The concern I have is the massive overpay Kroger is making in this entire Albertsons merger deal, if it were to actually happen.storewanderer wrote: ↑January 17th, 2024, 12:51 amI caution the idea of heavily cutting stores off for the value of their real estate. It is one thing to do it with a few stores but usually when executives see how much short term gain they can get from doing that, it ends up being a lot more than a few stores. Fortunately nobody has had the bright idea to mess up Fred Meyer by doing that, yet.ClownLoach wrote: ↑January 16th, 2024, 9:17 am
Moving stores from $500K to $1M a week type consolidation is the Kroger specialty as we saw with the mass culling of Ralphs stores in SoCal. They obviously don't care about the pain it causes. Remember that they're going to be more focused on sales per square foot metrics as well as bottom line profit, both of which are what drove them to consolidate here. Even if they didn't recapture all of the sales, the massive cash influx from the sale of some of these oversized and underutilized Fred Meyer properties would likely measure out to three or four decades of profit for that store all delivered at once.
I'm also not convinced that all of these Fred Meyer stores do the kinds of volumes everyone here seems to think they do. There are too many, too close together in the urban areas. I highly doubt they're each doing $1.5M a week, nor would they need to do anything close to that since they are owned real estate. Last time I was in Seattle I went to one that was North of Downtown (could have been on Aurora? Really don't remember) in an aged looking building. It spanned at least two city blocks, and had a basement along with a Home Depot sized garden center. It was dead, literally only self checkout open in the morning. Very unproductive site that could easily be sold and redeveloped as that area didn't need a superstore like FM, they just need a solid grocery store and pharmacy. These are also areas with substantial delivery business which once again means they could get away with less real estate in the area.
I would not be surprised if Kroger could sell off three or four of these owned sites in both the Portland market and Seattle market for redevelopment and net a billion dollars cash - and probably could get at least a modern Safeway size store into the replacement developments similar to the Queen Anne project.
I do not believe they would do anything with suburb market stores as they mostly seem to be the more productive Fred Meyer locations. They also would not be very valuable. I do not believe the rural stores are as productive either, but when I think of locations like Tillamook I am sure they do a more decent business in general merchandise, clothing etc. since it's such a long haul to buy these items elsewhere.
As far as the endless apartment thing goes, it's going to still be running in the PNW long after California comes crashing to a halt. The PNW has its problems like California, but the tax benefits of living in Washington state especially are still a motivator for people to move there.
They are paying a lot for these stores and the indebtedness they're going to be operating under is going to put pressures on them especially in the first 5 years where the integration expenses will outweigh any savings from synergies.
This is why I have been suspicious from the beginning that one of the main reasons for this deal is real estate, which is a topic that retailers with high numbers of owned stores are constantly being pressured over by the Wall Street vultures. All of these owned stores are worth more as buildings rather than businesses in the most heavily populated areas, and it's well known that it any of these sites were put on the market they would receive a dozen or more 9 figure bids within 24 hours from giant developers.
The reality of the situation is that although Kroger and Albertsons both have done some leaseback transactions those most likely are less valuable sites in the suburbs or even more rural areas. The buyers of those sites don't have ambitions of making massive developments, they're just looking for decades of steady income from the rent.
The owned real estate in more urban and populated areas with "housing shortages" is where things get complicated. Leasebacks aren't options as the payout would be high but the rents would assuredly exceed profits. Buyers are interested in paying top dollar to make top dollars by putting up condo towers or apartments because that's where the money is right now. They have little interest in reserving room for retail uses which will rent for a few dollars per square foot, when the same space could be restaurants or residential that pay hundreds of dollars a square foot.
And the shareholders who started all of this crap by demanding "strategic alternatives to unlock shareholder value" are what causes these types of deals to be made. When they know that there are sites that they can easily sell for at least a hundred million dollars, it isn't difficult to see that one time profit is the equivalent of the last 40 to 50 years of bottom line profit for that store. That's why you see Safeway slowly selling off these San Francisco sites, surely they're trying to stay as part of new developments as we've seen but it doesn't always work out and sometimes they choose to just cash out that store. When the pressure of a bad sales quarter or year starts to build and the company (who has been stuck buying back their own shares) realizes the impact it will have, suddenly they have to play these cards. And I just think that the pressures they're going to face in the next 5 years from this merger, if it actually goes through, will force them to play these cards again and again to hedge the stock price.
