🛒 Kroger-Albertsons Merger: Northwest, Rockies, & Alaska Impact

[ClownLoach]

The issue I see is that they'll have to either divest all the Fred Meyer stores in Bellingham, or most/all of the Haggen stores. Since we know the FM stores aren't going to be sold, that means Haggen loses its hometown where the brand and format are at its best. At that point I have to think they'll have to make a side deal to sell the entire Haggen chain because it does have a good reputation up there, people love those stores in NW Washington. My guess is they're going to try to get away with just offering up the Safeway for sale but that probably won't get past the regulators. It would be sad to see the brand go away because of that merger. Anywhere that the brand has baggage isn't a key area for them anyway. They love it in Bellingham.

I think Kroger should be willing to divest Fred Meyer "Marketplace" stores, which are under 100000 sqft.

I've heard the original Haggen is pretty much the closest thing the PNW has to Wegmans. Beautiful stores. This is totally different from the Haggen that took expansion steroids.

If they came up with a side deal for Haggen I think that Good Food Holdings might be a good fit. I think that all the Haggens are up North enough that there wouldn't be any overlap with GFH's Met Markets.

I second that. Maybe see if they can get Zupans from Portland too, they seem to pretend they're a Good Food Holdings store all the way down to counterfeiting "The Cookie" served hot in the bakery.

[ClownLoach]

These chains are counting Grocery Outlet, Dollar General, etc. as competition when they talk to the FTC. Anyone who sells consumables is considered competition.

The FTC has not been consistent at all with this. They seem to accept this argument when it comes to grocery stores sometimes, like the competition excuse of Dollar General. Then they'll turn around and pretend it isn't valid, like in the Albertsons - Safeway merger where I still think there were too many forced divestitures that ultimately resulted in more store closures and less competition. The SoCal market is far worse off now as stores that would certainly have been kept open if never divested were handed off to marginal competitors like Smart&Final in the Haggen debacle. I'm still irritated to read that they made Albertsons divest stores 15+ miles away as too close and stifles competition, but they got to keep stores 300 feet apart? Obviously they do not practice any objective standard for determining the necessary divestitures. I could easily see the lazy and inept FTC allowing say a Fred Meyer across the street from a Safeway to both stay, but out on the coast force a Safeway that's 10+ miles from a Fred Meyer to be sold with the same "shake the magic 8 ball" decision process.

Staples and Office Depot have tried to merge at least three times and each time the FTC has taken the argument that it's pretty much impossible to find ink cartridges or paper or an office chair unless you go to Staples or Office Depot. Not sure if it's as crazy as it used to be in places like Phoenix where there was always a Staples on the other corner from an OfficeMax, with an Office Depot a block away... Here there seems to be zero remaining overlap, they should absolutely be allowed to merge because the entire industry has evaporated and at least if the retail sides combined into Staples/Office Depot/Max there is a fair chance of prices stabilizing as they eliminate all the overlapping corporate functions and regain margins. The B2B side is easily separated anyway, Office Depot has already effectively divided internally and the direct side is now called ODP.

The FTC is inconsistent and really becoming quite useless as it seems like they come up with worse solutions for the consumer these days than allowing the businesses to do whatever they want to do. Aside from the fact I don't like what 7-Eleven did with Speedway, they handled their own divestitures and did just fine, in some cases it's almost like they tried too hard and gave more up than needed. I've seen intersections where 7-Eleven sold a Shell franchise to Jackson's, who already operates a Chevron across the street and now it's Jackson's vs Jackson's. But there was a 7-Eleven branded station two blocks away, so they felt it was an overlap. No, I'm not advocating for letting Corporate America get away with murder, but the most recent handling of these deals by the FTC is arguably much worse.

Streamline the process. Let the merging companies determine what stays and goes. Give them specific objectives around establishing that strong competitor. Then create a judgment process for their plan. Tell them that their plan will be judged for fairness by competitors, independent industry experts, and consumer rights groups. If anyone finds that their plan is BS then they will be forced to change it and be penalized somehow. They will get it right the first time and it'll be a thousand times better than whatever nonsense the FTC cooks up.

The Haggen debacle is just as much the result of the FTC making brainless, moronic decisions about what locations needed to be divested as it was the product of a flawed company being chosen to receive the assets.

[bryceleinan]

And here we go with the lawsuits: State of Washington just filed a lawsuit in King County (Seattle) to block Albertsons / Kroger merger on anti-competitive grounds, at least in the State of Washington.

https://www.npr.org/2024/01/15/12244011 ... washington

I'm personally not surprised about this lawsuit - others are probably forthcoming, although it does put a small wrinkle in the plans for a closing anytime soon.

[ClownLoach]

And here we go with the lawsuits: State of Washington just filed a lawsuit in King County (Seattle) to block Albertsons / Kroger merger on anti-competitive grounds, at least in the State of Washington.

https://www.npr.org/2024/01/15/12244011 ... washington

I'm personally not surprised about this lawsuit - others are probably forthcoming, although it does put a small wrinkle in the plans for a closing anytime soon.

Washington state does not seem to have any possibility of a remedy short of finding a buyer for every single asset of Albertsons Cos. and creating a legitimate viable competitor. I don't believe that other states have as much of a legitimate claim of a monopoly; California for example I truly do not believe they need to divest anything more than across-the-street or around-the-corner overlaps as there are many choices (my beef here is the sale to C&S versus the plethora of legitimate competition that wants these sites like Northgate, H-Mart, 99 Ranch, Vallarta, and others). But Washington really doesn't have a depth of choice.

And I think based on our discussions of the great decline within the Fred Meyer chain, where many locations appear to get 90% plus of their revenue from just the grocery aisles - part of the intent of this deal was for Kroger to cash in on the closure, downsizing, and redevelopment of these mostly owned sites. Some of these locations within Seattle for example could easily be worth 9 figures for the land to a developer, and the sting of losing the store sales disappears when you own the two Safeway locations nearby that are going to benefit from the closure. Don't tell me for one second that the downsizing of these big Fred Meyer locations and monetizing their real estate is not a big factor in the thought process for Kroger as there are billions of dollars in real estate assets tied up throughout just the Seattle market and immediate vicinity. Obviously they'll slither out of the "no closures" promise one store at a time as they talk about how the closure and redevelopment into housing in a market with a shortage is "helping the community."

More than any other state besides maybe Oregon, I do not believe there is any legitimate remedy there and the State AG will win this one. The thing to understand is that the more concessions they have to make, the less reasons remain to merge in the first place. Every round of additional concessions will force the merger close to be delayed or deferred until finally they just give up and do something else.

[babs]

And here we go with the lawsuits: State of Washington just filed a lawsuit in King County (Seattle) to block Albertsons / Kroger merger on anti-competitive grounds, at least in the State of Washington.

https://www.npr.org/2024/01/15/12244011 ... washington

I'm personally not surprised about this lawsuit - others are probably forthcoming, although it does put a small wrinkle in the plans for a closing anytime soon.

Washington state does not seem to have any possibility of a remedy short of finding a buyer for every single asset of Albertsons Cos. and creating a legitimate viable competitor. I don't believe that other states have as much of a legitimate claim of a monopoly; California for example I truly do not believe they need to divest anything more than across-the-street or around-the-corner overlaps as there are many choices (my beef here is the sale to C&S versus the plethora of legitimate competition that wants these sites like Northgate, H-Mart, 99 Ranch, Vallarta, and others). But Washington really doesn't have a depth of choice.

And I think based on our discussions of the great decline within the Fred Meyer chain, where many locations appear to get 90% plus of their revenue from just the grocery aisles - part of the intent of this deal was for Kroger to cash in on the closure, downsizing, and redevelopment of these mostly owned sites. Some of these locations within Seattle for example could easily be worth 9 figures for the land to a developer, and the sting of losing the store sales disappears when you own the two Safeway locations nearby that are going to benefit from the closure. Don't tell me for one second that the downsizing of these big Fred Meyer locations and monetizing their real estate is not a big factor in the thought process for Kroger as there are billions of dollars in real estate assets tied up throughout just the Seattle market and immediate vicinity. Obviously they'll slither out of the "no closures" promise one store at a time as they talk about how the closure and redevelopment into housing in a market with a shortage is "helping the community."

More than any other state besides maybe Oregon, I do not believe there is any legitimate remedy there and the State AG will win this one. The thing to understand is that the more concessions they have to make, the less reasons remain to merge in the first place. Every round of additional concessions will force the merger close to be delayed or deferred until finally they just give up and do something else.

Kroger already said they're not selling any Fred Meyer stores. And it would be stupid if they did due to the volume they do, even if most sales today are from grocery.

[ClownLoach]

And here we go with the lawsuits: State of Washington just filed a lawsuit in King County (Seattle) to block Albertsons / Kroger merger on anti-competitive grounds, at least in the State of Washington.

https://www.npr.org/2024/01/15/12244011 ... washington

I'm personally not surprised about this lawsuit - others are probably forthcoming, although it does put a small wrinkle in the plans for a closing anytime soon.

Washington state does not seem to have any possibility of a remedy short of finding a buyer for every single asset of Albertsons Cos. and creating a legitimate viable competitor. I don't believe that other states have as much of a legitimate claim of a monopoly; California for example I truly do not believe they need to divest anything more than across-the-street or around-the-corner overlaps as there are many choices (my beef here is the sale to C&S versus the plethora of legitimate competition that wants these sites like Northgate, H-Mart, 99 Ranch, Vallarta, and others). But Washington really doesn't have a depth of choice.

And I think based on our discussions of the great decline within the Fred Meyer chain, where many locations appear to get 90% plus of their revenue from just the grocery aisles - part of the intent of this deal was for Kroger to cash in on the closure, downsizing, and redevelopment of these mostly owned sites. Some of these locations within Seattle for example could easily be worth 9 figures for the land to a developer, and the sting of losing the store sales disappears when you own the two Safeway locations nearby that are going to benefit from the closure. Don't tell me for one second that the downsizing of these big Fred Meyer locations and monetizing their real estate is not a big factor in the thought process for Kroger as there are billions of dollars in real estate assets tied up throughout just the Seattle market and immediate vicinity. Obviously they'll slither out of the "no closures" promise one store at a time as they talk about how the closure and redevelopment into housing in a market with a shortage is "helping the community."

More than any other state besides maybe Oregon, I do not believe there is any legitimate remedy there and the State AG will win this one. The thing to understand is that the more concessions they have to make, the less reasons remain to merge in the first place. Every round of additional concessions will force the merger close to be delayed or deferred until finally they just give up and do something else.

Kroger already said they're not selling any Fred Meyer stores. And it would be stupid if they did due to the volume they do, even if most sales today are from grocery.

You didn't read my comment.

They would be stupid not to be looking at their options for every store. In fact, they would not be maintaining their fiduciary duty to shareholders if they were not constantly considering the sale of assets where the return would far exceed the ongoing EBITDA generated by the site. If they were not doing this they would be sued by their shareholders and the executives would lose their jobs (and potentially land in federal prison).

They said they're not selling any Fred Meyer stores in conjunction with this merger but that has nothing whatsoever to do with how the organization handles these stores outside of that proposed transaction.

That doesn't mean that they won't eventually be pressured to sell the sites in dense areas of Seattle and Portland which take up entire city blocks that could easily have a land value in 9 figures. They'd be stupid not to cash out on that land as the cash would probably equal several decades of bottom line profit, and then they have the flexibility that if they can't be part of the new development they own the nearby Safeway sites that are smaller and would most benefit from the loss of a large FM.

The fact is these stores are at least 100,000 square feet, many much larger once you include the garden centers, and they were built in the era of massive parking requirements. Many of these stores could be replaced with a Safeway size store, maybe a touch larger, and the productivity would be equal. Nobody's buying a TV or a Wedding Ring at these locations in any volume, and the fact is if they had to pay market rents on these sites they'd probably be putting up an Aldi size store.

Every publicly traded retailer who owns real estate gets calls from investors daily asking when they are going to cash out their holdings and what the return to investors will be. There isn't a snowballs chance in hell that Kroger doesn't have a redevelopment plan for every single one of these Fred Meyer stores in the immediate areas of Seattle and Portland; every major retailer has Real Estate Asset Management teams who are responsible for maintaining these plans for each "asset" AKA stores and they're typically reviewed every couple years by the big executives. These executives know they are sitting on billions of dollars in assets and they are required legally to make sure they're checking up on their options to make sure they're doing what is best for the company financially even if it means closing a productive store to take advantage of cashing out. Sometimes they say "good plans, let's keep it running and check up on that store in a couple of years" while other times they say "time to call the brokers and get the best deal we can on it." This is the job of the Real Estate director or VP for each region. It's a great gig; I was trying to get that position at my last company.

[storewanderer]

The fact is these stores are at least 100,000 square feet, many much larger once you include the garden centers, and they were built in the era of massive parking requirements. Many of these stores could be replaced with a Safeway size store, maybe a touch larger, and the productivity would be equal. Nobody's buying a TV or a Wedding Ring at these locations in any volume, and the fact is if they had to pay market rents on these sites they'd probably be putting up an Aldi size store.

Every publicly traded retailer who owns real estate gets calls from investors daily asking when they are going to cash out their holdings and what the return to investors will be. There isn't a snowballs chance in hell that Kroger doesn't have a redevelopment plan for every single one of these Fred Meyer stores in the immediate areas of Seattle and Portland; every major retailer has Real Estate Asset Management teams who are responsible for maintaining these plans for each "asset" AKA stores and they're typically reviewed every couple years by the big executives. These executives know they are sitting on billions of dollars in assets and they are required legally to make sure they're checking up on their options to make sure they're doing what is best for the company financially even if it means closing a productive store to take advantage of cashing out. Sometimes they say "good plans, let's keep it running and check up on that store in a couple of years" while other times they say "time to call the brokers and get the best deal we can on it." This is the job of the Real Estate director or VP for each region. It's a great gig; I was trying to get that position at my last company.

Many of those Safeway units going against the Fred Meyer units in Portland and Seattle are under 40,000 square feet. Safeway Stores have a way of seeming like a large complete store due to the familiar layout we all know but they actually have a lot of stores that are very small but present like a full 55k square foot store. The problem with these small stores is they have oversized spaces for things like chips/bottled water (seems to be a Safeway thing oddly not present in the new builds that follow an Albertsons prototype but continues even in remodeled stores), short aisles, few facings of various items, almost no non food, narrow aisles, narrow checkstands, no space for lines to form up front, little space for carts anywhere inside or outside, and a complete mess for Pick Up/Drive Up and Go storage space.

So where I am going is if Kroger thinks they can close a Fred Meyer that does $1.5 million a week in sales and move the sales to 3 nearby little Safeway units that each do $500k a week of sales on their own, and get those little Safeway units each to $1 million a week in sales, they will be unpleasantly surprised. The Safeway units are basically at max volume they can do with their space/size in these areas like Seattle and Portland. And out in the suburbs while the Safeway units there are the larger 55k square foot model, I don't think many customers would more from Fred Meyer to Safeway. They'd move from Fred Meyer to WinCo, Wal Mart, New Seasons, PCC, or various other options.

There are a lot of valuable Fred Meyer sites though, you could put hundreds of apartments on many of those sites... but I question how long this endless demand for apartments will continue.

[ClownLoach]

The fact is these stores are at least 100,000 square feet, many much larger once you include the garden centers, and they were built in the era of massive parking requirements. Many of these stores could be replaced with a Safeway size store, maybe a touch larger, and the productivity would be equal. Nobody's buying a TV or a Wedding Ring at these locations in any volume, and the fact is if they had to pay market rents on these sites they'd probably be putting up an Aldi size store.

Every publicly traded retailer who owns real estate gets calls from investors daily asking when they are going to cash out their holdings and what the return to investors will be. There isn't a snowballs chance in hell that Kroger doesn't have a redevelopment plan for every single one of these Fred Meyer stores in the immediate areas of Seattle and Portland; every major retailer has Real Estate Asset Management teams who are responsible for maintaining these plans for each "asset" AKA stores and they're typically reviewed every couple years by the big executives. These executives know they are sitting on billions of dollars in assets and they are required legally to make sure they're checking up on their options to make sure they're doing what is best for the company financially even if it means closing a productive store to take advantage of cashing out. Sometimes they say "good plans, let's keep it running and check up on that store in a couple of years" while other times they say "time to call the brokers and get the best deal we can on it." This is the job of the Real Estate director or VP for each region. It's a great gig; I was trying to get that position at my last company.

Many of those Safeway units going against the Fred Meyer units in Portland and Seattle are under 40,000 square feet. Safeway Stores have a way of seeming like a large complete store due to the familiar layout we all know but they actually have a lot of stores that are very small but present like a full 55k square foot store. The problem with these small stores is they have oversized spaces for things like chips/bottled water (seems to be a Safeway thing oddly not present in the new builds that follow an Albertsons prototype but continues even in remodeled stores), short aisles, few facings of various items, almost no non food, narrow aisles, narrow checkstands, no space for lines to form up front, little space for carts anywhere inside or outside, and a complete mess for Pick Up/Drive Up and Go storage space.

So where I am going is if Kroger thinks they can close a Fred Meyer that does $1.5 million a week in sales and move the sales to 3 nearby little Safeway units that each do $500k a week of sales on their own, and get those little Safeway units each to $1 million a week in sales, they will be unpleasantly surprised. The Safeway units are basically at max volume they can do with their space/size in these areas like Seattle and Portland. And out in the suburbs while the Safeway units there are the larger 55k square foot model, I don't think many customers would more from Fred Meyer to Safeway. They'd move from Fred Meyer to WinCo, Wal Mart, New Seasons, PCC, or various other options.

There are a lot of valuable Fred Meyer sites though, you could put hundreds of apartments on many of those sites... but I question how long this endless demand for apartments will continue.

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.

[tkaye]

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.

You make a great point. Kmart sat on what seemed like an enormous 10-acre parcel on Sixth Avenue in Tacoma. (If I'm not mistaken, they leased the site for over 50 years from the family that owned an adjacent drive-in that predated the store.) After the store closed, it sat for a couple years until the site was sold to an apartment developer for $15 million in 2021. Something like 400 apartments are going on the land, practically up to the sidewalks.

Less than a mile to the southeast, Fred Meyer sits on 14 acres at S. 19th and Stevens. This is a corridor that will be eventually served by the Sound Transit streetcar line when it is extended to Tacoma Community College by the late 2030s. By that time, the 143,000 sq ft store will be over 65 years old. Will it continue to be the highest and best use for the property? The most recent remodel expanded the grocery department into what had been apparel. The GM departments are basically dead compared to what they were like decades ago.

Meanwhile, a mile and a half to the west, Fred Meyer operates a smaller (68,000 sq ft) Marketplace store in a leased building at James Center. This was a Stock Market Foods inherited after QFC purchased that chain in the late-'90s. For many years, it got no capex (it still has the '90s FM "cartoon" decor and looks very rundown) but it recently had an extensive project replacing all the refrigeration and adding a staging area for ClickList. I've got to think they are somehow hedging their bets with these two stores so close together.

The closest Safeways are a 1967 Marina in the Proctor District that has been expanded to 42,000 sq ft over the years and a 1957 store on the Hilltop at 28,000 sq ft. Both sit on roughly two acres and are likely prime candidates for redevelopment themselves.

[storewanderer]

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.

The Fred Meyer you are thinking of may be the Shoreline Store. I think that store has decent traffic and likely hits $1 million a week which for a store of that size isn't really great and they could cut the thing in half and probably not even lose $100k of the volume. That is a strange Fred Meyer because it is very long and not very deep. The garden center is a fairly typical size.

Further south in Seattle itself there is one of the newest Fred Meyer units and it takes up an entire city block, has a basement/underground and surface level parking and also has a very large garden center. This site previously had a Thriftway and a general merchandise only Fred Meyer and it took many years for the redevelopment to occur to get a full size Fred Meyer onto the parcel.

I 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.