Kroger to merge with Albertsons?

[marketreportblog]

The Northeast assets- I would agree those NEED to be remodeled. But Kroger does not throw good money after bad. These stores are undersized and poorly positioned. No amount of money short of relocating every store/expanding every store would position Shaw's better enough against Market Basket to beat Market Basket, for instance. Or position Acme to overtake Giant-PA, for example. I won't even mention Safeway East Div because I expect that goes away and Harris Teeter in the region is kept in favor of it. So I am not sure we will see Kroger spend much money if any money in the Northeast and Mid Atlantic. I also do not think Kroger is a great fit for the Northeast.

You're absolutely right, ACME is not going to overtake Giant-PA anytime soon. Giant's geographic reach is so much larger with roughly 3 times as many stores (156 to ACME's 50 in PA). The Giant-PA stores have to be significantly higher-volume than the ACMEs, too. Ahold Delhaize poses a big threat to ACME (although a bigger threat to Safeway and Shaw's/Star). Because of how the chain's evolution has gone, ACME now has more stores in NJ than PA -- roughly as many in NJ as in PA, MD, and DE combined. Their geographic reach in PA is barely beyond Philadelphia itself, but their geographic reach in New Jersey is quite literally the whole state. For what it's worth, ACME owns the farthest-north supermarket in NJ (Sussex) and the farthest-south (Cape May). They're in key NYC suburbs, key Philadelphia suburbs, key Jersey Shore locations, key remote locations with no other supermarket choices around... their geographic locations in New Jersey are generally quite good.

However, New Jersey has ShopRite (roughly 150, in fact). If you look at the closest competitors for each of the ACME stores -- what is the nearest mainstream supermarket to each ACME? -- a little under 30% of the ACME stores have a ShopRite or a Fresh Grocer as their nearest competitor. A little over 20% of the ACMEs have an Ahold Delhaize store as their nearest competitor -- but a quarter of that is Food Lion, a weak and lower-end competitor, about a fifth of that is Stop & Shop which is an extremely weak operation in NJ, and a little more than half of that is Giant-PA. Those are very high-volume and well-run stores, as far as I can observe.

That means that the biggest growth potential for ACME is New Jersey, where they could both more directly compete with Wakefern/ShopRite and take as much market share from operators who are not ShopRite as possible. An invigorated ACME owned by Kroger could see a lot of growth by overtaking Stop & Shop, which wouldn't be that hard, for market position in NJ. So I think Kroger could really grow ACME by not overtaking the market leader, but consolidating basically everything else in the market. That's very doable, and I suspect they were already on that trajectory with their Kings acquisition (they didn't want Kings really, they just wanted a larger piece of the grocery pie in New Jersey).

[storewanderer]

I think Naperville is a good example’s because it’s a large, upscale suburb. If Kroger had owned Jewel, that specific store would’ve had its interior gutted and rebuilt years ago. Yes, Albertsons has been aggressively remodeling all Jewel locations, but the renovations are very clearly minimal – maybe not as minimal as others, but collectively, they are not up to Kroger standards.

Obviously, Kroger is paying a lot of money to Albertsons for something, and the Northeastern assets yield the most growth opportunity. Kroger said it’d spend $1.3B on improving the customer experience on Albertsons’ stores. Merger related charges are generally separate (e.g. expenses associated with re-bannering stores, etc.), but you’re right – it could include building gas stations, etc.

The Northeastern assets provide the most growth opportunity for Kroger. SuperValu and Albertsons have put a lot of money into Shaw's and ACME over the past ~15 years. The major work is done - it wouldn't take a huge cash commitment to improve the aesthetics of the store. A 2019 Philadelphia Inquirer article discussing the downfall of ACME mentions "dilapidated" stores and high pricing as the reasons reader provided for not shopping there. Albertsons claims the division is generating positive cash flow, so I see no reason Kroger can't improve on it. I can't find similar comments on Shaw's performance, unfortunately. And Safeway is the larger, stronger brand in D.C. - I wouldn't be shocked to see the HT stores converted to the Safeway banner, but it could go either way.

I don't know. Out in the wild, Kroger has many stores sitting with their 80's/90's structure and layout and rather minimal remodel work beyond cosmetic work and routine repair and maintenance. They've made layout and refrigeration changes over the years, but the old departments, department prep areas, are the same as when the stores opened. They did box in many dairy alcoves to expand the walk ins, increase dairy storage space, and conserve refrigeration energy, yes. I am talking in Smiths division, Frys division, King Soopers Division, and Dillon division (save for major expansion stores which they do have quite a few of now), is full of stores like that.

How many new build stores have opened by Shaw's and Acme in the past 15 years? How many major expansions?

My concern with Shaw's and Acme is I find their store base to be smaller than and inferior to various competitors in their market. I am not sure those stores fit what Kroger needs to do what Kroger does best, because they are simply too small... sort of like how Ralphs has been more of a challenge to get into the Kroger mold than, say, Smiths...

I highly doubt they will convert any HT Stores to Safeway. I expect the Safeway banner to be disappearing from DC/MD/VA. You don't convert stores to a dying market share losing chain with a poor reputation like Safeway in DC/MD/VA when the HT chain has been growing and has a far better reputation. Only risk is putting the Safeway stuff that is poorly run and outdated in with HT may end up hurting the image HT has in DC. I can't even imagine the HT banner that is typically associated with bright shiny stores with high ceilings on a dingy dark beat up lifestyle store. DC will still have plenty of competition but let's see how much they divest there.

[storewanderer]

You're absolutely right, ACME is not going to overtake Giant-PA anytime soon. Giant's geographic reach is so much larger with roughly 3 times as many stores (156 to ACME's 50 in PA). The Giant-PA stores have to be significantly higher-volume than the ACMEs, too. Ahold Delhaize poses a big threat to ACME (although a bigger threat to Safeway and Shaw's/Star). Because of how the chain's evolution has gone, ACME now has more stores in NJ than PA -- roughly as many in NJ as in PA, MD, and DE combined. Their geographic reach in PA is barely beyond Philadelphia itself, but their geographic reach in New Jersey is quite literally the whole state. For what it's worth, ACME owns the farthest-north supermarket in NJ (Sussex) and the farthest-south (Cape May). They're in key NYC suburbs, key Philadelphia suburbs, key Jersey Shore locations, key remote locations with no other supermarket choices around... their geographic locations in New Jersey are generally quite good.

However, New Jersey has ShopRite (roughly 150, in fact). If you look at the closest competitors for each of the ACME stores -- what is the nearest mainstream supermarket to each ACME? -- a little under 30% of the ACME stores have a ShopRite or a Fresh Grocer as their nearest competitor. A little over 20% of the ACMEs have an Ahold Delhaize store as their nearest competitor -- but a quarter of that is Food Lion, a weak and lower-end competitor, about a fifth of that is Stop & Shop which is an extremely weak operation in NJ, and a little more than half of that is Giant-PA. Those are very high-volume and well-run stores, as far as I can observe.

That means that the biggest growth potential for ACME is New Jersey, where they could both more directly compete with Wakefern/ShopRite and take as much market share from operators who are not ShopRite as possible. An invigorated ACME owned by Kroger could see a lot of growth by overtaking Stop & Shop, which wouldn't be that hard, for market position in NJ. So I think Kroger could really grow ACME by not overtaking the market leader, but consolidating basically everything else in the market. That's very doable, and I suspect they were already on that trajectory with their Kings acquisition (they didn't want Kings really, they just wanted a larger piece of the grocery pie in New Jersey).

Frankly I think the only reason they took King's was to do a favor to the woman who was running King's who was a former Supervalu/Albertsons person and still quite connected with the senior management that Albertsons had running Acme... those stores hardly do any volume.

I found the quality of Acme's operation to be far superior to the Safeway DC/MD/VA Stores. Acme had far stronger mix, better looking perimeters, cleaner stores, and better service levels. For all I've heard about Acme, on multiple trips back there visiting Acme Stores, I never saw the "zombie stores" I had always heard Acme had... I saw mostly modern stores that had higher pricing than most competitors but did seem to have traffic. Giant-PA absolutely had a better package than Acme (better mix still, and way better pricing and nicer stores), but to me I felt Acme was at a similar quality level to Giant-MD and better than Stop & Shop (that chain really lacks... yet has some high volume stores...).

I guess Ahold did the analysis on this deal and determined it was not worth pursuing a deal with Albertsons, despite the risks that they are taking by having Kroger go up against them in some of these markets... which is also interesting.

It will be interesting to see how Kroger handles the Shop Rite operators and how the Shop Rite operators handle Kroger. Kroger is going to experience some different competition than they have elsewhere. I am not convinced they will win in the Northeast.

[Bagels]

I think Naperville is a good example’s because it’s a large, upscale suburb. If Kroger had owned Jewel, that specific store would’ve had its interior gutted and rebuilt years ago. Yes, Albertsons has been aggressively remodeling all Jewel locations, but the renovations are very clearly minimal – maybe not as minimal as others, but collectively, they are not up to Kroger standards.

Obviously, Kroger is paying a lot of money to Albertsons for something, and the Northeastern assets yield the most growth opportunity. Kroger said it’d spend $1.3B on improving the customer experience on Albertsons’ stores. Merger related charges are generally separate (e.g. expenses associated with re-bannering stores, etc.), but you’re right – it could include building gas stations, etc.

The Northeastern assets provide the most growth opportunity for Kroger. SuperValu and Albertsons have put a lot of money into Shaw's and ACME over the past ~15 years. The major work is done - it wouldn't take a huge cash commitment to improve the aesthetics of the store. A 2019 Philadelphia Inquirer article discussing the downfall of ACME mentions "dilapidated" stores and high pricing as the reasons reader provided for not shopping there. Albertsons claims the division is generating positive cash flow, so I see no reason Kroger can't improve on it. I can't find similar comments on Shaw's performance, unfortunately. And Safeway is the larger, stronger brand in D.C. - I wouldn't be shocked to see the HT stores converted to the Safeway banner, but it could go either way.

I don't know. Out in the wild, Kroger has many stores sitting with their 80's/90's structure and layout and rather minimal remodel work beyond cosmetic work and routine repair and maintenance. They've made layout and refrigeration changes over the years, but the old departments, department prep areas, are the same as when the stores opened. They did box in many dairy alcoves to expand the walk ins, increase dairy storage space, and conserve refrigeration energy, yes. I am talking in Smiths division, Frys division, King Soopers Division, and Dillon division (save for major expansion stores which they do have quite a few of now), is full of stores like that.

The level of detail in each renovation heavily varies, but nearly all remaining Kroger stores – including the ones you’re describing – have received far more comprehensive changes than most other grocery chains. Yes, there are stores in Kroger’s fleet that have received simple décor updates, but it’s usually because they’re poor performers and these stores typically close as their leases expire (like in Little Rock over the summer). I’ll make an educated guess that very few of these stores remain. There’s also some well performing stores that have received minimal updates, typically because Kroger isn’t confident in its ability to renew the lease. My brother worked at one of Kroger’s highest volume stores. It’s a 1970 build store that hasn’t see any significant changes since it was renovated/expanded in 1990, other than décor updates in the early 2000s and late 2010s. It’s because the shopping center’s owner wants to tear it down and replace it with senior housing.

I did notice that the Boulder, CO store that was the scene of horror a couple years ago, reopened with what appears to be a heavily modified décor package – perhaps because it was already in the Fresh Fare package at the time of the incident.

How many new build stores have opened by Shaw's and Acme in the past 15 years? How many major expansions?

My concern with Shaw's and Acme is I find their store base to be smaller than and inferior to various competitors in their market. I am not sure those stores fit what Kroger needs to do what Kroger does best, because they are simply too small... sort of like how Ralphs has been more of a challenge to get into the Kroger mold than, say, Smiths...

Sure, Shaw’s is shrinking – about 40% of its store fleet has closed since Albertsons acquired in 2004, including two dozen closures since SuperValu sold it – but they still have nearly 150 stores over a relatively small geographic area. The stores converted to Star received top-down renovations, but the rest largely haven’t been touched since their SuperValu days, so I’d agree they continue to be poor performers. But again, price is often given as the reason why, so there’s no reason to think Kroger can’t turn these stores around.

ACME has opened at least two new stores in the past few years, but neither were new construction. They did get top-down renovations with an impressive interior.

I highly doubt they will convert any HT Stores to Safeway. I expect the Safeway banner to be disappearing from DC/MD/VA. You don't convert stores to a dying market share losing chain with a poor reputation like Safeway in DC/MD/VA when the HT chain has been growing and has a far better reputation. Only risk is putting the Safeway stuff that is poorly run and outdated in with HT may end up hurting the image HT has in DC. I can't even imagine the HT banner that is typically associated with bright shiny stores with high ceilings on a dingy dark beat up lifestyle store. DC will still have plenty of competition but let's see how much they divest there.

I'm not sure. Safeway is the much larger chain, with 3x the market share of HT. When I was there a few years ago, all of the stores were very dated with 1990s signage. Looks like some of these stores got an impressive top-down renovation, whereas others got a weaker renovation. Would be good opportunity to renovate them into HT...

[veteran+]

What I do not understand about Kroger and how they have treated Ralphs in my area is this:

Ralphs on Sunset Blvd. (Rock n Roll Ralphs) is worn out, in disrepair, dirty and ugly. High volume store!
Ralphs on La Brea Av. & Fountain Av. is worn out, in disrepair, dirty and ugly. High volume store!
Ralphs Fresh Fare on Doheney and Beverly is a disaster. Tiny store and probably high sales per square foot only because of location.

All are very poorly reviewed and customer service is awfull.

These are the closest Ralphs to me on the border of West Hollywood and Beverly Hills. High income and high level of education.

What the heck??????????????????????

The Pavilions is uber high volume and well run and maintained. No Vons or Albertsons close to me.

[arizonaguy]

What I do not understand about Kroger and how they have treated Ralphs in my area is this:

Ralphs on Sunset Blvd. (Rock n Roll Ralphs) is worn out, in disrepair, dirty and ugly. High volume store!
Ralphs on La Brea Av. & Fountain Av. is worn out, in disrepair, dirty and ugly. High volume store!
Ralphs Fresh Fare on Doheney and Beverly is a disaster. Tiny store and probably high sales per square foot only because of location.

All are very poorly reviewed and customer service is awfull.

These are the closest Ralphs to me on the border of West Hollywood and Beverly Hills. High income and high level of education.

What the heck??????????????????????

The Pavilions is uber high volume and well run and maintained. No Vons or Albertsons close to me.

The 6 year old Fry's Marketplace near my house (a high volume store) is worn out, in disrepair, dirty and ugly. The other Fry's stores near my house (former 1970s / 1980s build former Smitty's stores) are also worn out, in disrepair dirty and ugly but high volume.

Safeway runs cleaner, nicer stores near me than Fry's does.

[ckellogg5]

Are they the Marketplace stores on Bell Rd? Most of the Marketplace stores in the Valley are high volume and seem to wear down very quickly with every remodel they do.

[storewanderer]

What I do not understand about Kroger and how they have treated Ralphs in my area is this:

Ralphs on Sunset Blvd. (Rock n Roll Ralphs) is worn out, in disrepair, dirty and ugly. High volume store!
Ralphs on La Brea Av. & Fountain Av. is worn out, in disrepair, dirty and ugly. High volume store!
Ralphs Fresh Fare on Doheney and Beverly is a disaster. Tiny store and probably high sales per square foot only because of location.

All are very poorly reviewed and customer service is awfull.

These are the closest Ralphs to me on the border of West Hollywood and Beverly Hills. High income and high level of education.

What the heck??????????????????????

The Pavilions is uber high volume and well run and maintained. No Vons or Albertsons close to me.

The 6 year old Fry's Marketplace near my house (a high volume store) is worn out, in disrepair, dirty and ugly. The other Fry's stores near my house (former 1970s / 1980s build former Smitty's stores) are also worn out, in disrepair dirty and ugly but high volume.

Safeway runs cleaner, nicer stores near me than Fry's does.

How much better those Sunset and La Brea Ralphs would look if it weren't for the awful cement floors full of glue marks and cracks... granted I know the floor wouldn't fix operational problems.

I find the atmosphere in Kroger units to generally be about on a level of Wal Mart in terms of the interior feel, decor, and atmosphere. In some, many even, cases, Kroger makes up for the lousy decor and facility with very full, fresh, and reasonably well presented perimeters.

If I thought a Safeway lifestyle store of 30k square feet felt dingy I can only imagine how a Kroger remodel attempt on such a store would feel.

[Bagels]

What I do not understand about Kroger and how they have treated Ralphs in my area is this:

Ralphs on Sunset Blvd. (Rock n Roll Ralphs) is worn out, in disrepair, dirty and ugly. High volume store!
Ralphs on La Brea Av. & Fountain Av. is worn out, in disrepair, dirty and ugly. High volume store!
Ralphs Fresh Fare on Doheney and Beverly is a disaster. Tiny store and probably high sales per square foot only because of location.

All are very poorly reviewed and customer service is awfull.

These are the closest Ralphs to me on the border of West Hollywood and Beverly Hills. High income and high level of education.

What the heck??????????????????????

The Pavilions is uber high volume and well run and maintained. No Vons or Albertsons close to me.

These are all high volume stores.

I've been in all three Ralphs numerous times and they're very nice stores. The La Brea store opened in 1995, the Sunset Blvd. was rebuilt shortly afterward whereas the Beverly store is from 1975. Meanwhile, the Pavilions was rebuilt about ten years ago and just received a top-down renovation. Of course it's nicer . The nearby Vons off Fairfax, which appears to have been built in 1987, is in way worse condition that any of the Ralphs.

[storewanderer]

There is an article flying around from Phoenix Business Journal with Trey Basha stating they are looking for expansion opportunities for the Bashas and Food City banners with divested stores from the Safeway/Kroger merger.

Not sure what stores would be logical conversions to Food City. I guess there may be some.

Objectively speaking I would argue Bashas is running a better store the past few years, than they ran back in the 00's. Maybe they can make this work. Raleys needs to stay out of it, they already proved they don't know how to handle divests in hotly competitive markets with what happened back in Las Vegas.