If they had to divest that many stores it would not be worth it to merge at all. Ralphs failed in Oceanside completely and has one store left while Albertsons/Vons has 5. Ralphs in general has performed poorly in San Diego County compared to Albertsons/Vons; I highly question the documents in which Kroger declared themselves the market leader based on their own research. In that Oceanside scenario the only question is if they keep the Ralphs on SR-76 or the Vons on SR-76 within a few blocks of each other. There are numerous examples where you could argue Albertsons/Vons ran Ralphs out of the neighborhood. Why would the combined entity abandon Oceanside and shed all but one store in the fastest growing city in San Diego County?retailfanmitchell019 wrote: ↑January 25th, 2023, 8:38 pm Here's how I think the Albertsons/Kroger merger will go in San Diego's North County:
Every Albertsons branded store will be divested into SpinCo. There are 13 Albertsons stores in North County: Oceanside (3), Vista (2), San Marcos (3), Escondido (2), Fallbrook, Ramona, and Rancho Bernardo.
I also think Vons stores in Oceanside, Encinitas (El Camino), Carmel Valley (both stores including the Pavilions), Rancho Bernardo, Escondido (Valley Pkwy) and Carlsbad (El Camino) will go into SpinCo and be rebranded to Albertsons. Those stores directly compete with a Ralphs in the same zip code. I expect the remaining Vons stores to be rebranded to Ralphs.
The Food 4 Less in Escondido could also go into SpinCo, or maybe to a Hispanic chain.
I expect the Food 4 Less in Vista (former Smith's) will stay with Kroger and be rebranded to Ralphs.
In your example 15 stores in the SR-76/SR-78/CR-11 corridor market will divest/spin and 5 will be kept, 1 of which is a Food4Less that is in an area too borderline to be upgraded to a Ralphs. There is no way they keep 4 Ralphs and abandon 15 other stores. In that scenario even Stater Bros. would outnumber them in the northern area which I will state again is the fastest growing area in the county. Many customers in that scenario would drive past two or three SpinCo stores to get to a Ralphs in that example. Spinco becomes market leader.
The volume and population in SoCal is not to be underestimated. The store count here has already been culled over the past 20 years and arguably all chains have less stores per capita than many other western markets. If any serious number of stores in the west have to be divested or spun off then the benefits of merging are largely nullified. Basically if Washington, Oregon and California band together tomorrow and state they will aggressively fight this merger and demand maximum divestitures by all measures (zip codes, per capitas, and geographic distances) the deal is off same day.
Using zip codes is obsolete and has not helped at all with past mergers (hence all the Albertsons and Vons divests yet examples like Murrieta where two stores are still across the street from each other at the same intersection because they border zip code changes). Zip codes have not kept up with population changes. Many parts of the Inland Empire which have one or two zip codes would have ten or more zip codes today if they were allocated by population evenly. Here's a good example of why zip codes are really inaccurate today: Murrieta has 3 zip codes. Temecula next door has 6 zip codes. Murrieta has nearly double the population of Temecula. Murrieta is 3 square miles larger than Temecula. Clearly zip codes are way out of alignment and that's just two cities. When zip codes came out in 1963 some of these areas had populations in the hundreds. Now the same areas have a hundred thousand. Using zip codes today to determine overlap would potentially put stores many miles apart as overlaps yet again allow stores across the street from each other to be left alone. In your same zip code scenario if used in Temecula and Murrieta I believe that one store would have to divest and Ralphs would go from 2 stores in the area to 9, including a Ralphs across the street from a Ralphs (if they rebranded everything kept to Ralphs) because they're in different zip codes, plus one Food4Less. That seems to be using zip codes to enable a near monopoly - while your San Diego examples would eliminate two thirds of the stores giving Spinco a monopoly in the fastest growing areas.
I really think the only stores that are going to be seriously considered for divestiture are if they are within a certain geographic radius of each other which will probably be a half mile or less depending on local population density. The other key factor is going to be the status of the lease and landlord relationships. None of us know or can even guess how this will shake out. It is extremely likely that some of the best stores in the market are targeted for demolition by their landlords due to the push for conversion of commercial properties to residential high density up and down the West Coast. This will also be an argument to allow as few divestitures as possible due to the fact that every supermarket not owned by the company is a closure risk regardless of how highly it currently performs. Based on some speculation in other posts it seems that just a little over 50% of the stores are under company ownership if no divestitures were required. If it's leased it is worth more dead than alive to the landlord right now. Therefore there are many complicated aspects that will not meet public discussions, and many surprises where we may see the dowdy, run down old store kept and the shiny newer store sold because they do not have lease control. There will also be cases where they will have to make concessions because they will overlap and the FTC will NOT want the store at highest risk of closing sold (plus who would buy it?).
I'll give you another crazy idea: Spinco gets every single store that has a landlord that is interested in redevelopment. Spinco then controls the narrative and negotiates the process. They profit from lease severance agreements and asset sales. Spinco becomes a wind down organization (like Sears and Seritage) for these stores. If they can negotiate a ground floor under apartments location for a future store in a development deal they do so, and those will be the only Spinco go forward locations. Government can't say one word because they're demanding more housing be built even if every workplace in the state and every shopping establishment gets torn down to build it (wonder how much Amazon stock these politicians own-and how many Amazon donations they take in?).
None of this is going to shake out the way we expect. Our boots on the ground observations are really not the best indicator due to the push by developers to tear down their shopping centers and go vertical with massive condos or apartments. If you've visited Seattle or to a lesser extent Portland lately you know what I'm talking about. I ran out of good reasons for this merger other than it is a very complicated and difficult real estate situation where these two companies have realized by combining they can remove the high risk that currently threatens the stability of their business especially on the West Coast.