Kroger to merge with Albertsons?

[Romr123]

We've been to that Shaw's store in Wilmington...only store in town; a fairly affluent ski valley lies just north of Wilmington with N/S roads but no good E/W access routes for those communities(toward Brattleboro/Bennington). The other good thing is the van transit (the Mooooover...) has it's hub in the Shaw's parking lot, so for those who need transportation around the area Shaws is convenient. I was amused poking around on the site for it--you can order deli trays but delivery is 3 days later (order now pick up Wednesday morning).

[Bagels]

Shaw’s is allegedly the worst performing division, with some people claiming it’s not profitable. That Albertsons hasn’t invested much in thesej stores seem to add some validity to the rumors. I can’t see Kroger bidding for the Safeway DC stores unless it could unload some underperforming HT locations. ACME, maybe, but the store fleet requires a huge investment and the chain has underperformed for years (although seems to be turning around).

Shaw's is largely in the same boat as ACME. Almost all of their stores have been remodeled in the last few years, but many of the remodels are very simple and low-cost. They have some good locations that perform really well, and some that don't. I think, though, they've weeded out a lot of the bad locations over the years (even some of the really outdated ones still do alright -- look at Auburn, MA, which is crowded every time I've been there). But the problem is they're not moving ahead. Their biggest threat in most of their market area, of course, is Market Basket, which competes only on price (and always wins). But in some areas, where they're competing with Hannaford for instance, their competitors are moving ahead of them in remodels while Shaw's is just remodeling to catch up. Stop & Shop, meanwhile, runs a fleet of inexplicably terrible stores in that area, but even they have added some better, newer features in remodels while Shaw's remodels are almost all cosmetic. With the backing of an owner with a lot of money to be put into serious renovations, not just cosmetic ones, Shaw's could be a very viable competitor to stores like Hannaford and Stop & Shop. But they're just static now.

I’ve seen a few Vons that are most likely underperforming get a remodel that consists of some fresh paint and new aisle signs. Your comments add validity to that Shaw’s is underperforming, given the similar remodels.

Kroger rarely acquires underperforming retailers. The WI stores it acquired in the Mariano’s deal seem to have turned around, but Marianos’s itself seems to be a dud. Gotta wonder if they’ll try something similar again.

[SoCalShopper1023]

I'm really curious in how C&S will handle any Ralphs bannered stores that Kroger may end up divesting. Assuming the merger goes through.

From what I've seen, Ralphs is heavily integrated into Kroger's infrastructure, and IT systems. For example I know they've invested a lot of money in their Quevision line monitoring system.

Plus a lot of their decor packages in their latest remodels have the Ralphs logo painted on their walls.

It will be interesting to see a converted former Ralphs operating as an Albertsons (C&S).

[HCal]

I would agree with this if Albertsons was having lousy financial results lately but they are really shoring up their results.

I think Albertsons is actually looking out for its best interests here and continuing to push for strong financial performance despite the pending merger. This will open up more options for Albertsons when this merger ultimately fails. This is either dumb luck or the people controlling Albertsons understand this merger is not guaranteed and if they run their company in the zombie like manner many about to be sold companies do, they'll really be left holding a bag of... along with really bad debt agreements.

Totally agree, and I wonder if they are regretting the special dividend yet. If the merger doesn't go through, they would probably have been better off investing that money into their operations than paying it to shareholders.

[ClownLoach]

I would agree with this if Albertsons was having lousy financial results lately but they are really shoring up their results.

I think Albertsons is actually looking out for its best interests here and continuing to push for strong financial performance despite the pending merger. This will open up more options for Albertsons when this merger ultimately fails. This is either dumb luck or the people controlling Albertsons understand this merger is not guaranteed and if they run their company in the zombie like manner many about to be sold companies do, they'll really be left holding a bag of... along with really bad debt agreements.

Totally agree, and I wonder if they are regretting the special dividend yet. If the merger doesn't go through, they would probably have been better off investing that money into their operations than paying it to shareholders.

They didn't get an option there. Their industrial shareholders wanted that done (Cerberus and Apollo).

[retailfanmitchell019]

Former FTC policy director: Kroger, Albertsons merger is facing ‘a hurricane storm’: https://www.supermarketnews.com/retail- ... cane-storm
One commenter said that C&S has announced that they will use Kroger manufactured brands to supply the stores. If that is true, that is yet ANOTHER reason to block the merger. This is what I mean by “puppet subsidiary”.

Former FTC policy director David Balto says that a deal with Ahold would be better, and that the C&S deal won’t be enough to approve the merger as it is only 413 stores. I think Kroger/Albertsons needs to divest 500 stores at the bare minimum to get this deal done. They need give more brands to C&S, like all the Signature stuff. I think the reason the Feds aren’t possibly satisfied is the fact that C&S is a wholesaler that has minimal retail operations.
This will smell like the Haggen disaster all over again, I suspect C&S will flip the divested stores for real estate by 2025 (or the stores will simply fail because C&S can’t operate retail), and auction some stores back to Kroger for pennies on the dollar. It’s convenient that C&S is licensing the Albertsons brand so the stores can be sold back to Kroger later without a sign change.

Balto also says it’s likely the FTC will take Kroger/Albertsons to court. And we all know Rodney will throw a hissy fit when that happens. And if the court rules in favor the FTC (which is likely to happen), that could be the end of the road for this merger.

[storewanderer]

For some context, back when Rite Aid sold half of its stores to Walgreens, one of the things that came in that sale agreement was Rite Aid had the right to buy generic drugs with Walgreens buying group for 10 years. This option was extended across the remaining Rite Aid chain and it would have substantially lowered Rite Aid's generic drug costs. However Rite Aid did not execute that option (perhaps their existing supplier matched the deal, we will never know).

So I am wondering if this thing about C&S continuing with Kroger manufactured product (which I have yet to see in any kind of official company press release so not sure where this was actually announced) is the same type of deal. For instance they may have some kind of a deal where Kroger manufacturing facilities will produce whatever Best Yet products they can for C&S. This may also make sense to help keep manufacturing capacity at some of these plants because for instance after dumping nearly 250 stores in OR/WA/AK, the Safeway dairy or bread plant facility in WA that serves those states is not going to be needed anymore if it loses 225 stores. By the same token I am not sure how viable that facility which currently serves close to 400 stores will be for just 225 stores if sold fully to C&S.

It may be for the better that C&S is not being directly divested manufacturing facilities because divested Safeway manufacturing facilities running under capacity and at too high of rents were part of what bankrupted Appletree and Homeland.

In my opinion Kroger played its cards wrong. They should have agreed to divest 500+ stores immediately, plus the name rights to the Vons, QFC, and Food 4 Less banners to C&S fully for C&S to use wherever they wanted, plus most of the Safeway private labels (the entire "Signature" line at least). I would not have agreed to divest Marianos banner to C&S (I say this after spending time at Marianos last month- this is a real mistake) and absolutely would not have agreed to give the rights to the Albertsons banner in some random states to C&S and keep it for Kroger in neighboring states - very bad move there. I suppose they could have given 100% of the Albertsons banner to C&S but I think Vons is a better banner to just be done with and let someone else have. Albertsons banner does well in some growing/promising markets and obviously Kroger has some desire to keep it. The Vons banner is redundant and there is no point in keeping it.

[storewanderer]

I’ve seen a few Vons that are most likely underperforming get a remodel that consists of some fresh paint and new aisle signs. Your comments add validity to that Shaw’s is underperforming, given the similar remodels.

Kroger rarely acquires underperforming retailers. The WI stores it acquired in the Mariano’s deal seem to have turned around, but Marianos’s itself seems to be a dud. Gotta wonder if they’ll try something similar again.

Marianos is not a dud. They have plenty of customers. Marianos problem is too many stores signed with current/too high cost leases. The established Jewel Stores are a way better deal due to being lower cost.

Marianos perimeter also looks quite high cost to run, it is very labor heavy. The quality of the perimeter varies by store but every store is pushing far more labor into meat and bakery than a typical Kroger operation and the quality/assortment of the product offer is far above anything offered by any other Kroger operation. Center store is completely on Kroger program with higher than usual pricing and a strong mix of regional items sprinkled around grocery aisles. Many stores have Kitchen Place and strong non food assortments (not quite as strong as the Osco side of Jewel which is still... an Osco..., but almost as good).

From a customer standpoint I really like Kroger's center store and private label programs. I think they are some of the best in the industry. But the typical Kroger perimeter has major issues, especially in departments like meat and bakery. But this is not the case at Marianos. So for me, Marianos takes what I think Kroger does best (center store) and then it has a completely different and high quality program for what Kroger typically executes poorly (bakery/meat). While the pricing at Marianos center store everyday basis is not as low as usual Kroger, the strong Kroger promotions were still there, so it wasn't a bad deal.

[storewanderer]

I'm really curious in how C&S will handle any Ralphs bannered stores that Kroger may end up divesting. Assuming the merger goes through.

From what I've seen, Ralphs is heavily integrated into Kroger's infrastructure, and IT systems. For example I know they've invested a lot of money in their Quevision line monitoring system.

Plus a lot of their decor packages in their latest remodels have the Ralphs logo painted on their walls.

It will be interesting to see a converted former Ralphs operating as an Albertsons (C&S).

I am guessing few Ralphs get divested and much of what gets divested from the Kroger side of things has the Food 4 Less banner. Given C&S already licenses F4L banner in NorCal it will be interesting to see what happens in SoCal. This is where Save Mart would have been a better buyer as they could have easily flipped F4L to Food Maxx.

All of Kroger's banners are heavily integrated into Kroger. De-integration will not be pretty and customers will not like it. I cannot even imagine the high volume Smiths units in Reno/Sparks turning into some C&S operated thing... I suspect business would fall 60-70%. They'd still have the traffic level of a typical Save Mart but it would sure be a radical change from what Smiths does.

[Romr123]

I'm not sure that there is anything that complicated to C&S continuing access to Kroger manufacturing...start with they already doubtless are buying from Kroger (Tara Foods is the private label peanut butter and sauces manufacturer for the entire world). This means that internally Kroger has developed the sophistication to handle transfer pricing and outside selling rationally.

Bread is a new roll of wrappers; dairy is a new roll of stickers, soda pop is a new roll of labels. These aren't hugely growing categories, but at the margin not tough to integrate a new buyer into. These are volume plays, and the key will be for Kroger to maintain volume; meaning that, say in the PNW as long as C&S isn't required to use the Kroger plants there is always an alternative (Franz; Bimbo, etc) which may be able to lower cost.

Here in Michigan neither Kroger nor Meijer seems to have a proprietary bulk bakery--private label bread seems to come from Aunt Millies in Fort Wayne or Bimbo somewhere in Chicagoland or Cleveland. Kroger may well truck north from their Indianapolis bakery. Nickles in Toledo is not much of a factor around here.