidence of collusion between Albertsons and Kroger, violating state and federal antitrust law.

During the 2022 King Soopers strike, the grocery giants entered into two colluding contracts. First, they agreed not to hire each other’s workers, to keep wages low. They also said not to solicit each other’s pharmacy customers, which are particularly valuable.

This story is from VailDaily.com