🛒 Kroger-Albertsons Merger: National Impact

[storewanderer]

Obviously keeping the store open as Stater is preferable to closing it down entirely, but the question shouldn't be between those two options. Neither of those options is sufficient for maintaining competition. The divests need to go to a company that is capable of operating them long-term AND new to the market. If Kroger cannot find a suitable such company, the merger should be rejected.

They tried that "new to the market" stipulation in the 1999 Albertsons/American Stores merger. That is why Raleys got sent to Las Vegas/New Mexico and Ralphs to NorCal. Then to keep the independent grocers happy (who had sued over not getting a shot at Albertsons/Buttrey divests) they threw most of the divests in SoCal and a few other random ones to Certified Grocers.

That "new to the market" stipulation is also how Haggen got involved in the last merger...

I agree with you that to preserve competition a "new to the market" competitor is ideal. If I am sitting here in Reno and every week in immediate zip code/trade area I ad shop at Raleys, Safeway, and Smiths who are all in the same zip code then I have to drive 5 miles away to find a Save Mart that is in a different zip code but it isn't exactly out of reach to me so I ad shop those 4 stores every week... then someone decides that either the Safeway or Smiths has to be divested. It has to be divested to a "new to market" competitor. Save Mart shows up and says we will buy that store since we do not currently serve that sub market/zip code and we are "new to market" for that zip code. Now I am left with only 3 stores to ad shop every week. At that point they may as well have just let Kroger keep both the Safeway and Smiths... This type of thing is why a "new to market" competitor seems essential to maintaining competition.

The problem is those "new to market" competitors seem to usually fail... they seem to be given the wrong stores, have the wrong strategy (price is ALWAYS a problem for some reason in these divest deals and I am highly concerned about Save Mart taking anything with how their price structure has become... Raleys may have an okay price structure to take stores on but has a lot of other big question marks), seem to have major issues doing the store conversions/merchandising change over with a banner change, and in some cases also screw up the pharmacy integration which pisses off hundreds of customers daily.

I think either the merger goes with C&S or the merger doesn't go.

I still think SpinCo is a possibility as a last ditch effort to shove the thing through. I know nobody likes SpinCo...

There are a lot of reasons why getting all of the divests to a single party is a lot easier (then that party can do the dirty work of parceling them out to other players).

[pseudo3d]

As far as new to the market goes, Tractor Supply Co. took over Orscheln, but had to divest half of the stores. As a result, Bomgaars is now operating stores in new markets far away from its old home base in the midwest.

It remains to be seen if they do well.

[Super S]

They tried that "new to the market" stipulation in the 1999 Albertsons/American Stores merger. That is why Raleys got sent to Las Vegas/New Mexico and Ralphs to NorCal. Then to keep the independent grocers happy (who had sued over not getting a shot at Albertsons/Buttrey divests) they threw most of the divests in SoCal and a few other random ones to Certified Grocers.

That "new to the market" stipulation is also how Haggen got involved in the last merger...

I agree with you that to preserve competition a "new to the market" competitor is ideal. If I am sitting here in Reno and every week in immediate zip code/trade area I ad shop at Raleys, Safeway, and Smiths who are all in the same zip code then I have to drive 5 miles away to find a Save Mart that is in a different zip code but it isn't exactly out of reach to me so I ad shop those 4 stores every week... then someone decides that either the Safeway or Smiths has to be divested. It has to be divested to a "new to market" competitor. Save Mart shows up and says we will buy that store since we do not currently serve that sub market/zip code and we are "new to market" for that zip code. Now I am left with only 3 stores to ad shop every week. At that point they may as well have just let Kroger keep both the Safeway and Smiths... This type of thing is why a "new to market" competitor seems essential to maintaining competition.

The problem is those "new to market" competitors seem to usually fail... they seem to be given the wrong stores, have the wrong strategy (price is ALWAYS a problem for some reason in these divest deals and I am highly concerned about Save Mart taking anything with how their price structure has become... Raleys may have an okay price structure to take stores on but has a lot of other big question marks), seem to have major issues doing the store conversions/merchandising change over with a banner change, and in some cases also screw up the pharmacy integration which pisses off hundreds of customers daily.

I think either the merger goes with C&S or the merger doesn't go.

I still think SpinCo is a possibility as a last ditch effort to shove the thing through. I know nobody likes SpinCo...

There are a lot of reasons why getting all of the divests to a single party is a lot easier (then that party can do the dirty work of parceling them out to other players).

A huge reason why Haggen failed is that they did not get any distribution centers as part of the deal, and when the chain jumps from 18 to 164 stores overnight, it will not work out well if you don't have distribution in place. Haggen might have fared better if distribution was part of the deal.

[ClownLoach]

They tried that "new to the market" stipulation in the 1999 Albertsons/American Stores merger. That is why Raleys got sent to Las Vegas/New Mexico and Ralphs to NorCal. Then to keep the independent grocers happy (who had sued over not getting a shot at Albertsons/Buttrey divests) they threw most of the divests in SoCal and a few other random ones to Certified Grocers.

That "new to the market" stipulation is also how Haggen got involved in the last merger...

I agree with you that to preserve competition a "new to the market" competitor is ideal. If I am sitting here in Reno and every week in immediate zip code/trade area I ad shop at Raleys, Safeway, and Smiths who are all in the same zip code then I have to drive 5 miles away to find a Save Mart that is in a different zip code but it isn't exactly out of reach to me so I ad shop those 4 stores every week... then someone decides that either the Safeway or Smiths has to be divested. It has to be divested to a "new to market" competitor. Save Mart shows up and says we will buy that store since we do not currently serve that sub market/zip code and we are "new to market" for that zip code. Now I am left with only 3 stores to ad shop every week. At that point they may as well have just let Kroger keep both the Safeway and Smiths... This type of thing is why a "new to market" competitor seems essential to maintaining competition.

The problem is those "new to market" competitors seem to usually fail... they seem to be given the wrong stores, have the wrong strategy (price is ALWAYS a problem for some reason in these divest deals and I am highly concerned about Save Mart taking anything with how their price structure has become... Raleys may have an okay price structure to take stores on but has a lot of other big question marks), seem to have major issues doing the store conversions/merchandising change over with a banner change, and in some cases also screw up the pharmacy integration which pisses off hundreds of customers daily.

I think either the merger goes with C&S or the merger doesn't go.

I still think SpinCo is a possibility as a last ditch effort to shove the thing through. I know nobody likes SpinCo...

There are a lot of reasons why getting all of the divests to a single party is a lot easier (then that party can do the dirty work of parceling them out to other players).

A huge reason why Haggen failed is that they did not get any distribution centers as part of the deal, and when the chain jumps from 18 to 164 stores overnight, it will not work out well if you don't have distribution in place. Haggen might have fared better if distribution was part of the deal.

I'm not saying that "new to the market" would be a mandate, but rather would be something they would have to accept in some of these more problematic areas like Washington and Colorado. Remember they changed their tune from the original deal when C&S was announced and said they had agreed to give up warehouses and manufacturing facilities with the stores, although I could easily see that being problematic since the stores are littered about the country and transportation costs would likely increase thus being passed along to the customer. But if they were forced to jettison C&S, let's say they found a viable chain that wanted to go to the PNW like Raley's (remember this is theoretical). They would acquire the divestitures along with a warehouse or two to expand into the market. And another Haggen learning was that Safeway/Albertsons knew they had a sucker buyer so they purposefully excluded the sales data and all information needed to run those stores properly, that would have to be remedied so each buyer knew the sales history of their acquired store. Yes there's still risk of expanding to new territory, but far less if you're say getting 150 stores in the PNW with a warehouse or two for a couple hundred million - assets that would be worth billions on paper for immediate leverage to establish larger credit lines to operate them successfully. It would be a "once in a lifetime" opportunity for these chains to take a risk and acquire billions for millions. I refuse to believe that the more viable competitors weren't lined up to do this, only to find that they had made a sucker deal with C&S.

[storewanderer]

A huge reason why Haggen failed is that they did not get any distribution centers as part of the deal, and when the chain jumps from 18 to 164 stores overnight, it will not work out well if you don't have distribution in place. Haggen might have fared better if distribution was part of the deal.

I think another factor was Supervalu and Unified Grocers both lobbied this would be bad for independent grocers so by getting Haggen to buy the stores and sign long term supply agreements with those two the justification was the independent grocers would be strengthened by having better buying power from adding Haggen business to those warehouses...

In the case of Unified Grocers they lost millions in the Haggen bankruptcy and I think that factor was one of the things that made them sell out to Supervalu (that and some of the most influential board members of the Unified Board were in the process of going further and further to self distributing... and probably recognized that they were going to continue to pull business away from Unified and self distribute more and more in the future).

I do wonder would it have worked out differently if Haggen had warehouses, or would it have been the same end result?

I also wonder if Haggen did not have the money to buy the warehouses. Haggen did self distribute quite a few items though on its own and in the past (80's and 90's) even operated as a wholesaler itself to some independent grocers up in WA; small group maybe less than 20 stores, sort of similar to what Bashas does with those IGAs in AZ...

[pseudo3d]

I do wonder would it have worked out differently if Haggen had warehouses, or would it have been the same end result?

One of the things I remember reading about Haggen is that they were much more expensive than the Albertsons/Safeway stores they replaced, and the perishable departments were not the same quality as they had been with Haggen Northwest Fresh.

Self-distribution may have kept the prices down but Haggen wasn't supposed to be a mid-line grocer like Safeway and Albertsons were supposed to be, they were supposed to be nicer. They did put in a few upgrades (flooring and lighting) to the front-end area that were kept when they went bankrupt and converted back. And of course, redecorating the stores in a very tight timeframe was an enormous expense...the ACME conversions of A&P stores was similar in that everything had to be done and cleaned up, but apart from some repainting of a few fixtures and smaller signage, the stores were almost entirely unchanged from their former A&P/Pathmark/etc. selves.

[storewanderer]

I do wonder would it have worked out differently if Haggen had warehouses, or would it have been the same end result?

One of the things I remember reading about Haggen is that they were much more expensive than the Albertsons/Safeway stores they replaced, and the perishable departments were not the same quality as they had been with Haggen Northwest Fresh.

Self-distribution may have kept the prices down but Haggen wasn't supposed to be a mid-line grocer like Safeway and Albertsons were supposed to be, they were supposed to be nicer. They did put in a few upgrades (flooring and lighting) to the front-end area that were kept when they went bankrupt and converted back. And of course, redecorating the stores in a very tight timeframe was an enormous expense...the ACME conversions of A&P stores was similar in that everything had to be done and cleaned up, but apart from some repainting of a few fixtures and smaller signage, the stores were almost entirely unchanged from their former A&P/Pathmark/etc. selves.

Haggen kept the same high everyday pricing as Albertsons/Safeway had in the stores but had almost nothing on sale (which was different from Albertsons/Safeway with a ton of promotions) which was a huge problem and caused the price reputation issue for Haggen. The new items they brought in had weird/wacky pricing and it was all over the place (some stuff was outrageously high, some was too low, it was as if the store employees were just making up prices) and also inconsistent by store location.

Haggen was paying a lot of money to Supervalu to license out the Albertsons systems to use in the converted stores (they had their own systems in their original stores...). I assume had they taken warehouses, that would have been additional licensing expense for software... also they'd have cash tied up in inventory longer...

Logistically they could have taken a warehouse in SoCal to supply what- 90 or so stores in SoCal, AZ, and Las Vegas. Transportation costs would have killed them. Then again 90 or so stores in SoCal, AZ, and Las Vegas sounds suspiciously similar to what C&S is getting...

[HCal]

I do wonder would it have worked out differently if Haggen had warehouses, or would it have been the same end result?

My (speculative) feeling is that it would have been the same. Haggen had no trouble getting products on the shelves. Their problem was high pricing, poor IT, and a lack of understanding of the California market, none of which would have been improved by having their own warehouses.

If Haggen had been succesful, then I suspect at some point they would have switched to self-distribution in order to improve margins.

[storewanderer]

I do wonder would it have worked out differently if Haggen had warehouses, or would it have been the same end result?

My (speculative) feeling is that it would have been the same. Haggen had no trouble getting products on the shelves. Their problem was high pricing, poor IT, and a lack of understanding of the California market, none of which would have been improved by having their own warehouses.

If Haggen had been succesful, then I suspect at some point they would have switched to self-distribution in order to improve margins.

I think the same. Unified should have helped them, but Unified was not properly set up to make it work. Haggen ran terrible ads too. They were not getting deals out of suppliers that they should have, and there must have been coordination issues between self distributing, Unified, and Supervalu on promotions.

Thinking back to the whole Haggen/Unified thing I am even more convinced there is no way this C&S thing can work.

[Bluelightspecial]

Just my opinion, but judging from history, my opinion of this merger has changed 180 degrees. I think the merger should be allowed to go through with the amount of divestitures Kroger/Albertsons currently want. C&S may not fail as bad as the Haagan debacle, but it will fail. The simple answer is "demographics". The markets in the major urban areas are much more fragmented than even 10 years ago. For example, if this merger was never proposed think of how many Kroger and Albertsons stores would close in the next 5 years anyway and both chains know it. For some reference, when Vons bought the Safeway southern California division in the late 80s there were close to 400 stores. When Safeway bought it back there was I believe a little over 200 stores. Most, if not all, of the stores in the central valley of California were sold eventually to chains like Vallarta because Safeway/Vons didn't know how to market to that demographic. The same thing is happening in northern Orange County and Phoenix. Albertsons is so weak in Colorado and Houston they should just include all those stores in the "spinoff/sale". My point is that there are so many options for groceries and both chains are dinosaurs dying off already in some markets. If Kroger can merge and get some of the Albertsons gems like northern CA, and Hawaii (which makes more money than some divisions) I think they would be fine with it.

Awful take.

There aren't "so many options for groceries". Oh wow! Customers can just go to the dollar store instead! Yeah, no. What's next, considering 7-Eleven a competitor? Imagine if American Stores had tried to argue something similar in the 1980s when they bought Lucky.

Also, when Vons bought the Southern California division, according to the Los Angeles Times, store count for The Vons Cos. with Vons, Tianguis, Pavilions, and the soon-to-rebranded Safeway stores numbering "more than 350 stores", not "close to 400". When Safeway bought the remaining 65% of the company in 1997, there were 320 stores. That's over 30 stores, not 200.

I also think you're overestimating the importance of the Northern California Division. California is an extremely expensive to operate in, and the lackluster performance of Ralphs should indicate that they're not committed in California, and the smaller size of some of the NorCal stores is not Kroger's forte. Besides, if they wanted NorCal so badly, then just go for Save Mart. Likewise, in the case of Houston (can't speak for Colorado), most of the bad stores have been purged, and the remaining stores turn a small profit. They aren't a market leader by any stretch but that's not a bad thing. Besides, with H-E-B's growth in Houston (Kroger has done nothing) they now have a +4 lead on Kroger. Adding Randalls probably won't cannibalize Kroger but it can at least close that gap.

First off, before you disparage a comment know your facts. I have a list of all the Vons stores from 1991 after they bought the Safeway southern California division. It's over 400 stores. Perhaps you assumed that the LA times was referring to ALL of the southern California stores instead of of including San Diego and Central Valley. Yes Vons closed many stores after they bought the Safeway southern CA division, but in 1991 they still had more stores than you "guessed". Second, Yes Safeway NorCal is expensive to operate but they also have the volume to manage it. It also includes Hawaii which has higher volume per store than most other stores. So for your education, here is the list of stores in 1991 after Vons bought the Safeway SoCal division before. If you want a list of the stores that Safeway bought back I can send that to you also. So before you say something is "awful" you might want to do your homework.

All stores numbered 1 through 187 were originally Vons. From 190 to 463 were Safeways. Most of which have closed by now.
pseudo3d, if you'd like further proof I have it.