🛒 Kroger-Albertsons Merger: National Impact

[pseudo3d]

The Dallas division was plagued with a union instability that was threatening the whole company - not just that division. When you combine that with an older and smaller store base containing mostly in-town, non-suburban stores, in the late 80's, it was a recipe for disaster. Adding to this complexity was an owner (KKR) who had no business owning something as large as Safeway, and only wanting what all investors want - ROI.

Part of Safeway's spinoffs almost certainly had to do with KKR's 1989 acquisition, RJR Nabisco, which KKR began to slash, including Del Monte Foods, their UK division, and others. Selling Safeway as a public company in 1990 was probably part of this fallout.

Kroger was not building Signature stores during the 1987-90 Safeway implosion, though it's fair to say that with the exception of Oklahoma, they have been the largest long-term beneficiary of it all.

My point is that during that time Kroger was having issues of its own. If Safeway had played its cards right with a fair bit of luck, it could've been Kroger that might've been bumped off in the late 1980s in Houston. By the time AppleTree announced its sale of the stores in the late 1993, Kroger had put itself back together and secured itself for the future.

part of that debt was most likely from having to pay Safeway to use the name for a couple of years until they figured out their identity - by which point they were in too deeply to pull out of it.

The banks owned AppleTree from day one (the AppleTree name came about a year later, with the branding created out of house). They actually didn't keep the facilities (they owned a lot of stuff inside but they were leased from Safeway at a tune of $400k a month), and had to deal with a fairly torturous time including a long strike.

In any event, the Kroger-Albertsons marriage will probably soon be off unless Kroger pays off the judges. They stand to lose the most if it fails.

Not really. Kroger loses the least. Unless Kroger has a large termination fee owed to Albertsons, they get to walk away without adding a bunch of debt and still keep their #1/close #2 in their markets. Sure, they don't get NorCal, but if they were really desperate for NorCal representation then it might be worth making some calls to Save Mart. Apollo is in a worse state (they don't get their payday promised from Kroger, nor get to saddle them with debt), and of course Albertsons is still threatened as long as Apollo hangs over them. Unless a new potential owner appears out of the woodwork that would pose less of an issue, or Apollo sells its shares and walks away, the company is in danger.

I would expect that Apollo will at the very least force Albertsons to refinance all of their debts with them. Didn't we all read that Albertsons needs to do this in the next few years as they have a big loan coming due? Of course because interest rates are high right now Apollo will be getting paid much more than Albertsons current financiers and if they struggle to pay then they can just foreclose on the whole company and take it over in bankruptcy. Apollo has already sunk their teeth into this company and they're not going to let go. They have too many ways to make a profit here, and it's entirely possible that they might make just as much money with no merger due to the immediate refinancing needs of Albertsons. With those new loans they will also want seats on the board to protect their interests, and those board members will eventually force the C-Suite to be emptied out and replaced with Apollo's people who will do even more to benefit Apollo over Albertsons itself. I don't understand how it's even legal, but if they get enough shares then they will not have any opposition.

Sankaran hasn't done much growth under his command, the C-suite isn't great itself right now. I can't think of any real growth under Sankaran anyway.

If Apollo walks away with the $600M termination fee and the "upscale" stores (Haggen, Andronico's, Kings, Balducci's) then they might just have enough to walk away.

[storewanderer]

Sankaran hasn't done much growth under his command, the C-suite isn't great itself right now. I can't think of any real growth under Sankaran anyway.

If Apollo walks away with the $600M termination fee and the "upscale" stores (Haggen, Andronico's, Kings, Balducci's) then they might just have enough to walk away.

There is still a lot of strength in middle management and at the divisions, especially some of the divisions, thanks to the work Bob Miller did with Albertsons getting a lot of old industry people in place who had left under Supervalu etc. and who were very strong. There has been some loss- like that group of them who is running Save Mart now. But there are still a lot of those people there, and you can see it, in how some of the better run divisions are running, like AZ, SoCal, and even to some extent OR/WA, and also in the stabilization of Acme.

I don't want to call Haggen, Andronico's, Kings, and Balducci's worthless but those banners alone I am not sure they could stand alone. There is a reason who those companies sold to Albertsons. They were not exactly thriving. Haggen and King's/Balducci's were in bankruptcy.

Andronico's was in somewhat better shape but their crown jewel was one single store in San Francisco, as I recall some of their outer stores like San Anselmo and Los Altos were not doing so well and remember they rebranded all but one of those to Safeway Community Market due to perceived reputational issues with the Andronico's banner in some of the outer markets. Andronico's had as I recall 8 stores in 2010 but then when Safeway bought it in 2016 it was down to 5 stores.

[marketreportblog]

I don't want to call Haggen, Andronico's, Kings, and Balducci's worthless but those banners alone I am not sure they could stand alone. There is a reason who those companies sold to Albertsons. They were not exactly thriving. Haggen and King's/Balducci's were in bankruptcy.

Andronico's was in somewhat better shape but their crown jewel was one single store in San Francisco, as I recall some of their outer stores like San Anselmo and Los Altos were not doing so well and remember they rebranded all but one of those to Safeway Community Market due to perceived reputational issues with the Andronico's banner in some of the outer markets. Andronico's had as I recall 8 stores in 2010 but then when Safeway bought it in 2016 it was down to 5 stores.

I don't know about Haggen and Andronico's since I haven't been to them, but I can certainly speak to Kings and Balducci's. You'd have to seriously rethink how they're being run for them to stand on their own. You'd need major renovations in several stores, a total change of product mix, far superior perimeter with more service-intensive items (store-made type fresh products), and so on. Or, alternatively, you'd need to lower prices drastically. Sell the stores to Wakefern and you'd accomplish both if one of their operators were to turn them into a Fairway format or a Nicholas Markets format, with lower prices and better/more specialized products.

But Albertsons isn't going to do that. Kings and Balducci's aren't valuable on their own. They're only valuable to Albertsons as a supplement to the ACME stores. An outsize number of the Kings and Balducci's stores are very close to ACME stores. Consider Summit Kings vs. New Providence ACME, Midland Park Kings and ACME, Boonton Kings and ACME, Greenwich Balducci's vs. Riverside ACME, Greenwich Kings vs. Greenwich ACME, Rye Brook Balducci's vs. ACME Balducci's, Hoboken Kings vs. Hoboken ACME, Mendham Kings vs. Randolph ACME, Garwood Kings vs. Clark ACME. In each of those cases, the Kings/Balducci's is the closest supermarket to the ACME or one of the closest, and vice versa. I strongly believe that Albertsons only bought Kings and Balducci's to keep someone else out that might threaten the business at their ACMEs. The total lack of any form of investment in Kings and Balducci's other than some simple things like store resets, replacing burnt-out light bulbs, and some new fixtures here and there, makes me think that they don't actually care about running the stores. When ACME bought all those A&P stores in 2015, many of the stores began renovations the following spring, about April or May 2016. We're now just under four years out from ACME acquiring Kings and Balducci's, and we have one non-remodel remodel, a grand reopening with barely any changes, and maybe the beginnings of a remodel.

I believe that if Albertsons/ACME were serious about running and improving Kings/Balducci's, they would have put more money and effort into the stores like they did with the A&P stores when they acquired them. Andronico's and Haggen might be in the same situation.

I know I'm obsessing over the Stop & Shop stores, but for the same reason, I would bet that if any significant number of them went up for sale in New Jersey, ACME/Albertsons would jump on them. I think ACME wants more of a presence in NJ than they have, and organic expansion is difficult so acquisitions have to be the way to go.

[Super S]

I don't want to call Haggen, Andronico's, Kings, and Balducci's worthless but those banners alone I am not sure they could stand alone. There is a reason who those companies sold to Albertsons. They were not exactly thriving. Haggen and King's/Balducci's were in bankruptcy.

Haggen as a name was severely tarnished by the time Albertsons gained full control of them. I don't think the name at this point is really viable outside of the Northwest Washington area, and I am not sure how well those locations are really performing. They aren't opening new locations, and the only gradual rebranding taking place is Albertsons to Safeway.

[pseudo3d]

I don't know about Haggen and Andronico's since I haven't been to them, but I can certainly speak to Kings and Balducci's. You'd have to seriously rethink how they're being run for them to stand on their own. You'd need major renovations in several stores, a total change of product mix, far superior perimeter with more service-intensive items (store-made type fresh products), and so on. Or, alternatively, you'd need to lower prices drastically. Sell the stores to Wakefern and you'd accomplish both if one of their operators were to turn them into a Fairway format or or a Nicholas Markets format, with lower prices and better/more specialized products.

But Albertsons isn't going to do that. Kings and Balducci's aren't valuable on their own. They're only valuable to Albertsons as a supplement to the ACME stores.

Ah, you're forgetting something--Apollo. While I'm not sure if Apollo's plan is "sell Albertsons or take it private and rip it to shreds", I could see them buying the upscale stores and combining them with their Heritage Grocers Group.

In the case of ACME expanding via Stop & Shop, I have a feeling that it's very possible, but Apollo will probably buy it first, and flip the stores for a small profit, with any stores landing in Albertsons' hands a coincidence.

[ClownLoach]

I don't know about Haggen and Andronico's since I haven't been to them, but I can certainly speak to Kings and Balducci's. You'd have to seriously rethink how they're being run for them to stand on their own. You'd need major renovations in several stores, a total change of product mix, far superior perimeter with more service-intensive items (store-made type fresh products), and so on. Or, alternatively, you'd need to lower prices drastically. Sell the stores to Wakefern and you'd accomplish both if one of their operators were to turn them into a Fairway format or or a Nicholas Markets format, with lower prices and better/more specialized products.

But Albertsons isn't going to do that. Kings and Balducci's aren't valuable on their own. They're only valuable to Albertsons as a supplement to the ACME stores.

Ah, you're forgetting something--Apollo. While I'm not sure if Apollo's plan is "sell Albertsons or take it private and rip it to shreds", I could see them buying the upscale stores and combining them with their Heritage Grocers Group.

In the case of ACME expanding via Stop & Shop, I have a feeling that it's very possible, but Apollo will probably buy it first, and flip the stores for a small profit, with any stores landing in Albertsons' hands a coincidence.

Heritage is far from large enough to do a big IPO and make a fortune on, which is one of the three ways they make money. It is too small to have billions of dollars in debt foisted upon it. It isn't a national merger candidate. I could more easily see it being sold to a more competitive operator like Northgate as it is not a good asset. Apollo has already been slashing the already subpar Cardenas chain, removing half the registers and installed banks of NCR self checkouts which ironically I didn't see any options for a Spanish language interface on. They're moving bakery and such to prepack. I expect all the deli foods and such will be moved entirely to commissary if they haven't already and tortillerias closed. Cardenas is being moved from the "mid quality Ralphs" tier to a "Food4Less" tier under the misguided influence of Apollo.

IPO it, peddle debt to it, or merge it in a "big deal" manner that delivers a profit on the original investment and gives opportunities to peddle debt to related parties. Those are the only outcomes Apollo is interested in. They generally hold long term only if they have eventual IPO plans or have leveraged the balance sheet so badly the organization is technically insolvent so they run them as horrible places to work, cut labor to the bone, automate everything etc. See PetSmart and Michaels very scaled down operations for reference, both chains moving to 100% self checkouts this year and staffed with only one low paid manager and one employee all day. I'm waiting to see if PetSmart turns the aquarium area into "catch and bag your own fish" or just gives up on this entire business, reptiles, birds etc. because it costs too much to employ one person to take approximate care of these creatures.

They could cut a lot out of Albertsons expenses to saddle them with several billion in new debt. Cancel remodels and upgrades. All self checkout. Move to all prepackaged perimeter. Outsource transportation to lowest bidder. Outsource warehouse operations. And they can argue to the union "either we do this or we liquidate and you and your employees are all gone."

[pseudo3d]

I don't know about Haggen and Andronico's since I haven't been to them, but I can certainly speak to Kings and Balducci's. You'd have to seriously rethink how they're being run for them to stand on their own. You'd need major renovations in several stores, a total change of product mix, far superior perimeter with more service-intensive items (store-made type fresh products), and so on. Or, alternatively, you'd need to lower prices drastically. Sell the stores to Wakefern and you'd accomplish both if one of their operators were to turn them into a Fairway format or or a Nicholas Markets format, with lower prices and better/more specialized products.

But Albertsons isn't going to do that. Kings and Balducci's aren't valuable on their own. They're only valuable to Albertsons as a supplement to the ACME stores.

Ah, you're forgetting something--Apollo. While I'm not sure if Apollo's plan is "sell Albertsons or take it private and rip it to shreds", I could see them buying the upscale stores and combining them with their Heritage Grocers Group.

In the case of ACME expanding via Stop & Shop, I have a feeling that it's very possible, but Apollo will probably buy it first, and flip the stores for a small profit, with any stores landing in Albertsons' hands a coincidence.

Heritage is far from large enough to do a big IPO and make a fortune on, which is one of the three ways they make money. It is too small to have billions of dollars in debt foisted upon it. It isn't a national merger candidate. I could more easily see it being sold to a more competitive operator like Northgate as it is not a good asset. Apollo has already been slashing the already subpar Cardenas chain, removing half the registers and installed banks of NCR self checkouts which ironically I didn't see any options for a Spanish language interface on. They're moving bakery and such to prepack. I expect all the deli foods and such will be moved entirely to commissary if they haven't already and tortillerias closed. Cardenas is being moved from the "mid quality Ralphs" tier to a "Food4Less" tier under the misguided influence of Apollo.

IPO it, peddle debt to it, or merge it in a "big deal" manner that delivers a profit on the original investment and gives opportunities to peddle debt to related parties. Those are the only outcomes Apollo is interested in. They generally hold long term only if they have eventual IPO plans or have leveraged the balance sheet so badly the organization is technically insolvent so they run them as horrible places to work, cut labor to the bone, automate everything etc. See PetSmart and Michaels very scaled down operations for reference, both chains moving to 100% self checkouts this year and staffed with only one low paid manager and one employee all day. I'm waiting to see if PetSmart turns the aquarium area into "catch and bag your own fish" or just gives up on this entire business, reptiles, birds etc. because it costs too much to employ one person to take approximate care of these creatures.

They could cut a lot out of Albertsons expenses to saddle them with several billion in new debt. Cancel remodels and upgrades. All self checkout. Move to all prepackaged perimeter. Outsource transportation to lowest bidder. Outsource warehouse operations. And they can argue to the union "either we do this or we liquidate and you and your employees are all gone."

But Albertsons is already a public company, and the way it's run is already slimmed down--there aren't a lot of plump assets to sell for big money without putting everything at risk. As much as I want to blame private equity management the only two victims that weren't related to Sun Capital Partners I can think of was Sears/Kmart and Toys R Us. A lot of the way Sears can be blamed is the way Lampert ran it, and a lot of Toys R Us' failures could be attributed to an outdated business model and movie-based toys that no one wanted (the 2016 Ghostbusters movies, the Star Wars sequel trilogy).

Sun Capital Partners' retail destruction includes Mervyn's, Marsh Supermarkets, Shopko, and Wickes Furniture.

[storewanderer]

I don't know about Haggen and Andronico's since I haven't been to them, but I can certainly speak to Kings and Balducci's. You'd have to seriously rethink how they're being run for them to stand on their own. You'd need major renovations in several stores, a total change of product mix, far superior perimeter with more service-intensive items (store-made type fresh products), and so on. Or, alternatively, you'd need to lower prices drastically. Sell the stores to Wakefern and you'd accomplish both if one of their operators were to turn them into a Fairway format or or a Nicholas Markets format, with lower prices and better/more specialized products.

But Albertsons isn't going to do that. Kings and Balducci's aren't valuable on their own. They're only valuable to Albertsons as a supplement to the ACME stores.

Ah, you're forgetting something--Apollo. While I'm not sure if Apollo's plan is "sell Albertsons or take it private and rip it to shreds", I could see them buying the upscale stores and combining them with their Heritage Grocers Group.

In the case of ACME expanding via Stop & Shop, I have a feeling that it's very possible, but Apollo will probably buy it first, and flip the stores for a small profit, with any stores landing in Albertsons' hands a coincidence.

Hard no. Those upscale divisions of Albertsons would not work for this Heritage Grocers Group. There is no synergy between what Heritage already has and this would just be additional "no synergy" moves.

Cardenas is NOT an upscale format by ANY stretch of the imagination. Tony's in Chicago is NOT a hispanic focused grocer.

[storewanderer]

Heritage is far from large enough to do a big IPO and make a fortune on, which is one of the three ways they make money. It is too small to have billions of dollars in debt foisted upon it. It isn't a national merger candidate. I could more easily see it being sold to a more competitive operator like Northgate as it is not a good asset. Apollo has already been slashing the already subpar Cardenas chain, removing half the registers and installed banks of NCR self checkouts which ironically I didn't see any options for a Spanish language interface on. They're moving bakery and such to prepack. I expect all the deli foods and such will be moved entirely to commissary if they haven't already and tortillerias closed. Cardenas is being moved from the "mid quality Ralphs" tier to a "Food4Less" tier under the misguided influence of Apollo.

IPO it, peddle debt to it, or merge it in a "big deal" manner that delivers a profit on the original investment and gives opportunities to peddle debt to related parties. Those are the only outcomes Apollo is interested in. They generally hold long term only if they have eventual IPO plans or have leveraged the balance sheet so badly the organization is technically insolvent so they run them as horrible places to work, cut labor to the bone, automate everything etc. See PetSmart and Michaels very scaled down operations for reference, both chains moving to 100% self checkouts this year and staffed with only one low paid manager and one employee all day. I'm waiting to see if PetSmart turns the aquarium area into "catch and bag your own fish" or just gives up on this entire business, reptiles, birds etc. because it costs too much to employ one person to take approximate care of these creatures.

They could cut a lot out of Albertsons expenses to saddle them with several billion in new debt. Cancel remodels and upgrades. All self checkout. Move to all prepackaged perimeter. Outsource transportation to lowest bidder. Outsource warehouse operations. And they can argue to the union "either we do this or we liquidate and you and your employees are all gone."

Cardenas was always lousy in my opinion. I never liked them. They used to run sort of as two chains; the Central Valley ones were run separately from the ones closer to Los Angeles. I did like the Los Angeles ones better. I had pretty poor experiences with them once in one of the Central Valley units and once in a unit somewhere closer to Los Angeles a number of years later. The complaint routed to whoever was in charge of Central Valley was handled poorly, basically blown off, and left me with a real bad taste. The later complaint routed to whoever was in charge of the units closer to Los Angeles was responded to the next day professionally by someone from the corporate office's compliance department and was resolved to my satisfaction and I verified it had been resolved on a couple future visits. Since then Cardenas took over the poorly run bankrupt (they were so poorly run they went bankrupt; they should have been printing money- they had no competition) Mi Pueblo NorCal chain and those Cardenas seem worse than Mi Pueblo; they are still poorly run, still have outrageous prices, but seem to have a worse quality perimeter than Mi Pueblo had- and Mi Pueblo was just okay.

I have not seen a Petsmart with self checkout. But the stores are very dirty (maybe dirtier than Petco), now have locked restrooms, but seem overstocked with merchandise. A lot of their private label stuff does not seem to move well and that is an issue throughout their store. I think they could cut 40% of SKUs without hurting sales. The stores I go into still have 3-4 employees. I got disciplined by one the other night for tapping on a cat cage where they put one of those enclosed beds in the cage and had it facing away from the sales floor so the customer could not see the cat. So I was interested in seeing the cat as it was the only cat present and first cat that has been present in months. I was surprised they had enough staff to notice.

[pseudo3d]

I don't know about Haggen and Andronico's since I haven't been to them, but I can certainly speak to Kings and Balducci's. You'd have to seriously rethink how they're being run for them to stand on their own. You'd need major renovations in several stores, a total change of product mix, far superior perimeter with more service-intensive items (store-made type fresh products), and so on. Or, alternatively, you'd need to lower prices drastically. Sell the stores to Wakefern and you'd accomplish both if one of their operators were to turn them into a Fairway format or or a Nicholas Markets format, with lower prices and better/more specialized products.

But Albertsons isn't going to do that. Kings and Balducci's aren't valuable on their own. They're only valuable to Albertsons as a supplement to the ACME stores.

Ah, you're forgetting something--Apollo. While I'm not sure if Apollo's plan is "sell Albertsons or take it private and rip it to shreds", I could see them buying the upscale stores and combining them with their Heritage Grocers Group.

In the case of ACME expanding via Stop & Shop, I have a feeling that it's very possible, but Apollo will probably buy it first, and flip the stores for a small profit, with any stores landing in Albertsons' hands a coincidence.

Hard no. Those upscale divisions of Albertsons would not work for this Heritage Grocers Group. There is no synergy between what Heritage already has and this would just be additional "no synergy" moves.

It's not for synergy, it's for profit. But with Haggen, Andronico's, and Kings/Balducci's numbering around 50 stores (Haggen and Kings taking up most of that) I'm not sure it would be worth it at that point.

The Stop & Shop drama could be worth a look. I think within a month they'll be news about Ahold Delhaize putting the chain on the sales block. Whether this means "private equity gets a hold of it", "Kroger's consolation prize", or "tear it to shreds", or any combination thereof, it WILL happen.