US competition officials at the Federal Trade Commission (FTC) have moved to block the merger between Kroger and Albertsons, two of the country’s largest retailers.

The FTC and a group of US Attorneys General have launched a legal bid to stop the deal, first announced in October 2022 and subsequently reshaped to try to gain regulatory clearance.

In a statement, the FTC argued the transaction would be to the detriment of the retailers’ staff and customers. The combined retailer would have “more leverage to impose sub-par terms” on employees, the regulator asserted. Consumers would face higher grocery prices and the enlarged retailer would have less “incentive to compete on quality”, the regulator suggested.

The deal, constructed as an acquisition of Albertsons, was set to make Kroger the second-largest food retailer in the US behind Walmart.

Henry Liu, director of the FTC’s bureau of competition, said: “This supermarket mega-merger comes as American consumers have seen the cost of groceries rise steadily over the past few years. Kroger’s acquisition of Albertsons would lead to additional grocery price hikes for everyday goods, further exacerbating the financial strain consumers across the country face today. Essential grocery store workers would also suffer under this deal, facing the threat of their wages dwindling, benefits diminishing, and their working conditions deteriorating.”

In September last year, the two retailers set out a plan to sell more than 400 stores to C&S Wholesale Grocers to secure regulatory approval for the transaction.

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The FTC said today the proposal was “inadequate” and amounted to “a hodgepodge of unconnected stores, banners, brands, and other assets that Kroger’s antitrust lawyers have cobbled together”. The planned disposals “fall far short of mitigating the lost competition between Kroger and Albertsons”.

Column, September 2023: Why the Kroger-Albertsons-C&S deal is unlikely to win over the FTC

Just Food approached Kroger and Albertsons to comment on the FTC’s move.

A Kroger spokesperson said: “Contrary to the FTC’s statements, blocking Kroger’s merger with Albertsons Companies will actually harm the very people the FTC purports to serve: America’s consumers and workers.

“The FTC’s decision makes it more likely that America’s consumers will see higher food prices and fewer grocery stores at a time when communities across the country are already facing high inflation and food deserts. In fact, this decision only strengthens larger, non-unionised retailers like Walmart, Costco and Amazon by allowing them to further increase their overwhelming and growing dominance of the grocery industry.”

The spokesperson said the combined company had committed to investing $500m to lower prices, another $1.3bn to “improve” Albertsons’ stores and a further $1bn to “raise wages and comprehensive benefits”.

Albertsons had not commented at the time of publication.

Attorneys General from eight US states, as well as the District of Columbia, have joined the FTC’s federal lawsuit.

Last month, Washington state’s Attorney General filed a lawsuit to block the merger. Bob Ferguson described the merger as “bad for Washington shoppers and workers”.

The retailers have more than 700,000 employees in nearly 5,000 stores across 49 states. They have combined annual revenue in excess of $200bn.