SpinCo

[jamcool]

I went into WinCo this morning in South Reno at 8:30 AM and could not believe how busy it was in there. There were probably 200 customers shopping. Upper middle class customers in the 50-60 age group driving off in expensive SUVs made up the majority of the customers. To be fair Smiths nearby was also somewhat busy but not this busy. Sprouts was largely deserted and Safeway had a handfull of customers.

Seeing the same in Temecula. Winco parking lot jammed with BMW, Mercedes, and Lexus cars. The fact that Trader Joe's is behind the store brings even more traffic. Meanwhile the Albertsons-on-every-corner are pretty slow. I have noticed Albertsons is relaunching their big Friday deals and had some real bargains like the large premium frozen pizzas for $3 without digital coupon gimmicks.

WinCo doesn’t do much of anything in Phoenix….little advertising, no new stores (the proposed store in Goodyear is still an empty lot). Not taking credit cards in a tourist oriented area hurts their sales-unlike Vegas tourists stay in Phoenix for a week or so. And no plans for Tucson or N Arizona stores (where they would probably have more success.)

[storewanderer]

There is some real confusion here. There are definitely links to divests going to Save Mart, Ahold, and others. But that means they're not going to do a Spinco. Anything being bought means no Spinco.

Nothing that goes to a Spinco is then being subsequently sold. It makes absolutely no sense. Why would a buyer choose to acquire the stores effectively absorbing the costs of two sales (first to Spinco then Spinco to themselves)? Why pay more? If Spinco happens it sits out there for a while alone and the only place it goes to is possibly a PE buyer like Apollo or Cerberus. Since both seem to be trying to get out of the market I doubt they'd turn around and rebuy a sizable chunk of the company comprised of their weakest links while requiring the creation of a supply chain and corporate headquarters.

Spinco is literally the absolute last resort option intended to contain every single required divestiture, not just some, in the unlikely event they can't get a better deal selling the stores individually or in groups. With the extra caveat that a small Spinco of just a fraction of the divests wouldn't be profitable at all and would immediately sink, the regulators would easily figure that out and torpedo the entire deal. The only way such an organization would survive is if they had guaranteed credit lines and supplier contracts cemented prior to a spinoff and (this is key) they contained every single divestiture period. And it would contain ACI stores as well as KR, they would just acquire the necessary KR stores at the merger close. For Spinco to have any chance of survival it would need to be as large as possible and contain the very best of the divestitures so that there are enough units providing adequate cash return.

The reality is that they can only use Spinco as a threat against potential buyers to limited effect, basically saying give us the best deal for these stores or we could just jettison them to our shareholders, but even then they are at a disadvantage because the valuation of "good stores" to buyers will likely exceed the value of Spinco. So then whatever isn't a "good store" will still be a tough sale as buyers wait for a fire sale and potentially get units for as little as $1.

Tie the dots on the people and there is quite a connection going here between Save Mart, SpinCo, and now Ahold. All the movements could just be coincidences.

So if you have buyer R who thinks they can get a screaming deal on stores that the company is desperate to sell to get the merger to close, is the only viable buyer who will keep the union, and says they will buy a package of 25 stores for $10 million, but the profitability based sale price calculation for the sale price to SpinCo of those 25 stores if they go into SpinCo is $60 million, what do you think is going to happen? Albertsons has a duty to its shareholders to maximize the sale price for the stores sold since the sale price of the stores sold is part of the compensation to Albertsons shareholders for this transaction. Is Albertsons going to select to sell the stores to lowball buyer R for $10 million, or just push the stores into SpinCo at a value of $60 million, then let SpinCo deal with what to do with the stores?

Of course if I am an Albertsons shareholder and I am seeing $10 million in cold cash from buyer R today, vs. $60 million worth of "shares in SpinCo" then that may impact the analysis as well.

I actually think based on the above that the entire reason SpinCo was created was to avoid these divested stores ending up going to random buyers at fire sale prices. SpinCo allowed them to structure a "floor" value for profitable stores that have to be divested. Previously that floor was $0 and there have been cases in the past where they literally had to pay a buyer to take divested stores over as they were facing large daily fines from FTC for failing to divest stores by a certain date as they simply could not find a buyer (see: Safeway/Carrs merger).

Now what appears to be happening is buyers are playing the lowball game you describe so they do this thing where they put an executive in charge of "dealing with SpinCo" (note it says nothing about him actually operating SpinCo once it launches)- perhaps to light a fire to some of these lowball buyers to tell them look, we do not need to sell you this store that has $2 million per year profit for $400k as part of a package, we can just do SpinCo instead, thank you for your interest, now go away.

So I absolutely see SpinCo selling stuff off it assembles (see: Cub Stores divested by Supervalu to Cerberus when Supervalu bought Jewel in Chicago that were sold immediately- Cerberus shut them down almost immediately but most reopened by smaller chains). This allows a clean break to get the divested stores out of Albertsons/Kroger, gives the merged company zero liability for the divested stores since the divested stores never entered their books in the first place, and avoids various bad scenarios like failure to divest, giving stores away, paying competitors to take stores, etc.

Then once the divested stores fail, in 2 years, the merged Kroger can just say "oh well, Albertsons handled the store divest program, it was their stores and their program to select buyers, we are sorry about what happened and we'd love to assume operations of some of those stores again and give the union employees their jobs back......"

[storewanderer]

I went into WinCo this morning in South Reno at 8:30 AM and could not believe how busy it was in there. There were probably 200 customers shopping. Upper middle class customers in the 50-60 age group driving off in expensive SUVs made up the majority of the customers. To be fair Smiths nearby was also somewhat busy but not this busy. Sprouts was largely deserted and Safeway had a handfull of customers.

Seeing the same in Temecula. Winco parking lot jammed with BMW, Mercedes, and Lexus cars. The fact that Trader Joe's is behind the store brings even more traffic. Meanwhile the Albertsons-on-every-corner are pretty slow. I have noticed Albertsons is relaunching their big Friday deals and had some real bargains like the large premium frozen pizzas for $3 without digital coupon gimmicks.

WinCo doesn’t do much of anything in Phoenix….little advertising, no new stores (the proposed store in Goodyear is still an empty lot). Not taking credit cards in a tourist oriented area hurts their sales-unlike Vegas tourists stay in Phoenix for a week or so. And no plans for Tucson or N Arizona stores (where they would probably have more success.)

WinCo has 7 stores in metro Phoenix. Metro Phoenix is at close to 5 million people.

For comparison WinCo in metro Portland, OR has 7 stores and metro Portland OR is around 2.2 million people. But WinCo has done business there for decades and that is all they have. This is just how WinCo does things.

WinCo's strategy has never been to penetrate a market with locations. They are always few and far between. They get a small number of stores up and work to maximize volume in those stores.

But if those 7 metro Phoenix Stores each do $2 million/week in sales on average (which I suspect they do), that is $14 million of sales a week. Now if some other chain is sitting there in metro Phoenix with 50 medium to low volume stores, some a hispanic format, some a gourmet format, and a few conventional formats, that group combined averages $325k/week in sales, that chain is only doing $16.25 million a week in sales around metro Phoenix despite that it feels like they are more present in the area. And obviously there are a lot of efficiencies that go into having 7 stores in a single format and mostly same size/design vs. dealing with 50 stores in multiple formats/sizes/neighborhoods.

WinCo owns most of their sites, has no debt, and expands as quickly as their internal funds allow.

The ship has sailed again on WinCo and credit cards. In the 00's they tested credit card acceptance at a store in a Sacramento suburb and ultimately quit accepting long ago, and then more recently the Tulsa locations accepted credit cards (from the time they opened) and just recently quit accepting in Tulsa. I used to have a problem with WinCo not accepting credit cards but at this point and given their pricing I am okay with it. I may buy more there if they accepted credit cards, I am not sure, but at this point even if I am getting 5% back at grocery stores some quarters with certain credit cards, it is often WinCo is the better price for various items even factoring that in. If I had to tell someone who didn't like shopping around where to go and not get ripped off on groceries, the answer would be very simple: WinCo. And Trader Joe's would be a close second.

[ClownLoach]

Seeing the same in Temecula. Winco parking lot jammed with BMW, Mercedes, and Lexus cars. The fact that Trader Joe's is behind the store brings even more traffic. Meanwhile the Albertsons-on-every-corner are pretty slow. I have noticed Albertsons is relaunching their big Friday deals and had some real bargains like the large premium frozen pizzas for $3 without digital coupon gimmicks.

WinCo doesn’t do much of anything in Phoenix….little advertising, no new stores (the proposed store in Goodyear is still an empty lot). Not taking credit cards in a tourist oriented area hurts their sales-unlike Vegas tourists stay in Phoenix for a week or so. And no plans for Tucson or N Arizona stores (where they would probably have more success.)

WinCo has 7 stores in metro Phoenix. Metro Phoenix is at close to 5 million people.

For comparison WinCo in metro Portland, OR has 7 stores and metro Portland OR is around 2.2 million people. But WinCo has done business there for decades and that is all they have. This is just how WinCo does things.

WinCo's strategy has never been to penetrate a market with locations. They are always few and far between. They get a small number of stores up and work to maximize volume in those stores.

But if those 7 metro Phoenix Stores each do $2 million/week in sales on average (which I suspect they do), that is $14 million of sales a week. Now if some other chain is sitting there in metro Phoenix with 50 medium to low volume stores, some a hispanic format, some a gourmet format, and a few conventional formats, that group combined averages $325k/week in sales, that chain is only doing $16.25 million a week in sales around metro Phoenix despite that it feels like they are more present in the area. And obviously there are a lot of efficiencies that go into having 7 stores in a single format and mostly same size/design vs. dealing with 50 stores in multiple formats/sizes/neighborhoods.

WinCo owns most of their sites, has no debt, and expands as quickly as their internal funds allow.

The ship has sailed again on WinCo and credit cards. In the 00's they tested credit card acceptance at a store in a Sacramento suburb and ultimately quit accepting long ago, and then more recently the Tulsa locations accepted credit cards (from the time they opened) and just recently quit accepting in Tulsa. I used to have a problem with WinCo not accepting credit cards but at this point and given their pricing I am okay with it. I may buy more there if they accepted credit cards, I am not sure, but at this point even if I am getting 5% back at grocery stores some quarters with certain credit cards, it is often WinCo is the better price for various items even factoring that in. If I had to tell someone who didn't like shopping around where to go and not get ripped off on groceries, the answer would be very simple: WinCo. And Trader Joe's would be a close second.

Winco didn't make any impact at all in SoCal when they first landed. Nobody knew who they were. But they know now... And they're bringing in a lot of volume. It took quite a while. They also typically take problematic or redevelopment locations that other stores fail in so they can get a great lease deal (like the former Smith's in Temecula and Lakewood). They'll catch up in Phoenix, Texas, and all the other areas where they are new to the market. And their target lower income customer isn't a credit card customer anyway, they're a cash customer.

That Temecula location assuredly does several million per week and I wouldn't blink if it was a $150M store. I also wouldn't blink if the 8 Albertsons in the area didn't total $150M a year - and several are pretty busy, but nothing like Winco.

[storewanderer]

Winco didn't make any impact at all in SoCal when they first landed. Nobody knew who they were. But they know now... And they're bringing in a lot of volume. It took quite a while. They also typically take problematic or redevelopment locations that other stores fail in so they can get a great lease deal (like the former Smith's in Temecula and Lakewood). They'll catch up in Phoenix, Texas, and all the other areas where they are new to the market. And their target lower income customer isn't a credit card customer anyway, they're a cash customer.

That Temecula location assuredly does several million per week and I wouldn't blink if it was a $150M store. I also wouldn't blink if the 8 Albertsons in the area didn't total $150M a year - and several are pretty busy, but nothing like Winco.

Competing with WinCo is kind of a weird thing. In a lot of ways, you don't really feel like they are even there. They seem to draw from a much wider radius than typical grocery stores, and they pull off a lot of foot traffic from lower income customers who buy large quantities of low cost items so you don't feel the sales loss as much from them (that customer was probably already shopping at Wal Mart anyway- long gone from the conventional chains).

I've talked to some higher income people who shop at WinCo and ask them why they are shopping there. One of the first responses is that it is cheaper than other stores but another thing they comment on is that they think it has a great selection of items and always has what they go in for. Even if WinCo isn't their primary store and they may not touch WinCo's meat (to be fair, IF it looks okay, it is okay has been my experience...) or go to WinCo's deli (hot food isn't bad... for supermarket hot food... and is certainly priced appropriately), there are a lot of other items in the store for them to pick up in between going to Costco, etc. A shocking number of people in South Reno who Raleys sent away with Raleys ONE have ended up at WinCo.

But what has surprised me is out in Sparks there is a new WinCo and what was and still is a very busy Wal Mart Supercenter. I'm not sure this WinCo is even hitting $1 million a week in sales yet so by WinCo standards this is a slow store. I expected that Wal Mart Supercenter to suffer significant traffic loss from the opening of WinCo, but it hasn't. It is still as busy as ever. I'm not even sure if it has lost 10% of its volume. There is a lot of growth in the area so there is room for everyone and perhaps everyone can keep growing due to all of the growth. However the Save Mart unit near the WinCo and oddly a Smiths about 10 miles away but along a commuter path for people who live closer to the WinCo have a very noticeable traffic loss since the WinCo opened. I'm not too surprised about the Save Mart but the Smiths surprises me (still a very busy store, but noticeably less busy sometimes now, and keeps getting special ads).

[arizonaguy]

Winco didn't make any impact at all in SoCal when they first landed. Nobody knew who they were. But they know now... And they're bringing in a lot of volume. It took quite a while. They also typically take problematic or redevelopment locations that other stores fail in so they can get a great lease deal (like the former Smith's in Temecula and Lakewood). They'll catch up in Phoenix, Texas, and all the other areas where they are new to the market. And their target lower income customer isn't a credit card customer anyway, they're a cash customer.

That Temecula location assuredly does several million per week and I wouldn't blink if it was a $150M store. I also wouldn't blink if the 8 Albertsons in the area didn't total $150M a year - and several are pretty busy, but nothing like Winco.

Competing with WinCo is kind of a weird thing. In a lot of ways, you don't really feel like they are even there. They seem to draw from a much wider radius than typical grocery stores, and they pull off a lot of foot traffic from lower income customers who buy large quantities of low cost items so you don't feel the sales loss as much from them (that customer was probably already shopping at Wal Mart anyway- long gone from the conventional chains).

I've talked to some higher income people who shop at WinCo and ask them why they are shopping there. One of the first responses is that it is cheaper than other stores but another thing they comment on is that they think it has a great selection of items and always has what they go in for. Even if WinCo isn't their primary store and they may not touch WinCo's meat (to be fair, IF it looks okay, it is okay has been my experience...) or go to WinCo's deli (hot food isn't bad... for supermarket hot food... and is certainly priced appropriately), there are a lot of other items in the store for them to pick up in between going to Costco, etc. A shocking number of people in South Reno who Raleys sent away with Raleys ONE have ended up at WinCo.

But what has surprised me is out in Sparks there is a new WinCo and what was and still is a very busy Wal Mart Supercenter. I'm not sure this WinCo is even hitting $1 million a week in sales yet so by WinCo standards this is a slow store. I expected that Wal Mart Supercenter to suffer significant traffic loss from the opening of WinCo, but it hasn't. It is still as busy as ever. I'm not even sure if it has lost 10% of its volume. There is a lot of growth in the area so there is room for everyone and perhaps everyone can keep growing due to all of the growth. However the Save Mart unit near the WinCo and oddly a Smiths about 10 miles away but along a commuter path for people who live closer to the WinCo have a very noticeable traffic loss since the WinCo opened. I'm not too surprised about the Save Mart but the Smiths surprises me (still a very busy store, but noticeably less busy sometimes now, and keeps getting special ads).

I actually am not sure how many customers WinCo pulls from Walmart.

There are some as WinCo is now the only 24 hour supermarket in my area.

However, at least in Phoenix, I believe WinCo is pulling more Albertsons / Safeway / Bashas' shoppers than Walmart or Fry's.

One thing about WinCo is that it makes Aldi kind of pointless, especially if the WinCo is close to the Aldi (which my closest WinCo is). Why go to Aldi with its bizarre selection of random private label / national brand label items and curated selection when one can go to WinCo and fill multiple full baskets of items.

WinCo isn't my first choice (and I live within walking distance of one). However, if I am going to make one stop and I need an item WinCo is where I would shop.

[veteran+]

WinCo and variety in the same sentence does not make sense to me.

Have they changed?

I have never taken note of "variety" when visiting (not shopping) a WinCo.

[Bagels]

Winco didn't make any impact at all in SoCal when they first landed. Nobody knew who they were. But they know now... And they're bringing in a lot of volume. It took quite a while. They also typically take problematic or redevelopment locations that other stores fail in so they can get a great lease deal (like the former Smith's in Temecula and Lakewood). They'll catch up in Phoenix, Texas, and all the other areas where they are new to the market. And their target lower income customer isn't a credit card customer anyway, they're a cash customer.

That Temecula location assuredly does several million per week and I wouldn't blink if it was a $150M store. I also wouldn't blink if the 8 Albertsons in the area didn't total $150M a year - and several are pretty busy, but nothing like Winco.

Meh.

Per a 2004 LA Times article, WinCo planned to build "up to 40" stores in the LA-area within 20 years. Well, 20 years are almost here and the only true LA-area store is Lakewood, which opened at least ten years ago. They sold off the property they acquired to build a SoCal distribution center, so I'd argue their buildout within the region is done.

[arizonaguy]

Winco didn't make any impact at all in SoCal when they first landed. Nobody knew who they were. But they know now... And they're bringing in a lot of volume. It took quite a while. They also typically take problematic or redevelopment locations that other stores fail in so they can get a great lease deal (like the former Smith's in Temecula and Lakewood). They'll catch up in Phoenix, Texas, and all the other areas where they are new to the market. And their target lower income customer isn't a credit card customer anyway, they're a cash customer.

That Temecula location assuredly does several million per week and I wouldn't blink if it was a $150M store. I also wouldn't blink if the 8 Albertsons in the area didn't total $150M a year - and several are pretty busy, but nothing like Winco.

Meh.

Per a 2004 LA Times article, WinCo planned to build "up to 40" stores in the LA-area within 20 years. Well, 20 years are almost here and the only true LA-area store is Lakewood, which opened at least ten years ago. They sold off the property they acquired to build a SoCal distribution center, so I'd argue their buildout within the region is done.

WinCo did the same thing in Phoenix. They acquired property to built about twice the number of stores they have there now and haven't opened a store here since they have focused on Texas and Oklahoma.

[storewanderer]

WinCo and variety in the same sentence does not make sense to me.

Have they changed?

I have never taken note of "variety" when visiting (not shopping) a WinCo.

Well, the variety looks great to a 55-65 year old upper middle class shopper who likes standard national brand/secondary brand merchandise they've known for decades... WinCo's product mix isn't much different today than it was 28 years ago when they entered my market.

Some categories they are very much lacking. Coffee for example, their shelf selection is terrible. But they have a bunch of bulk coffee in more flavors than I've seen anywhere (and those are in those bottom-dispensing pull lever to dispense bins so they are sanitary-ish compared to a usual bulk bin).

WinCo also has an above average selection of both Hispanic and Asian food items (always has).

I have found a lot of items I like to buy at WinCo as I have shopped there more. They have the largest bagged salad selection of any store (but only one brand...) and also by far the best prices. They have a larger assortment of Tillamook dairy than most retailers and at better prices, the "Umpqua" ice cream (comes out of OR) is great stuff and they have the most flavors in my market (I think Raleys has a few flavors; Safeway had a few but discontinued it, was $3 more than WinCo anyway), they have multiple flavors/brands of seltzer with flavors (non sugar/fake sugar) in 1-1.5L plastic bottles under $1 (Smiths has nothing but one flavor-plain; other stores have some flavors but cost is higher), they have small cans of Hunt's Tomato Sauce in the 3 flavors (plain, garlic, and basil/oregano) and unfortunately the only other store with all 3 SKUs in my market is Wal Mart and at .60 everyday (same price at both); some competitors only sell one flavor, some sell 2 flavors, etc. and prices are 1.25+ (I think Smiths may still be .69 for its 1 SKU plain). WinCo hits a lot of secondary brands/vendors in its stores and I find the products to be great and ingredient lists often cleaner than the biggest national brands.

For the young consumer WinCo seems to work best for young consumers who are focused on raw type ingredients to cook their own food. Basic staple foods like vegetables, mid range cuts of meat, dairy products, dry items like sugar/flour, packaged breads/tortillas, some sauces/canned items for finishing, for this shopper, WinCo does very well and has fantastic depth of variety. For the special needs shopper who is looking for gluten free, Organic, whatever, WinCo isn't going to do much for them in my opinion (they do have some signs designating Gluten Free though).