FTC to Seek Injunction to Block Kroger Co. Purchase of Winn-Dixie Supermarkets in Texas and Oklahoma

Citing competitive concerns in Fort Worth and several smaller cities in Texas, the Federal Trade Commission today voted to seek a preliminary injunction to block the Kroger Company's proposed acquisition of 74 Winn-Dixie supermarkets in Texas and Oklahoma. About half of the stores are in metropolitan Fort Worth, where Winn-Dixie and Kroger are the second- and third-largest supermarket chains, respectively. According to the Commission complaint, the combined Kroger/Winn-Dixie presence in Fort Worth would account for 33 percent of all supermarket sales within the market, leading to the likelihood of competitive harm to consumers.

"The transaction as proposed would combine Fort Worth's second- and third-largest supermarket chains to create a new dominant firm in Fort Worth," said FTC's Bureau of Competition Director Richard G. Parker. "As a result of this merger, consumers would lose the benefit of more than 20 years of head-to-head competition between Kroger and Winn-Dixie."

Kroger, headquartered in Cincinnati, Ohio, is the largest supermarket chain in the United States, operating more than 2,200 stores under the "Kroger" banner and several others in 31 states. Its U.S. sales in 1999 were more than $45 billion. Kroger operates 54 supermarkets in Texas, with average weekly sales in metropolitan Fort Worth totaling $6.2 million.

Winn-Dixie Texas, Inc., a Texas corporation and wholly owned subsidiary of Winn-Dixie, is headquartered in Forth Worth. It operates 74 supermarkets in Texas and Oklahoma. In these states, Winn-Dixie's total sales revenue for fiscal year 1999 was $745 million, with average sales of $6.8 million per week in metropolitan Forth Worth.

According to the Commission's complaint, Kroger's acquisition of Winn-Dixie's stores in Texas and Oklahoma would violate Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, by substantially reducing competition in several markets in Texas including metropolitan Fort Worth, Granbury, Weatherford, Brownwood, Henderson, Denton and Marshall.

While Dallas and Fort Worth are within an area known as the Metroplex, in this case the Commission defined metropolitan Fort Worth as a market economically and geographically distinct from Dallas for supermarket consumers. Within the Fort Worth market, if the acquisition were to proceed as proposed, Kroger would control one-third of all supermarket sales within the city.

According to the complaint, the smaller markets outside Fort Worth are even more highly concentrated, with the merged firm poised to become the largest chain in Granbury, Weatherford, Brownwood and Denton; and the second-largest in Marshall and Henderson.

Additional evidence suggests that the acquisition would harm competition by allowing Kroger to exercise unilateral market power, according to the Commission. First, the acquisition would end 22 years of direct competition between the two supermarket chains, enabling Kroger to surpass Albertsons and become the "market leader" in Fort Worth. While Winn-Dixie is currently Krogers' main competitor in this market, research indicates that most Winn-Dixie customers view Kroger as a close substitute when doing their food shopping. It would be expected, therefore, that they would simply switch to Kroger if the Winn-Dixie where they currently shop were acquired and renamed.

Maintaining the Winn-Dixie customer base would help Kroger increase its already strong position in the marketplace.

Also, some Kroger supermarkets are located so close to Winn-Dixie's that Kroger could close specific Winn-Dixie's that "overlap" because of their proximity to the Kroger-branded outlets. Kroger could even close both stores, forcing its customers to shop at a nearby supermarket. In either case, due to the close customer association between the two chains, most customers would most likely become or remain Kroger shoppers.

Lastly, the acquisition would increase the chance that Kroger could engage in anticompetitive interactions with the remaining supermarket chains, such as Albertson's, Tom Thumb and Minyards. By eliminating the direct competition between Kroger and Winn-Dixie, it would also eliminate the need for future competition between the two chains, both of which appear to have aggressive growth strategies in the Fort Worth area. The complaint also alleges that new stores operated by competing firms are not expected to be opened in sufficient numbers in these markets to defeat Kroger's ability to exercise market power after the transaction is completed.

The Commission vote to seek a preliminary injunction to block the proposed transaction was 5-0.

The complaint seeking a preliminary injunction will be filed in Federal District Court in Dallas, Texas.

Copies of the FTC complaint seeking a preliminary injunction will be available upon filing from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 202-326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 001-0057)