Hobbs concerned about proposed grocery chains’ merger

Gov. Katie Hobbs said Wednesday she is “concerned” about some of the effects on Arizona of a proposed merger of the state’s two largest grocery chains.

But the governor said she’s not ready to say whether she will oppose the combination of Kroger Co., the parent of Smith’s and Fry’s Foods, with Albertsons Companies, which operates not just stores under its own name but purchased Safeway and all the stores that company owned in 2015.

Her comments come as Attorney General Kris Mayes is conducting her own probe into the effects of the combination, not only on shoppers but the estimated 35,000 workers at both chains.

Other Arizona officials, however, are not waiting for that. Secretary of State Adrian Fontes and colleagues from six other states already have asked the Federal Trade Commission to block the proposed $24.6 billion deal where Kroger would purchase its competitor.

And on Wednesday, a member of the state’s congressional delegation added his voice.

“I fear that, without competition in the grocery sector, large chains like the proposed Kroger-Albertsons conglomerate could monopolize entire regions of Arizona, then raise prices, close store fronts and eliminate jobs,” U.S. Rep. Ruben Gallego wrote to Lina Khan, who chairs the FTC.

Gallego also gathered support for that position from the mayors of several Southern Arizona communities.

“I firmly believe that this particular merger could have significant negative impacts on our local economy, small businesses, and the well-being of our residents,” said Sierra Vista Mayor Clea McCaa.

Bisbee Mayor Ken Budge said he fears that the deal could result in the closure of the Safeway store in his community.

And Douglas Mayor Donald Huish said he has seen how mergers affect small towns.

“In 2021, when Food City/Bashas merged with Raley’s part of the merger included store closures,” he said, including the Food City in Douglas. That, he said, left Walmart as the only grocery outlet.

Hobbs, who said she shops at Fry’s, said she is watching.

“Combined, these are one of the largest employers in the state,” she said. “We’re concerned about potential loss of jobs and increasing prices, especially in rural areas that already have limited options for grocery stores.”

That leaves the question of what Hobbs would want if she ultimately determines that the merger is not in the best interests of the state.

One option would be to ask the FTC to block the deal entirely. There also has been discussion of requiring the newly formed company to spin off some of its stores to others to ensure that some competition remains.

Hobbs sidestepped what she is thinking.

“I’m not prepared to comment on that, just that we’re watching the situation,” she said.

Mayes, for her part, said Wednesday that a series of “town halls” she has conducted across the state seeking input on the deal has produced a consensus of sorts.

“Nearly universally, I’ve heard opposition to the proposed merger, coupled with real concerns for potential job losses associated with combining the two companies,” she said. “I’ve heard from seniors on fixed incomes worried that grocery prices could rise if the merger goes through.”

And then there’s the question of access.

Mayes said she’s heard from individuals, particularly in rural areas, that if a neighborhood grocery store were to close that would force them to have to walk or drive much further to buy basic necessities. And she said even military families have concerns that the merged entity might not accept their insurance to cover prescriptions.

The attorney general said she anticipates making a decision on what action to take, if any, by the end of the year, ahead of the scheduled 2024 date to complete the merger.

One option would be to urge the FTC, which has ultimate authority over the nationwide deal, to block it. Then there’s the possibility the federal agency could give its OK, but with some stores spun off.

But Mayes also could have some powers of her own.

Arizona law forbids any “contract, combination or conspiracy by two or more persons in restraint of, or to monopolize trade or commerce.”

When the deal was first announced, Mayes said she wanted to whether what the two grocery giants are doing, at least in Arizona, meets that definition.

“The people of Arizona have important input to make here, people who live in the neighborhoods where a Fry’s or a Safeway or a Smith’s could be shut down,” she told Capitol Media Services at the time.

That goes not just to the question of whether the combined operation, no longer competing for customers with each other, would be free to raise prices. Mayes said that decisions by the new company to shutter some of the stores could mean much longer drives to get food.

But she said it isn’t just the people shopping there who might be affected.

“We’re going to be getting input from the dairy operators in Arizona and the farmers and cattle growers who are worried about the reduction in competition in Arizona and the reduction in the number of outlets for their products,” Mayes said.

Questions about the merger — and whether it violates state antitrust laws — aren’t occurring in a vacuum. What also needs to be considered is what competition would remain in Arizona.

Bashas’ operates 118 stores, mostly in Arizona, under that name as well as Basha’s Diné Market, Food City and AJ’s Fine Foods.

Then there’s Walmart, which generally has more aggressive pricing than either Kroger or Safeway, though it does not put items on sale.

Kroger, in a statement earlier this year, said the merger “provides meaningful, measurable benefit to all stakeholders, including lowering prices, providing more choices and establishing a more competitive alternative to large, non-union retailers.” That last comment is in reference to Walmart, though not all Kroger stores are unionized, either.

And on a website set up by the two chains, Kroger CEO Rodney McMullen said the deal will “deliver superior value to customers, associates, communities and shareholders.”

It also claims that after the deal is closed, Kroger will invest $500 million to lower prices, $1.3 billion into Albertsons stores “to enhance the customer experience,” and $1 billion “to continue raising associate wages and comprehensive benefits.”

In their original announcement, the retailers said they are willing to divest up to 650 of the stores to overcome regulatory concerns. None of the possible locations have been announced.

But even if that happens, that is no guarantee the stores will stay open.

When Albertsons bought Safeway, it agreed to sell 146 stores to Haggen, a regional grocer. But Haggen eventually went bankrupt and Albertson’s bought back many of the stores.

Then there’s the question of whether anyone would be willing to buy the stores the new company is willing to shed, what with the possibility they are likely to offer up those which are least profitable.