🛒 Kroger-Albertsons Merger: National Impact

[CalItalian]

"If the federal lawsuit fails, Oregon could still explore filing its own state-level challenge, she (Oregon AG Rosenblum) added.

https://www.kgw.com/article/money/busin ... 394f3b46c7

[ClownLoach]

Ralphs/Fred Meyer/QFC could probably stand on its own two feet. That would functionally return it to pre-1999 Fred Meyer especially if you threw in Albertsons-AZ as stated and that would solve most of the western issues. Texas and Illinois, probably not.

But now, Kroger has lost more than its gained, because unlike Safeway, there's not much to be gained for Kroger. Now, if the situation was reversed...Albertsons buying Kroger, that would be reason to dump some West Coast assets as there's so much gain...but that's not the case here.

I'm not sure.

Kroger has stripped a lot from Ralphs / Fred Meyer / QFC (in terms of store closures) and hasn't grown it much (if at all) since the merger.

I think the object of this merger was for Kroger to gain the #1 position in 2 markets: Chicago and Northern California and solidify (or gain) the #1 position in the PNW and Southern California.

Kroger has serious work to do in the PNW and Southern California or a decision to make as to whether or not it wants to continue operating in those areas.

See, that's the thing. If they want to just have a good profitable division without forcing to show growth, Ralphs is it. If they want #1 or a close #2 in their markets, maybe Ralphs isn't the place they should focus on. If they want to just show growth, they can do so organically, you know, actually building stores.

The shocking figures from the Washington State AG clearly indicated Albertsons is the highest revenue company there, Kroger is in second place. It is to be assumed Oregon is the same situation. The Ralphs/F4L division is in a distant 3rd place in SoCal, and they aren't a factor in NorCal. Remember that Kroger wants to be #1 in every market they operate in, and are not satisfied with even a #2 ranking. That's why their #3 ranking in SoCal must drive them crazy.

A PROPER SpinCo concept of Ralphs, F4L, FoodsCo, QFC, Fred Meyer and Nevada/Arizona Albertsons would fix every issue. They could find other buyers for divest problems in other markets like Marianos, Tom Thumb etc.

Washington: Albertsons/Safeway would be #1
Oregon: Albertsons/Safeway would be #1
NorCal: Safeway would be #1
SoCal: Albertsons/Vons/Pavilions would be #1
Nevada: Smiths would be #1
Arizona: Frys would be #1

Kroger would rocket to #1 on the West Coast and key growth states of AZ/NV. They effectively get a "do-over" for their mismanagement and neglect of the past two decades out West. And the western group would include warehouses etc. to make a solid, turnkey operation for a big buyer like Ahold to get started without imploding. Or it becomes the real SpinCo. There would be little to no brand disruption, they could rebrand the Albertsons/Safeway operations in AZ/NV as Ralphs and I'm pretty sure everyone there would know who they are.

Albertsons gets sold and their big stakeholders get their payday. And I would argue the changes could possibly make the markets they operate in more competitive all around?

[jamcool]

See, that's the thing. If they want to just have a good profitable division without forcing to show growth, Ralphs is it. If they want #1 or a close #2 in their markets, maybe Ralphs isn't the place they should focus on. If they want to just show growth, they can do so organically, you know, actually building stores.

If they want to grow in California, I would recommend FoodsCo. It is a great concept that has a lot of potential for expansion, and stores seem to be well-received by the communities. Their market share is very low and they could easily draw customers away from Safeway, Save Mart, and other overpriced stores.

But back on topic, I don't think being #1 or 2 matters, and SoCal isn't really an issue with this merger. Kroger just wanted to get into the NorCal market and this was one way to do it.

They already own Food4Less in SoCal...FoodsCo is just F4L with a different name..because the F4L banner is owned by a different operator in Northern Cal.

[ClownLoach]

See, that's the thing. If they want to just have a good profitable division without forcing to show growth, Ralphs is it. If they want #1 or a close #2 in their markets, maybe Ralphs isn't the place they should focus on. If they want to just show growth, they can do so organically, you know, actually building stores.

If they want to grow in California, I would recommend FoodsCo. It is a great concept that has a lot of potential for expansion, and stores seem to be well-received by the communities. Their market share is very low and they could easily draw customers away from Safeway, Save Mart, and other overpriced stores.

But back on topic, I don't think being #1 or 2 matters, and SoCal isn't really an issue with this merger. Kroger just wanted to get into the NorCal market and this was one way to do it.

They already own Food4Less in SoCal...FoodsCo is just F4L with a different name..because the F4L banner is owned by a different operator in Northern Cal.

Kroger has bungled the F4L/FoodsCo concept by trying to make it a higher priced, pseudo Hispanic concept in SoCal. It's expensive, dirty, smelly, and an insult to not only Hispanic customers but everyone else. I have seen many items where Ralphs is cheaper than F4L sale prices and you don't have to bag your own groceries. It is a total failure which is why it isn't growing anymore and has closed in what should be ideal locations like Norwalk. Ralphs already got some negative PR from stunts in the early 2010s where they closed some stores to convert to F4L and made them non union, although at some point I guess F4L gained union representation? I know they are Union now based on all the flack over the 2020 closures.

Winco is the only credible warehouse no frills format in California. Where they compete head to head there really is no competition... Where I am F4L has an optimal, easy freeway access store while Winco is in a poorly configured old Smiths. Guaranteed, Winco is doing at least ten times the volume of the F4L.

This is another reason I advocate for Kroger to effectively swap properties on the entire West Coast and replace their stores with Albertsons/Safeway. New leadership/ownership could fix the currently broken and uncompetitive F4L/FoodsCo offering along with underperforming Ralphs.

The purchase price would of course be lower, but offset by either the shareholders getting income from the sale of these operations, or the SpinCo type financials that were originally proposed to offset the value of spun off stores. There's value to be made for every party.

Of course, they are too greedy and disconnected from reality to ever consider anything like this type of transaction.

[storewanderer]

See, that's the thing. If they want to just have a good profitable division without forcing to show growth, Ralphs is it. If they want #1 or a close #2 in their markets, maybe Ralphs isn't the place they should focus on. If they want to just show growth, they can do so organically, you know, actually building stores.

If they want to grow in California, I would recommend FoodsCo. It is a great concept that has a lot of potential for expansion, and stores seem to be well-received by the communities. Their market share is very low and they could easily draw customers away from Safeway, Save Mart, and other overpriced stores.

But back on topic, I don't think being #1 or 2 matters, and SoCal isn't really an issue with this merger. Kroger just wanted to get into the NorCal market and this was one way to do it.

FoodsCo has expansion potential as there are a lot of underserved poorer areas in NorCal that need a store and FoodsCo fits the areas perfectly and provides exactly what the customers in those areas need: a basic grocery store with a solid private label assortment, reasonable pricing, and a safe shopping environment. They tailor an ethnic/perimeter assortment to focus on either a Hispanic customer or an African American customer; I see small but weak efforts to cater to an Asian customer but not really great efforts on Asian.

But Kroger... just... well, let's see, they've built 4 new FoodsCos in NorCal since 1999: Sacramento Northgate (relocation of a dire Super Saver) and later that got a major expansion (this was their best volume store in the F4L division for a while, not sure anymore); Sacramento East Stockton, Soledad, and Oakland are all new builds. So that is 4 new builds out of Kroger for FoodsCo. That is actually pretty good. Add in the stores FoodsCo built in Santa Maria, Bakersfield (or did that new build close), Tulare, and Fresno and FoodsCo has actually gotten quite a few new stores over the years by Kroger standards and for how Kroger handles new stores on the west coast.

[storewanderer]

Kroger has bungled the F4L/FoodsCo concept by trying to make it a higher priced, pseudo Hispanic concept in SoCal. It's expensive, dirty, smelly, and an insult to not only Hispanic customers but everyone else. I have seen many items where Ralphs is cheaper than F4L sale prices and you don't have to bag your own groceries. It is a total failure which is why it isn't growing anymore and has closed in what should be ideal locations like Norwalk. Ralphs already got some negative PR from stunts in the early 2010s where they closed some stores to convert to F4L and made them non union, although at some point I guess F4L gained union representation? I know they are Union now based on all the flack over the 2020 closures.

Winco is the only credible warehouse no frills format in California. Where they compete head to head there really is no competition... Where I am F4L has an optimal, easy freeway access store while Winco is in a poorly configured old Smiths. Guaranteed, Winco is doing at least ten times the volume of the F4L.

FoodsCo goes into neighborhoods WinCo wouldn't get anywhere near. Same goes for many F4L Stores. WinCo won't get anywhere near many of the neighborhoods those stores operate in...

F4L is unnecessary in locations like yours as there are already ample options for low priced groceries in the area. F4L is just redundant and brings nothing to the table when there is stronger competition around (and I'm going to include Wal Mart and Target as stronger competition too; also Aldi and Trader Joe's).

Also in places with better ethnic competition F4L is on borrowed time due to the reasons you point out. Better center store mix/pricing will not last forever, eventually some of these Hispanic operators will figure out a way to get around UNFI/Supervalu and get competitive center store pricing.

You saw how they removed F4L from Las Vegas. There are probably pockets in SoCal where the same thing should happen but it won't because F4L is on a different union contract that pays lower wages than Ralphs. In Las Vegas, Smiths and F4L were under the same union contract so they were able to just "move" the F4L workers onto Smiths seamlessly. In the big SoCal strike F4L was open while Ralphs was on strike due to that different contract. F4L has always been a primarily union shop. The issue when you convert a Ralphs to F4L is since it is a different union contract you kick out all the workers from that building (and transfer them to a staying open Ralphs) then you hire new workers in and they do have to join the union but they are all new workers, not senior workers.

Be careful what you wish for. For instance, Save Mart buying Ralphs... cannot even tell you how bad that would be. Just go look at the pictures from Bakersfield and Clovis (Herndon) Save Marts... And shifting FoodsCo to the Food Maxx format... again... that would not be as bad... but it would still not be good.

[storewanderer]

This is another reason I advocate for Kroger to effectively swap properties on the entire West Coast and replace their stores with Albertsons/Safeway. New leadership/ownership could fix the currently broken and uncompetitive F4L/FoodsCo offering along with underperforming Ralphs.

The purchase price would of course be lower, but offset by either the shareholders getting income from the sale of these operations, or the SpinCo type financials that were originally proposed to offset the value of spun off stores. There's value to be made for every party.

Of course, they are too greedy and disconnected from reality to ever consider anything like this type of transaction.

I think Kroger is better off keeping what it has on the west coast and if they don't like the situation with F4L/Ralphs, just exit the CA market. OR/WA won't go anywhere, Fred Meyer is too strong. QFC works as a compliment to Fred Meyer but as a stand alone operation for Kroger it wouldn't make sense.

I'm not seeing the F4L situation as bad as you describe. They were never extremely busy stores like these WinCos are. They never had good perimeters. If anything what I've seen in recent years is Kroger adding in more center store SKUs and capturing more center store sales than they would have with the previous smaller mix in center store.

I don't know how SoCal does for Albertsons/Safeway but it is known that NorCal is a very profitable market. Jewel is also very profitable. So of course Kroger is interested in the two most profitable parts of Albertsons...

I just hope Albertsons is smart enough to not chop itself up again... there may be a region or two that need to "go" but that can be addressed without chopping the entire company up again. Or they could get serious about fixing one of the regions and do a divisional realignment in the other region...

I do think Kroger can legally fight the FTC successfully if they want to, but the question is how much time and money will it take, and is it worth the ongoing uncertainty? I don't think it is worth it.

[HCal]

I do think Kroger can legally fight the FTC successfully if they want to, but the question is how much time and money will it take, and is it worth the ongoing uncertainty? I don't think it is worth it.

Do you mean with the current deal with C&S, or a new deal?

With the current deal, I don't see how they could fight the FTC successfully, even if they increase divestitures to the 650 maximum. But I suppose this is a grey area that will come down to the judge's leanings. Also remember that even if they successfully win against the FTC, there are 2 other pending lawsuits that can torpedo the whole thing.

With a new deal that divests a larger number of stores to more competent buyers, I would be more inclined to say they could be successful.

[pseudo3d]

I do think Kroger can legally fight the FTC successfully if they want to, but the question is how much time and money will it take, and is it worth the ongoing uncertainty? I don't think it is worth it.

Do you mean with the current deal with C&S, or a new deal?

With the current deal, I don't see how they could fight the FTC successfully, even if they increase divestitures to the 650 maximum. But I suppose this is a grey area that will come down to the judge's leanings. Also remember that even if they successfully win against the FTC, there are 2 other pending lawsuits that can torpedo the whole thing.

With a new deal that divests a larger number of stores to more competent buyers, I would be more inclined to say they could be successful.

I stand by my previous comment that if all that was needed was to get C&S to buy another 250 stores that would already have been made clear.

Trying to redo the divestment list from scratch would absolutely kill the deal.

[ClownLoach]

I do think Kroger can legally fight the FTC successfully if they want to, but the question is how much time and money will it take, and is it worth the ongoing uncertainty? I don't think it is worth it.

Do you mean with the current deal with C&S, or a new deal?

With the current deal, I don't see how they could fight the FTC successfully, even if they increase divestitures to the 650 maximum. But I suppose this is a grey area that will come down to the judge's leanings. Also remember that even if they successfully win against the FTC, there are 2 other pending lawsuits that can torpedo the whole thing.

With a new deal that divests a larger number of stores to more competent buyers, I would be more inclined to say they could be successful.

I stand by my previous comment that if all that was needed was to get C&S to buy another 250 stores that would already have been made clear.

Trying to redo the divestment list from scratch would absolutely kill the deal.

The fact that the divested store list is still being kept secret indicates to me that they never intended for those stores to be proper resolutions to local monopoly concerns. I am sure that when we see it the majority of the list will be the bad stores that they would close day one in a perfect world where divestitures aren't required. That leaves them with a very small number of real overlap locations to divest before hitting the 650 mark. After 650 now you're talking about paying so much per store acquired that there is no possibility of turning a profit unless prices are significantly increased. Ironically it also would secure the stores from closing because you're already grossly overspending on the store so closing it just makes for a larger loss. The loss would be recorded against earnings making the stock price plummet and send investors out with the torches and pitchforks looking for the C-Suite heads on a stick.

So I am quite sure the divest store list needs to be completely and totally redone. If it was legitimate in any way previously then they would have posted it and would be flaunting this as yet another example of how the benevolent leaders of Kroger intend to be a model citizen in their handling of the merger. Their silence speaks volumes. This divest list is their wiggle room out of the promise to not close any stores, by instead selling them to a house of cards. They never wanted these stores to get in the hands of competitors who in many cases operate a superior store that would pose a threat to the profits of the newly merged entity. The idea of even one current Ralphs or Vons becoming a Stater Bros for example is something they worked hard to avoid with the C&S sucker deal.

I am sure redoing the list is easier than it may sound. I am also sure that competitors probably wanted a crack at these stores but weren't given one as Kroger and Albertsons went out in search of a new sucker firm a-la-Haggen and found one in C&S. For a bargain price I am sure that even the most conservative buyer like Stater Bros would sign up to buy dozens of stores in the areas of SoCal they don't currently serve well, like LA and points north. There are likely competitors around the West who would be happy to expand from their base of operations and do the same. Still doesn't fix Washington state though, so they would have to entice a strong competitor from outside the market to come in (Hy-Vee? Really no idea who it would be, other than they'd need to be able to get a grip on 100+ stores immediately).

The only way this merger survives is if Albertsons goes out and publicly starts discussing new, very unsavory suitors like Apollo. The prospects of such deals are what got the one union to support the deal as they said "the owners of Albertsons have a right to sell, and our members are better off with a grocery owner" which is true. Maybe the union is aware of something we aren't, like an Amazon bid for Albertsons waiting in the wings?