Albertsons IPO- no status

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storewanderer
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Albertsons IPO- no status

Post by storewanderer »

http://supermarketnews.com/retail-finan ... ting-again

But quite a few negative comments to the article. Mostly same things I've been saying. Major service issues/understaffing in NorCal Division.

The article mentions the company is investing in price. In NorCal Division it sure isn't investing in everyday shelf prices on most items (recently cut donuts to 2 for $1 and the donuts I've bought at a couple different locations are inedible, just vile taste and really awful texture I have no idea how they can screw these fried in store donuts up to this degree; also advertising "new low prices in bakery"- they had decreased the 16-20ct cookies to 3.50 but just increased that up to 4.00 effective two days ago so much for that price drop).

Maybe other divisions are investing in everyday shelf pricing?

Or maybe investing in price involves running ads full of loss leaders which generates sales increases but gets cherry pickers into the store for those loss leader items who will buy little else because the regular shelf pricing is too freaking high.
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Re: Albertsons IPO- no status

Post by pseudo3d »

Donuts have always been 50¢ in the Texas Division pre-Albertsons. (I don't think they were fried in store, though...)

I can imagine that it's less the company specifically and more the uncertain economy (given how everyone is freaking about the upcoming presidential election and what that might entail either way).
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Re: Albertsons IPO- no status

Post by storewanderer »

Donut price in NorCal changes steadily. In the past year they've been 50 cents everyday price, then for a short time 69 cents, then back to 50 cents but that time club price for months (regular 69 cents), then went back to 69 cents, then eventually to 79 cents, then last month back to a 50 cent everyday price. An example of their completely mindless and out of control pricing. Of all items why is the price changing on this item so often?

Donuts at Smiths have been 59cents for about the past decade. The quality isn't good but it is better than the garbage that Safeway is producing currently which are some of the worst donuts I've ever had.

The timing on this deal was not good. The deflationary environment is a very tough one for grocers. Given the high debt levels of both Kroger and Albertsons (both of which are higher than either were carrying during the last deflationary period), any increases in Interest rates will spell trouble on the horizon for both companies as debt maturities come along as well, but that will be down the road, not immediately. Poor navigation of the last deflationary period is what helped bring Supervalu down, they had a lot of trouble navigating through that. Safeway also helped to feed a lot of its undoings during the past deflationary period due to its refusal to cut prices. The combined Albertsons Companies seems to be a clone of the old Safeway in all but name and operating in the same manner. The results of doing that will prove bad again in my opinion. Kroger on the other hand during the last deflationary period, held steady, kept up with its price decreases, lowered some quality to help drive the price message, and did well during the last deflationary period. We will see what happens this time.
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Re: Albertsons IPO- no status

Post by klkla »

I don't think you can look at recent micro-economic changes or donut prices to tell the whole story.

The changes to Kroger's pricing strategy started over a decade ago and was a direct response to Wal-Mart's aggression in the grocery industry. It's been a huge success in markets like Las Vegas, Denver, Dallas and Houston, as examples, where they are seen in consumer's eyes as being competitive with WM on prices. Maybe not as low but low enough that consumers are willing to pay a little more not to deal with the hassles of shopping at Wal-Mart. It's really important to note that there is not a huge problem with their operation now. Their decision to cut capital expenditures is a result of political uncertainty in the U.S. We are seeing this in many other industries, as well.

Safeway went a completely different direction. They decided to make their stores 'pretty' by adding faux wood floors and accent lighting and actually raised prices. That strategy was a huge failure.

Albertson's strategy was even worse than Safeway's. They did nothing to make their stores nicer AND raised prices. That Albertson's does not exist today. That company divested itself. SuperValu bought the good stores and ran them into the ground. Cerberus Capital Management bought the dogs and sold a lot of them off to raise capital and did a decent job of managing the remaining stores. They then used debt to buy back the stores SuperValu screwed up and Safeway (but not until after Safeway sold off the most valuable assets: Safeway Canada, Blackhawk Marketing and the real estate portfolio).

Which brings us to where we are now with 'Albertsons' which is really just Cerberus Capital Management. After stabilizing the legacy LLC operation they took on more debt buying back the SuperValu stores and even more debt buying the least profitable part of Safeway with the intention of quickly doing an IPO to pay down some of that debt.
But, that debt is keeping them from being competitive from a pricing standpoint, which is preventing them improving their sales, which is preventing them from doing an IPO.

This is just my own personal opinion, but they need to sell some of the profitable operations that aren't strategically important to them (Maybe ACME, Shaws/Star, and Safeway Eastern Division). That would raise billions off dollars which could be used to pay down the debt and then they could improve operations/pricing and move on to the point where they could do an IPO.

In other words they need to do exactly what they did with the LLC operation and stop trying to be king of the grocery industry. They can't succeed until they get rid of a substantial portion of the debt.
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Re: Albertsons IPO- no status

Post by pseudo3d »

klkla wrote:I don't think you can look at recent micro-economic changes or donut prices to tell the whole story.

The changes to Kroger's pricing strategy started over a decade ago and was a direct response to Wal-Mart's aggression in the grocery industry. It's been a huge success in markets like Las Vegas, Denver, Dallas and Houston, as examples, where they are seen in consumer's eyes as being competitive with WM on prices. Maybe not as low but low enough that consumers are willing to pay a little more not to deal with the hassles of shopping at Wal-Mart. It's really important to note that there is not a huge problem with their operation now. Their decision to cut capital expenditures is a result of political uncertainty in the U.S. We are seeing this in many other industries, as well.

Safeway went a completely different direction. They decided to make their stores 'pretty' by adding faux wood floors and accent lighting and actually raised prices. That strategy was a huge failure.

Albertson's strategy was even worse than Safeway's. They did nothing to make their stores nicer AND raised prices. That Albertson's does not exist today. That company divested itself. SuperValu bought the good stores and ran them into the ground. Cerberus Capital Management bought the dogs and sold a lot of them off to raise capital and did a decent job of managing the remaining stores. They then used debt to buy back the stores SuperValu screwed up and Safeway (but not until after Safeway sold off the most valuable assets: Safeway Canada, Blackhawk Marketing and the real estate portfolio).

Which brings us to where we are now with 'Albertsons' which is really just Cerberus Capital Management. After stabilizing the legacy LLC operation they took on more debt buying back the SuperValu stores and even more debt buying the least profitable part of Safeway with the intention of quickly doing an IPO to pay down some of that debt.
But, that debt is keeping them from being competitive from a pricing standpoint, which is preventing them improving their sales, which is preventing them from doing an IPO.

This is just my own personal opinion, but they need to sell some of the profitable operations that aren't strategically important to them (Maybe ACME, Shaws/Star, and Safeway Eastern Division). That would raise billions off dollars which could be used to pay down the debt and then they could improve operations/pricing and move on to the point where they could do an IPO.

In other words they need to do exactly what they did with the LLC operation and stop trying to be king of the grocery industry. They can't succeed until they get rid of a substantial portion of the debt.
Economics are everything. While Shaw's/Star Market can definitely go as far as non-core assets go...that is the ONLY division that hasn't seen significant remodels or new store announcements, not to mention it wasn't even part of the American Stores division and doesn't have a big history with either company.

The economics of the stock market and upcoming questions are important. Once someone gets elected and the markets stabilize, I can imagine the IPO will go out there again. As long as the economics are questionable, though, divesting divisions won't really help them. The 2006 breakup worked initially when the economy was good, but the economy afterward really screwed that over, and instead resulted in a large Albertsons/Safeway company with a lot of debt, and a SuperValu similarly drowning.

It should be noted that Cerberus bought the bad DIVISIONS, not the bad STORES. A lot of stores were bad, and those were the ones closed. What was closed by Cerberus between 2006 and 2012 have not seen grocery use since. The big exceptions were the NorCal division (to Save Mart) and about half of the Florida division (to Publix) as well as a smattering of smaller stores, and for the most part, those tended to be profitable stores that they could get money off of.

Selling ACME for instance would basically be defeat, and a death spiral will begin if you start selling off profitable chunks of your company for money. But selling stores only goes so far in current economic seasons. Part of the reason why Safeway's spun-off divisions in the late 1980s suffered so much was they were dropped off in a recession, and by the end of the 1990s, not one of the companies that bought them or the stores themselves were intact. AppleTree (Houston) was an independent with only three stores (a far cry from 99), Furr's, which had bought the El Paso division, was on the brink of bankruptcy, having been under Fleming. Borman's (Salt Lake City) was owned by A&P, which was busy gutting its Farmer Jack division, Homeland (OKC) was now an independent label under AWG, and Vons (Southern California) was wholly swallowed by Safeway.

In better or more stable economic times, the IPO can launch successfully and any talk of spinning off assets doesn't happen, but it isn't. Likewise, better times would be more facilitative of spinning off assets without fear of them failing and/or falling into the maws of a competitor.
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Re: Albertsons IPO- no status

Post by wnetmacman »

pseudo3d wrote:Economics are everything. While Shaw's/Star Market can definitely go as far as non-core assets go...that is the ONLY division that hasn't seen significant remodels or new store announcements, not to mention it wasn't even part of the American Stores division and doesn't have a big history with either company.
Probably true, but they also haven't had significant closings either. They must be doing something right or close to it, because Cerberus is all about the mighty dollar.
pseudo3d wrote:The economics of the stock market and upcoming questions are important. Once someone gets elected and the markets stabilize, I can imagine the IPO will go out there again. As long as the economics are questionable, though, divesting divisions won't really help them. The 2006 breakup worked initially when the economy was good, but the economy afterward really screwed that over, and instead resulted in a large Albertsons/Safeway company with a lot of debt, and a SuperValu similarly drowning.
Supervalu has been drowning for many years, and really should have gone the way of Fleming years ago. One could assert they are the Kmart of grocery distribution. And you are correct, the current Albertsons is a huge company with a lot of debt. It's manageable, but without an IPO, long term sustainability may be difficult.
pseudo3d wrote:It should be noted that Cerberus bought the bad DIVISIONS, not the bad STORES. A lot of stores were bad, and those were the ones closed. What was closed by Cerberus between 2006 and 2012 have not seen grocery use since. The big exceptions were the NorCal division (to Save Mart) and about half of the Florida division (to Publix) as well as a smattering of smaller stores, and for the most part, those tended to be profitable stores that they could get money off of.
Don't forget Oklahoma, which went mostly to Homeland, and there are a great number of stores in Houston that were built as Albertsons and now operate under Kroger, HEB, Food Town and others quite successfully.
pseudo3d wrote:Selling ACME for instance would basically be defeat, and a death spiral will begin if you start selling off profitable chunks of your company for money. But selling stores only goes so far in current economic seasons. Part of the reason why Safeway's spun-off divisions in the late 1980s suffered so much was they were dropped off in a recession, and by the end of the 1990s, not one of the companies that bought them or the stores themselves were intact. AppleTree (Houston) was an independent with only three stores (a far cry from 99), Furr's, which had bought the El Paso division, was on the brink of bankruptcy, having been under Fleming. Borman's (Salt Lake City) was owned by A&P, which was busy gutting its Farmer Jack division, Homeland (OKC) was now an independent label under AWG, and Vons (Southern California) was wholly swallowed by Safeway.
The division spinoffs started AFTER they killed Dallas in piecemeal. The fact that no one grocer wanted the whole division was indicative of the times then; Albertsons, Skaggs, Kroger, Winn Dixie and many others already operated in Dallas, and each got parts of the puzzle that filled in their gaps, but 1/3 o the stores and the DC never were sold. Some of these stores still operate today, but only a small handful. AppleTree, Furrs, Homeland, Harvest Foods (Arkansas) and others were unfortunate casualties (or suckers, if you will) who inherited a sad, pitiful store base. That isn't the issue completely this time, as Albertsons has put some money into the stores. Some of the Safeways closed or sold in 1987-1990 hadn't been touched in years (or decades).
pseudo3d wrote:In better or more stable economic times, the IPO can launch successfully and any talk of spinning off assets doesn't happen, but it isn't. Likewise, better times would be more facilitative of spinning off assets without fear of them failing and/or falling into the maws of a competitor.
Someone once told me that if you wait to have children until you can afford them, you never will. An IPO is similar; if you wait for the economy to be perfect, it never will. And I don't see any spinoffs being necessary to pull it off.
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Re: Albertsons IPO- no status

Post by pseudo3d »

wnetmacman wrote: Supervalu has been drowning for many years, and really should have gone the way of Fleming years ago. One could assert they are the Kmart of grocery distribution. And you are correct, the current Albertsons is a huge company with a lot of debt. It's manageable, but without an IPO, long term sustainability may be difficult.
I should note that even in better times, SuperValu realistically couldn't afford Albertsons and did not have the resources, much less a competent team, to save Albertsons. What should've been Albertsons' savior just ended up undermining the good divisions further.
pseudo3d wrote:It should be noted that Cerberus bought the bad DIVISIONS, not the bad STORES. A lot of stores were bad, and those were the ones closed. What was closed by Cerberus between 2006 and 2012 have not seen grocery use since. The big exceptions were the NorCal division (to Save Mart) and about half of the Florida division (to Publix) as well as a smattering of smaller stores, and for the most part, those tended to be profitable stores that they could get money off of.
Don't forget Oklahoma, which went mostly to Homeland, and there are a great number of stores in Houston that were built as Albertsons and now operate under Kroger, HEB, Food Town and others quite successfully.
Oklahoma's stores (which were sold to AWG under a variety of different banners) were lumped in with the "smattering of smaller stores" but the Houston Division was an exception. It was sold in 2002 when things for Albertsons had gone bad after the ASC division. The Houston Division had a handful of awful locations but they had a lot of good locations with really nice stores. It was cut mostly because they had a really late entry into the market and it was nearly impossible to capture a market share despite the massive amounts of resources they were putting into it. The 2006-2012 closures under LLC largely resulted in the ex-Albertsons not becoming grocery stores aain.

The division spinoffs started AFTER they killed Dallas in piecemeal. The fact that no one grocer wanted the whole division was indicative of the times then; Albertsons, Skaggs, Kroger, Winn Dixie and many others already operated in Dallas, and each got parts of the puzzle that filled in their gaps, but 1/3 o the stores and the DC never were sold. Some of these stores still operate today, but only a small handful. AppleTree, Furrs, Homeland, Harvest Foods (Arkansas) and others were unfortunate casualties (or suckers, if you will) who inherited a sad, pitiful store base. That isn't the issue completely this time, as Albertsons has put some money into the stores. Some of the Safeways closed or sold in 1987-1990 hadn't been touched in years (or decades).
Battered as the stores may have been (totally not debating on that front, there were undersized Marina stores, old early 1950s stores, and a lot of stores that at best were from the mid-1970s), the chains still faced an uncertain future in those times. AppleTree (for example) had no money to spend on cap-ex (they had renovated one store, and most of the stores literally just got a repainting) and quickly folded under the highly competitive Houston market. Their Austin market fared slightly better, and was purchased by Randalls, which ironically now has the same problem of "faring slightly better than the Houston market".

Someone once told me that if you wait to have children until you can afford them, you never will. An IPO is similar; if you wait for the economy to be perfect, it never will. And I don't see any spinoffs being necessary to pull it off.
They at least want something more stable. Personally, I agree...spin-offs of anything more than Shaw's/Star Market (at best) would just undermine confidence, and already Albertsons has a questionable value on the "confidence" rating.

It can go either way at this point. They have a checkered past and some visible problems but some well-entrenched markets, a decent store base, a management team that is keeping their store numbers healthy (some closures but also a few new stores), and a store brand of their own.
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Re: Albertsons IPO- no status

Post by klkla »

pseudo3d wrote:Economics are everything. While Shaw's/Star Market can definitely go as far as non-core assets go...that is the ONLY division that hasn't seen significant remodels or new store announcements, not to mention it wasn't even part of the American Stores division and doesn't have a big history with either company.

The economics of the stock market and upcoming questions are important. Once someone gets elected and the markets stabilize, I can imagine the IPO will go out there again. As long as the economics are questionable, though, divesting divisions won't really help them. The 2006 breakup worked initially when the economy was good, but the economy afterward really screwed that over, and instead resulted in a large Albertsons/Safeway company with a lot of debt, and a SuperValu similarly drowning.
If economics were everything they would be able to do their IPO now. The economy (GDP) has grown for seven years in a row. Unemployment is the lowest it's been since April 2008. All the well run companies in this industry are very profitable. The stock markets are near or at all time highs.

The problem with Cerberus' grocery stores is that they are not well run, don't generate enough profit and are saddled with high debt. That is what has been holding their IPO back and it is not likely to change after the election.

Again, they need to:
#1 - Decide which assets will bring the most cash and are not strategically important. Then sell them.
#2 - Pay down the debt.
#3 - Invest in pricing and customer service.
#4 - When they get their operation back to the level it was before buying SuperValu's stores and Safeway they can do their IPO
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Re: Albertsons IPO- no status

Post by klkla »

wnetmacman wrote:Someone once told me that if you wait to have children until you can afford them, you never will. An IPO is similar; if you wait for the economy to be perfect, it never will. And I don't see any spinoffs being necessary to pull it off.
It's important to remember that the reason they have not done the IPO so far isn't because they don't want to do it. The reason is because Wall Street isn't convinced. If they did an IPO now they wouldn't be able to raise enough enough capital to make it worth it.
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Re: Albertsons IPO- no status

Post by pseudo3d »

klkla wrote:
pseudo3d wrote:Economics are everything. While Shaw's/Star Market can definitely go as far as non-core assets go...that is the ONLY division that hasn't seen significant remodels or new store announcements, not to mention it wasn't even part of the American Stores division and doesn't have a big history with either company.

The economics of the stock market and upcoming questions are important. Once someone gets elected and the markets stabilize, I can imagine the IPO will go out there again. As long as the economics are questionable, though, divesting divisions won't really help them. The 2006 breakup worked initially when the economy was good, but the economy afterward really screwed that over, and instead resulted in a large Albertsons/Safeway company with a lot of debt, and a SuperValu similarly drowning.
If economics were everything they would be able to do their IPO now. The economy (GDP) has grown for seven years in a row. Unemployment is the lowest it's been since April 2008. All the well run companies in this industry are very profitable. The stock markets are near or at all time highs.

The problem with Cerberus' grocery stores is that they are not well run, don't generate enough profit and are saddled with high debt. That is what has been holding their IPO back and it is not likely to change after the election.

Again, they need to:
#1 - Decide which assets will bring the most cash and are not strategically important. Then sell them.
#2 - Pay down the debt.
#3 - Invest in pricing and customer service.
#4 - When they get their operation back to the level it was before buying SuperValu's stores and Safeway they can do their IPO
The unemployment rate is massively skewed...it doesn't account for underemployment or those who just gave up searching for jobs due to the poor economy. Likewise, the economic growth in this country has been unprecedentedly slow under the Obama administration (not saying that it's their fault, I'm looking at the overall reality). At best, it's nothing to be too excited for, and while it's technically growth, the recent numbers for same-store sales increases at Albertsons/Safeway is also growth, and we know that's not too exciting. (I should also mention that the recent deflation trend is hurting grocers right now)

Nor can we assume "asset sales = instant $$$" because assets are only worth as much as the highest bidder. Back in the early 1990s, American Stores tried to sell ACME Markets, which was the basis of the original American Stores. It failed, and while American Stores divested itself of a number of entities (the former Skaggs Alpha Beta/Jewel-Osco stores, sold to Albertsons, as well as Star Market). The end result was that ACME was spared divestments' wrath, and American Stores had to fix ACME's problems themselves (such as selling off dated upper NY stores to Penn Traffic).

I could see Albertsons getting rid of the Safeway Hawaii stores by selling them to Times or Foodland (and taking a share of a company in case Kroger decides to start sniffing around for an acquisition). I can also see them getting rid of Shaw's/Star Market. But what good would that do? It wouldn't be a massive sale. Ahold Delhaize already has most of the market, and unless they're willing to pay a premium to get a monopoly, the only other hope would be an investment group (which American Stores had sold Star Market to the early 1990s), which only seeks to make money off of it (which is why they sold Star Market to J. Sainsbury, which combined it with their Shaw's chain, which Albertsons ended up buying back). It might provide Albertsons with some free cash but it deprives them of a profitable (I assume) division and creates a high chance of condemning Shaw's/Star Market to a watery grave.

Moreover, things at Albertsons are shaky enough that moves like that will scare off investors and erode confidence in a company that is already on pretty shaky ground as is.

And confidence is a good thing. Southeastern Grocers had also wanted to do an IPO from 2013 to 2014. It's pushing much less debt (only $1B), but in many ways it has a lot more to lose. Their store base isn't nearly as solid. Whereas Safeway and Albertsons jointly have a great hold from the Pacific to the Rockies (except Utah), Winn-Dixie's home state, Florida, only has half as many stores as Publix does. Their operations are dubious, a lot of their store base is in pretty bad shape, and their management can't even focus on "making great stores" shifting wildly from modern, upscale stores that can go toe to toe with Publix to discount-oriented stores that will look dowdy within a few years.

While Albertsons could sell off parts of its empire if it really wanted to, there isn't much hope for SEG, as their stores tend to be rough or in rough locations. At best, Winn-Dixie can aim for being a small Florida chain that serves as an alternative to mega-corp Publix (which now has about as many stores and as big of a spread as Winn-Dixie did when it was at the height of its popularity), but Winn-Dixie can't even do that right.
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