Why the Kroger and Albertson’s Merger Failed
In December 2024, the proposed $24.6 billion merger between Kroger and Albertsons—two of the largest grocery retailers in the United States—fell apart under heavy controversy and judicial scrutiny. While the merger’s collapse had several contributing factors, the one we were vocal about was the plan to divest 579 stores to C&S Wholesale Grocers. This decision raised red flags given the parallels to the disastrous 2015 Haggen debacle. As history seemed poised to repeat itself, the real losers in this saga were the communities relying on these grocery stores for essential food access.
Learning (or Not) From the Past: The Haggen Debacle
To understand why the divestiture plan was so problematic, it is necessary to revisit the 2015 Haggen case. At the time, Haggen was a small, regional grocery chain in the Pacific Northwest. When Albertsons and Safeway merged, they were required by antitrust regulators to sell off 146 stores to maintain competition. Haggen, a relatively inexperienced operator at scale, was chosen as the buyer for these locations.
The results were catastrophic. Haggen lacked the infrastructure, supply chain expertise, and operational capacity to effectively integrate such a massive influx of stores. Rapid expansion overwhelmed the company, leading to widespread mismanagement, financial losses, and, ultimately, bankruptcy. Within months, many of the acquired stores were closed, leaving consumers without reliable grocery options and employees without jobs. This outcome underscored the dangers of transferring significant assets to entities unprepared to manage them.
C&S Wholesale Grocers: An Uninspiring Choice
The decision to sell 579 stores to C&S Wholesale Grocers raised immediate concerns. While C&S is a major player in the wholesale grocery supply chain, its track record as a retail operator is far less impressive. C&S previously took over the management of retail grocery stores from Piggly Wiggly, a historic grocery brand that had fallen into financial trouble. However, under C&S’s stewardship, those Piggly Wiggly retail locations struggled to remain competitive, leading to store closures and declining consumer confidence.
The parallels between Haggen’s failure and the proposed divestiture to C&S are striking. Both involved transferring a significant number of stores to an operator without a proven ability to manage large-scale retail operations. To add a further layer of complication; C&S would need to hire an entire corporate staff to run these retail locations. The odds of success were not in their favor, too many additional complications stood in the way.
Divesting the Worst of the Worst
A critical aspect of the proposed Kroger-Albertsons merger was the selection of stores to be divested. Antitrust regulations required the companies to sell stores in areas where their combined market share would be too high, raising concerns about monopolistic behavior. However, as in the Haggen case, Kroger and Albertsons were unlikely to divest their best-performing locations. Instead, the stores earmarked for divestiture were likely underperforming, located in challenging markets, or in need of significant capital investment.
This approach created a lose-lose scenario. C&S would be tasked with revitalizing a portfolio of struggling stores, an uphill battle even under ideal circumstances. For consumers in these communities, the divestiture posed a serious threat to food access. If C&S failed to turn these stores around—as many feared—the resulting closures would leave some neighborhoods as grocery deserts, where access to fresh and affordable food is severely limited.
The Ripple Effects of Store Closures
When grocery stores close, the impacts extend far beyond the immediate inconvenience of finding a new place to shop. Store closures can:
Create Food Deserts: Low-income and rural communities are often disproportionately affected by grocery closures. Without access to fresh food, residents may be forced to rely on convenience stores or fast-food outlets, exacerbating public health issues like obesity and diabetes.
Hurt Local Economies: Grocery stores are often anchor tenants in shopping centers, driving foot traffic that supports neighboring businesses. When a store closes, the ripple effects can lead to broader economic decline in the area.
Displace Workers: Store closures result in job losses for grocery employees, many of whom work in entry-level positions and rely on these jobs as their primary source of income.
Given these stakes, the decision to divest 579 stores without ensuring their long-term viability was seen as both reckless and short-sighted.
Regulatory Scrutiny and the Merger’s Collapse
The Federal Trade Commission (FTC) and several state attorneys general were vocal in their opposition to the merger. They argued that the divestiture plan did not adequately address antitrust concerns and would harm consumers. A federal judge and a Washington state judge ultimately issued injunctions blocking the merger, citing the potential for reduced competition and negative impacts on food access.
In response, Albertsons terminated the merger agreement and filed a lawsuit against Kroger, alleging breach of contract. While the legal fallout is ongoing, the failed merger highlights the importance of thorough regulatory scrutiny in protecting consumer interests.
Looking Ahead: Avoiding the Next Haggen
The grocery industry is likely to see more consolidation attempts in the coming years as companies seek to gain scale and compete with e-commerce giants like Amazon. To avoid repeating the mistakes of the Haggen debacle and the failed Kroger-Albertsons merger, future proposals must:
Ensure Viable Divestitures: Regulatory agencies should require detailed plans demonstrating that divested assets will be transferred to operators with the capacity to manage them effectively.
Prioritize Community Impact: Companies should be held accountable for preserving food access and minimizing disruptions in affected communities.
Foster Competition: Mergers should not be allowed to create monopolistic conditions that harm consumers. Robust competition benefits everyone by driving innovation, lowering prices, and improving service quality.
The failed Kroger-Albertsons merger is an interesting zig when many recent industry consolidations have zagged, and been approved. By ignoring the lessons of the Haggen debacle, Kroger and Albertsons jeopardized food access for millions of consumers near the 579 stores slated for divestiture. While the merger’s collapse may prevent immediate harm, it also highlights the need for smarter approaches to the regulatory requirements. We strongly suspect that political motivation behind the injunctions was purely to grandstand as inflation fighting; when in reality there was a legitimate reason to prevent approval.
Communities deserve better than to be treated as collateral damage in corporate consolidation efforts. Regulators should put consumers first in a way that still promotes a pro-growth mindset for our laws and institutions, ensuring that access to fresh, affordable food remains a priority in every merger and acquisition discussion.
