The past week saw a flurry of antitrust news with implications for small and independent brewers. Most notably, two different courts issued preliminary injunctions blocking the proposed Kroger-Albertsons merger—a win for small and independent brewers, as well as other suppliers to the grocery category. Later in the week, the Federal Trade Commission (FTC) filed a suit against wine and spirits wholesale giant Southern Glazer’s Wine & Spirits alleging price discrimination in violation of a rarely enforced federal law. All of this occurred with a backdrop of coming changes at the top of the federal government’s antitrust enforcement agencies.

Proposed Kroger-Albertsons Merger Blocked

Antitrust law aims to preserve competition and helps ensure that the market does not become too tilted in favor of the biggest players. Consolidation at all three tiers of the alcohol beverage industry certainly has tilted the playing field against small producers for decades. Most relevant to last week’s developments, chain grocery, with its category management practices and tendency to prefer widely distributed products, already presents a formidable challenge for small and independent brewers to get on shelves. Combining the two largest national chain supermarket groups into one would mean even less opportunity for small suppliers. The Brewers Association had concerns about the potential anti-competitive impact of the merger when it was announced in the fall of 2022 and communicated those concerns to FTC officials. Our concerns were shared by many others throughout the grocery supply chain, as well as many state attorneys general.

On Tuesday, December 10, two different courts sided with the FTC and issued preliminary injunctions against the proposed merger between grocery giants Kroger (owner of supermarket chains including Kroger, King Soopers, QFC, Fred Meyer, Ralphs, Fry’s, Mariano’s, and Harris Teeter) and Albertsons (owner of supermarket chains including Albertsons, Safeway, Vons, Jewel Osco, Shaw’s, Haggen, Star Market, and Tom Thumb).

The extensive December 10 opinion by the U.S. District Court for the District of Oregon largely sided with the positions of the FTC, which was joined in the lawsuit by Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon, Wyoming, and the District of Columbia. While the opinion addresses a non-final motion—whether or not to issue a preliminary injunction against the merger pending a separate FTC administrative proceeding on the merits—the court’s detailed explanation was significant on a number of key issues in the case:

1. The court accepted the FTC’s narrow view of the relevant “market” as “supermarkets,” including traditional supermarkets and supercenters and excluding a host of other venues (natural food stores, “club” stores, etc.) that also sell groceries, but have a different business model than supermarkets like Kroger and Albertsons.
2. The court also evaluated the transaction using a somewhat broader market definition of “large format stores,” consisting of traditional supermarkets and supercenters, plus natural and gourmet food stores (e.g., Whole Foods), club stores (e.g., Sam’s Club), and limited assortment stores (e.g., Aldi).
3. The court found that “the merger would lead to undue market concentration in multiple geographic markets in both the supermarkets and large format stores markets that would presumptively lessen competition[.]”
4. The court used the FTC’s 2023 Merger Guidelines as persuasive (non-binding but relevant) authority, rejecting arguments that the older, less stringent 2010 version of the Merger Guidelines should apply.
5. The fact that Kroger and Albertsons engaged in substantial head-to-head competition warranted a finding of anticompetitive effects of the merger, even when crediting Kroger’s claim that it viewed Walmart as the chain’s biggest competitor.
6. The purported efficiencies allegedly to be generated by the transaction were not sufficiently proved to justify setting aside the competitive concerns.
7. The proposed divestiture of roughly 600 stores to distributor C&S Wholesale Grocers was insufficient to mitigate the anti-competitive harm of the transaction.

The one significant point where the court did not fully agree with the FTC involved the agency’s attempt to look at labor markets (i.e., competition with respect to worker wages and benefits) as grounds to block the proposed merger. The court agreed with the FTC that the antitrust laws could be used to preserve competition in labor markets. But, given the relative lack of analysis of these markets for antitrust purposes, the court did not rely on labor market competition as a basis for issuing its preliminary injunction. Nevertheless, the court’s other findings with respect to harm to competition in the supermarkets and large format stores markets were sufficient for the District of Oregon to issue a preliminary injunction blocking the transaction.

Unlike most state attorney general’s offices, Washington State pursued its own separate action attempting to block the Kroger-Albertsons merger. On the same day that the District of Oregon issued its opinion, Washington State’s King County Superior Court announced its own decision to enjoin the merger. According to press reports about the hearing, the judge ruled that competition between the two companies in the state was “fierce” and that a planned divestiture to C&S would “not be able to replicate the ferocity of that competition.” Notably, the Washington State court rejected arguments that it lacked the authority to issue a nationwide injunction.

Immediately following these court decisions, multiple news outlets reported that Albertsons formally terminated the proposed merger and filed a complaint against Kroger in Delaware Chancery Court (the complaint was filed under seal). Albertsons’ suit reportedly seeks billions in damages, claiming that Kroger violated the parties’ merger agreement. In a news release, Albertsons said Kroger broke its merger agreement “by repeatedly refusing to divest assets necessary for antitrust approval, ignoring regulators’ feedback, rejecting stronger divestiture buyers and failing to cooperate with Albertsons.”

The FTC Files Lawsuit Against Southern Glazer’s Wine & Spirits

As if this weren’t enough antitrust activity for one week, on Thursday, December 12, the FTC filed its long-awaited lawsuit against Southern Glazer’s Wine & Spirits—the country’s largest wine and spirits wholesaler. The lawsuit, filed in the U.S. District Court for the Central District of California, alleges that Southern’s pricing practices violate the Robinson-Patman Act (R-P Act). In simplified terms, the R-P Act prohibits differential pricing by a seller of goods to commercial buyers unless the differential prices are justified by actual costs (e.g., differences in freight efficiencies) or by the need to meet a competitor’s lower pricing. At the center of the controversy is the widespread practice, often explicitly authorized in state alcohol beverage codes, of offering quantity discounts, which benefits large retail buyers.

On the books since 1936, the FTC has not brought a case under the R-P Act in decades, largely reflecting the fear that enforcement of the law results in higher prices to consumers. The current administration’s antitrust leadership, led by FTC Chair Lina Khan, has advocated for a return to R-P Act enforcement as a way to combat inequality in the economy. By filing the complaint, the FTC is attempting to substantially shift the landscape of antitrust enforcement in the United States.

The shift in policy on R-P Act enforcement, and perhaps other aspects of the Biden Administration’s tougher antitrust stance, now face an uncertain future given the results of November’s presidential elections. Current Chair Khan’s term is at an end, and President Elect Trump last week announced that he wants Andrew Ferguson to become the next Chair of the FTC. Ferguson already sits on the five-person commission and notably dissented from last week’s decision to file a case against Southern. The new Republican commissioner President Elect Trump has named, Mark Meador, is currently in private practice and has written positively about enforcing the R-P Act. It accordingly remains unclear whether the FTC, as changed by the incoming Administration, will or will not continue with its R-P Act case against Southern.

The Brewers Association remains engaged and will continue to monitor changes as the incoming Administration puts its stamp on antitrust policy matters.