Albertsons and...Sprouts?

[pseudo3d]

Sprouts is definitely fueling itself with store growth like other bubble retailers we have seen that are no longer with us or having problems now. But there are some things in Sprouts favor: smaller average store sizes, lower expense structure (low labor costs and lower inventory levels), etc. I have been to some Sprouts Stores that are VERY busy and look to have pretty good velocity but I have also been to quite a few that clearly have some problems.

Lately Sprouts has been trying to expand its perishables to try and compete better and its newest stores have a much more compelling perimeter than its older stores with a larger deli, larger soup/salad bar, larger bakery, larger service meat, etc. I am suspecting this expansion is messing up their previous low labor/low expense structure with the money that is needed to run these departments, additional labor, and additional shrink. Sprouts has also added a lot more SKUs to center store (shelves have been made higher, etc.) and I am wondering if they are having movement problems there too.

My observation of Sprouts is their stores sell a ton of produce, bulk foods, and a ton of low margin meat items (like boneless skinless chicken breasts), along with some movement in dairy, but outside of that, they do not move much product; center store is way overpriced and does not move well, vitamins do not move well at all, and their deli/bakery areas also look pretty slow.

I like Sprouts but I have had some quality issues with produce. I am not sure they sell first quality produce in all cases... they also source from very far away, like New York Apples in California. Nobody else does that. I appreciate the variety, but not the dryness or mushiness of those long-transported apples.

As far as Albertsons buying Sprouts goes, how does that impact the image of Sprouts? How will that impact the image of Sprouts if it is expanded into new markets and introduced to the public by media reports or similar as being "owned by Albertsons?"

Kroger already has its arrangement/partnership with "Lucky's Market" but it seems to end there: there is no Kroger product in those stores, they are not on Kroger systems, and have completely separate management. Since Kroger does not actually own it, there is no connection made to them and "Lucky's" in media, etc.

My biggest worry with Albertsons potentially acquiring Sprouts is the damage such an acquisition could do to Sprouts' fundamentals. Although Sprouts seems to be growing consistently now, most of this growth seems to be through new stores (as mentioned previously) rather than broadening the stores' shopper base. If Albertsons was to come into the picture, Sprouts would likely lose it's health-conscious and independent image among consumers, many of whom frequent the stores to avoid the "corporate grocery" atmosphere, and are the frequent shoppers buying the produce/bulk items/dairy as you mentioned. In many ways, Sprouts has failed to move outside of this "healthy living" demographic, unlike chains such as Wegmans, Mariano's and Central Market which have targeted a much wider "high-end and specialty" shopper base, which includes the aforementioned health-focused consumers. This would also make the chain difficult to integrate within Albertsons' portfoilo, as many of the efficiencies which could be gained by integrating Sprouts into the rest of the company structure could also be the same moves which drive shoppers away. This could also allow Kroger to gain ground by acuiring a controlling interest in Lucky's and attempting to take out Sprouts while it is in a weak state under Albertsons bureaucracy.

Side note: Another huge issue would be divestitures. Many of the markets previously affected by the Safeway acquisition would likely be affected, particularly SoCal, Phoenix/Tucson, Denver, DFW, and potentially Las Vegas. In addition, anti-trust concerns could even be raised in cases in other markets such as Albequerque and Austin where Sprouts occasionally has stores adjacent or close to current Albertsons-bannered operations.

With the major divestments being required and the whole stigma, I don't think Albertsons will end up buying Sprouts at all even if it was more than just adding it to their portfolio. The more likely scenario I can see is a merger with Lucky's Market, which has a similar store size and product mix.

[storewanderer]

I don't think Albertsons is concerned with divestments. They know how to handle divestments. They know how to handle that and ultimately end up with the locations they wanted to operate, and a few extra cherries on top at that.