Murkowski and Sullivan criticize planned Alaska grocery divestiture, cite concerns for supply chain, food distribution

Alaska’s U.S. Senators Lisa Murkowski and Dan Sullivan wrote a strongly-worded letter to Lina Khan, chair of the Federal Trade Commission, raising major concerns about the pending Kroger-Albertsons merger that will have effects on grocery stores in Alaska including several in the Matanuska-Susitna Borough.

Albertson owns Safeway and Carrs stores in the state while Kroger owns Fred Meyer.

The merger agreement proposes to sell 14 of 35 Carrs/Safeway store in Alaska to C&S Wholesale Grocers, LLC, a major U.S. wholesale grocery company that limited retail operations in midwest and southeast states.

“To date, no adequate evidence shows how this proposed merger will ultimately benefit Alaska consumers. Instead, recent history points to consumer and employee harm, so we ask that the FTC consider enforceable measures,” to mitigate the effects. “If approved, this merger appears to go against the interest of Alaska and Alaskans,” the senators wrote in the letter dated Sept. 22.

Kroger defended the merger including a guarantee that no stores will close and that employees and collective bargain agreements will be protected.

“The divestiture plan with C&S will mean zero stores will close as a result of the merger, all frontline associates will remain employed, all existing collective bargaining agreements will continue, and associates will continue to receive industry-leading benefits alongside bargained-for wages,” a Kroger spokesperson said in a statement.

As for the company that may take over the 14 Carrs-Safeway stores, Kroger said: “C&S’s strong operational focus and financial resources will position the divested stores to successfully operate and serve their communities.”

Still, the merger will create waves in the food retail competitive environment in the state, Murkowski and Sullivan wrote in the letter. “Fred Meyer and Safeway/Carrs are each others’ primary competitors. Although Kroger’s divestiture announcement does not specify where the 14 transfers of ownership will take place, the sales will likely occur where stores are near one another,” a situation that exists in the Matanuska-Susitna Borough as well as locations in Anchorage and Fairbanks, the senators wrote.

“The likely result is that in Alaska’s most populous markets, Kroger will lose its largest and most sophisticated competitor, which in time would be subsumed by a new and unproven operator in the Alaska market (C&S Wholesale),” Murkowski and Sullivan wrote.

The letter noted promises made last November by Kroger CEO Roger McMullen that, nationwide, the company would invest $500 million to lower food prices and $1.3 billion to improve “customer experience” starting when the merger closes.

“While we appreciate the promises made, we are concerned there is no way to enforce Mr. McMullen’s commitment,” the senators wrote. “Perhaps the FTC should require the pledged price reductions take place as a condition of the merger,” Murkowski and Sullivan said.

As for C&S, the senators said the company, “lacks expertise and commitment to operate in Alaska. Alaska imports 95 percent of its food, primarily through the Port of Alaska in Anchorage. Alaska’s supply chain is complicated and relies on a carefully choreograhed movement of goods between that particular port and stores in often-adverse weather conditions.”

In Alaska, attention has focused particularly on differing distribution systems used by Kroger and Carrs-Safeway where Kroger supplies Fred Meyer stores with trucks operating from a ship at the Port of Alaska, while Carrs Safeway uses a large warehouse to temporarily store food before it is sent to stores.

The direct ship-to-shore supply chain is more vulnerable to unforeseen delays while the warehouse model offers a cushion of having food supplies available.

Presuming that Kroger would take over the Carrs-Safeway stores not sold to C&S the company would presumably expand its existing ship-to-system, increasing the supply vulnerability. It is also unknown which model C&S would rely on to supply the 14 stores it would purchase.

As for the commitment not to close stores, Murkowski and Sullivan cited the 1999 purchase of Carrs stores by Safeway which required that six stores be sold. Those were closed after they were sold to Alaska Marketplace, a smaller and inexperienced operator.