QFC is EXPENSIVE

[SamSpade]

I mean, I know this has been a quiet secret for years, but it seems like the last few years inflationary environment has really allowed them to exploit it.

In produce, most prices are near Safeway/Albertsons in this market, albeit with a much smaller area to display anything in.

In dry grocery, they do still carry a few interesting items that might not be found at most "Kroger family of stores" including a lot of Washington based items. Some are also from the east coast, mainly northeast. (separate thread coming)

An example of wild pricing I saw was a loaf of a bread from Grand Central Bakery. $7.99 for potato bread, which is $5.49 at the bakery. I realize they had to deliver to and sell at QFC but they also sell close to the regular prices at nearby Fred Meyer locations.

Most of the remaining Portland area locations are in neighborhoods that aren't as price sensitive so I suppose that is part of the puzzle. If you were in Seattle, without a personal vehicle, it's likely you'd just bite your lip and pay these prices (or possibly know what to buy at Safeway vs. QFC on a trip) due to the distance to Fred Meyer, WinCo, Walmart.

[Brian Lutz]

I know it's on the opposite side of the country, but I suspect if I did price comparisons I would find that Harris Teeter pricing is similar to QFC pricing on some items. I can recall seeing some rather high prices on baked goods the last time I was there (for example, a 6 pack of english muffins is $5.29, compared to around $3.50 at Walmart.) They seem to consider their competition to be Lowes and Publix, both of which are probably even higher priced on many items.

[storewanderer]

I think QFC has become a poor store with very high prices. QFC has never had very low prices (except that Vancouver store which seemed to be on a different pricing due to its size or something) but it used to have really good fresh department execution. In recent years that has become, to put it nicely, mixed execution at best, but the prices stay sky high.

QFC is a good synergy to fit into locations where Fred Meyer can't fit but I sort of wonder what exactly customer perception/customer satisfaction with QFC is. Does anyone like it? Is anyone loyal to it? Or is it just a place people shop because it is convenient to them? I know I bag on Safeway a lot but at the end of the day there is a segment of customers out there who really does like Safeway. Overpriced but not worth it regional chains like QFC and the various bastardizations of Albertsons over the years between the Lucky fiasco, Larry mess, Supervalu mess, etc. have been big drivers of making people just like Safeway.

[Super S]

Back when I had family in Vancouver, they lived close to the other QFC on 162nd, which closed a long time ago. From what I remembered, the regular prices were high, but their meats, at the time anyway, were excellent. Good deli and produce too. At the time, not a lot was shared between QFC and Fred Meyer.

The QFC of today though seems a bit pointless especially when many items, including private labels, are shared with Fred Meyer, so you can easily figure out who really owns the place. While there are some people who don't see this, many people have caught on that it isn't worth paying QFC prices for Fred Meyer items.

QFC could reinvent itself if spun off and moved away from Kroger operations. But if they do get spun off, I see them eventually retracting to the Seattle area as they seem to me like they have always struggled a bit in the Portland market.

[babs]

Fred Meyer bought QFC as a strategy to grow in the Seattle market by filing in gaps in their store coverage. It also made financial sense since they could switch to self distribute instead of using a wholesaler. They tried to overlaps on some items but keeps things like the deli and bakery unique. Today, they are essentially Free Meyer Jr with higher prices. Tells you how much Kroger thinks of them as they are willing to off load the chain as part of the merger even though these stores will need zero investment to rebrand and remerchandise post merger.

[storewanderer]

Fred Meyer bought QFC as a strategy to grow in the Seattle market by filing in gaps in their store coverage. It also made financial sense since they could switch to self distribute instead of using a wholesaler. They tried to overlaps on some items but keeps things like the deli and bakery unique. Today, they are essentially Free Meyer Jr with higher prices. Tells you how much Kroger thinks of them as they are willing to off load the chain as part of the merger even though these stores will need zero investment to rebrand and remerchandise post merger.

To be fair we don't know yet how many QFC Stores they plan to offload (I expect most to be offloaded). Maybe they will keep more of them than we expect and the QFC banner just ends up getting thrown on a bunch of former Safeway/Albertsons units in WA.

Also how many QFCs end up staying under Kroger and do they go with the Fred Meyer Marketplace banner or do they shift to some Safeway banner instead which will require major integration (many QFCs do not have large enough bakery to do Safeway's somewhat scratch bakery program for instance).

[ClownLoach]

Fred Meyer bought QFC as a strategy to grow in the Seattle market by filing in gaps in their store coverage. It also made financial sense since they could switch to self distribute instead of using a wholesaler. They tried to overlaps on some items but keeps things like the deli and bakery unique. Today, they are essentially Free Meyer Jr with higher prices. Tells you how much Kroger thinks of them as they are willing to off load the chain as part of the merger even though these stores will need zero investment to rebrand and remerchandise post merger.

To be fair we don't know yet how many QFC Stores they plan to offload (I expect most to be offloaded). Maybe they will keep more of them than we expect and the QFC banner just ends up getting thrown on a bunch of former Safeway/Albertsons units in WA.

Also how many QFCs end up staying under Kroger and do they go with the Fred Meyer Marketplace banner or do they shift to some Safeway banner instead which will require major integration (many QFCs do not have large enough bakery to do Safeway's somewhat scratch bakery program for instance).

I really think that the two specific markets that are going to screw up this merger and end it will be Washington/Oregon and SoCal (in order).

I think between Washington and Oregon they are going to be asked to divest a lot more stores, maybe more than they should be forced to but they're going to err on the side of creating competition as they didn't demand enough divestitures in the Safeway Albertsons deal. I could easily see the divestiture count in those two states be doubled by regulators. And the plan to take the broken reputation QFC nameplate to potentially 200+ stores is going to be as effective for their sales as just burning them all down. The entire PNW plan is not sustainable at all since the Albertsons name also has negative brand equity there due to their past wrongdoings. They aren't naming anything Piggly Wiggly on the West Coast, so they basically have a situation where they're going to be asked to take far more stores and make a real, viable chain out of them and by the way they need a banner that isn't QFC and they can't give up the name Safeway.

SoCal is a crapshoot as I think the same thing, probably far less actual need for divestiture than many think here, I would only require the "across the street or a block away" overlaps to divest. But the regulators will be very aggressive and demand more just to create the illusion that they actually do something for the public. If the unions are asked to consult it could be even worse.

But the two markets combined have enough stores that they will push the divestiture total into the 800+ range and that is where the deal falls apart because Kroger isn't getting enough to be worthwhile. Furthermore from what I can tell on their propaganda informational merger site, C&S is getting all of the offices, warehouses and personnel they're entitled to under their deal. They have an agreement to purchase all additional required store divestitures, but nothing has been disclosed about being required to purchase additional infrastructure.

That is where the deal falls apart. Now they're not getting enough for their money because the cost per store acquired keeps going up to the point of being unsustainable. Couple that with the fact that they'll now be overloaded with infrastructure and have to renege on their promises of no closures or consolidation, which will fire up the Teamsters and whatever other unions represent the warehouses. I think if they had to scrap the entire deal and start again with the newfound expectations of at least 800 required divestitures they would potentially slash the proposed purchase price substantially, and at that point it would be in Albertsons best interest to find other buyers because they are no longer maximizing shareholder value. I do not believe that Kroger can afford to just concede on the merger terms which put a hard cap of 650 divestitures in place or the deal is off. The price per store would be so high it would become cheaper to just seek out locations and build a whole new chain (yes I am keenly aware that wouldn't be viable but for the sake of argument the cost is the same). Can't buy stores for tens of millions each while they are selling them off to C&S for a few hundred thousand each, it's mathematical insanity to spend that much.

The PNW is where this thing is going to die.

[storewanderer]

Fred Meyer bought QFC as a strategy to grow in the Seattle market by filing in gaps in their store coverage. It also made financial sense since they could switch to self distribute instead of using a wholesaler. They tried to overlaps on some items but keeps things like the deli and bakery unique. Today, they are essentially Free Meyer Jr with higher prices. Tells you how much Kroger thinks of them as they are willing to off load the chain as part of the merger even though these stores will need zero investment to rebrand and remerchandise post merger.

To be fair we don't know yet how many QFC Stores they plan to offload (I expect most to be offloaded). Maybe they will keep more of them than we expect and the QFC banner just ends up getting thrown on a bunch of former Safeway/Albertsons units in WA.

Also how many QFCs end up staying under Kroger and do they go with the Fred Meyer Marketplace banner or do they shift to some Safeway banner instead which will require major integration (many QFCs do not have large enough bakery to do Safeway's somewhat scratch bakery program for instance).

I really think that the two specific markets that are going to screw up this merger and end it will be Washington/Oregon and SoCal (in order).

I think between Washington and Oregon they are going to be asked to divest a lot more stores, maybe more than they should be forced to but they're going to err on the side of creating competition as they didn't demand enough divestitures in the Safeway Albertsons deal. I could easily see the divestiture count in those two states be doubled by regulators. And the plan to take the broken reputation QFC nameplate to potentially 200+ stores is going to be as effective for their sales as just burning them all down. The entire PNW plan is not sustainable at all since the Albertsons name also has negative brand equity there due to their past wrongdoings. They aren't naming anything Piggly Wiggly on the West Coast, so they basically have a situation where they're going to be asked to take far more stores and make a real, viable chain out of them and by the way they need a banner that isn't QFC and they can't give up the name Safeway.

SoCal is a crapshoot as I think the same thing, probably far less actual need for divestiture than many think here, I would only require the "across the street or a block away" overlaps to divest. But the regulators will be very aggressive and demand more just to create the illusion that they actually do something for the public. If the unions are asked to consult it could be even worse.

But the two markets combined have enough stores that they will push the divestiture total into the 800+ range and that is where the deal falls apart because Kroger isn't getting enough to be worthwhile. Furthermore from what I can tell on their propaganda informational merger site, C&S is getting all of the offices, warehouses and personnel they're entitled to under their deal. They have an agreement to purchase all additional required store divestitures, but nothing has been disclosed about being required to purchase additional infrastructure.

That is where the deal falls apart. Now they're not getting enough for their money because the cost per store acquired keeps going up to the point of being unsustainable. Couple that with the fact that they'll now be overloaded with infrastructure and have to renege on their promises of no closures or consolidation, which will fire up the Teamsters and whatever other unions represent the warehouses. I think if they had to scrap the entire deal and start again with the newfound expectations of at least 800 required divestitures they would potentially slash the proposed purchase price substantially, and at that point it would be in Albertsons best interest to find other buyers because they are no longer maximizing shareholder value. I do not believe that Kroger can afford to just concede on the merger terms which put a hard cap of 650 divestitures in place or the deal is off. The price per store would be so high it would become cheaper to just seek out locations and build a whole new chain (yes I am keenly aware that wouldn't be viable but for the sake of argument the cost is the same). Can't buy stores for tens of millions each while they are selling them off to C&S for a few hundred thousand each, it's mathematical insanity to spend that much.

The PNW is where this thing is going to die.

This is where Kroger becomes a victim of its own success. King Soopers, Fred Meyer, and Frys are literal volume machines in their markets. They are SO successful. PNW has a bigger wrinkle as much of the Safeway operation up there also does relatively well.

We have the issue in Las Vegas where Kroger was allowed to acquire Raleys Stores that got divested in 1999 after Raleys completely failed in Las Vegas miserably and this gave them an extra mass of stores in that market (even if many closed over time and the ones left are some of Smiths worst performing stores in the entire Smiths chain). Then we have the issue across the west where Albertsons was allowed to re-acquire divested Haggen units in that bankruptcy. Then we have the issue in Albuquerque where Albertsons was allowed to re-acquire divested 1999 units from Raleys. All of these activities have created rather serious overlap issues due to stores that were supposed to be divested to new operators ending up back with these chains. I think this is a wrinkle that could also doom this merger.

I think AZ/NV/CO are serious problems too. Yes Wal Mart has major share in those markets but Wal Mart also actually has pretty high share in OR/WA even if they are like 4th place or something below Costco.

SoCal I just don't know with all of the competition at this point... and I don't think any of these chains are doing particularly well in SoCal either. They have completely mismanaged their chains ever since 1999 and after that strike they really paid dearly. I know Veteran+ doesn't agree on the perception I have of a lot of other competition in the market, and I hope there are people going against this merger who are making his arguments and making them strongly.

[retailfanmitchell019]

This is where Kroger becomes a victim of its own success. King Soopers, Fred Meyer, and Frys are literal volume machines in their markets. They are SO successful. PNW has a bigger wrinkle as much of the Safeway operation up there also does relatively well.

We have the issue in Las Vegas where Kroger was allowed to acquire Raleys Stores that got divested in 1999 after Raleys completely failed in Las Vegas miserably and this gave them an extra mass of stores in that market (even if many closed over time and the ones left are some of Smiths worst performing stores in the entire Smiths chain). Then we have the issue across the west where Albertsons was allowed to re-acquire divested Haggen units in that bankruptcy. Then we have the issue in Albuquerque where Albertsons was allowed to re-acquire divested 1999 units from Raleys. All of these activities have created rather serious overlap issues due to stores that were supposed to be divested to new operators ending up back with these chains. I think this is a wrinkle that could also doom this merger.

I think AZ/NV/CO are serious problems too. Yes Wal Mart has major share in those markets but Wal Mart also actually has pretty high share in OR/WA even if they are like 4th place or something below Costco.

SoCal I just don't know with all of the competition at this point... and I don't think any of these chains are doing particularly well in SoCal either. They have completely mismanaged their chains ever since 1999 and after that strike they really paid dearly. I know Veteran+ doesn't agree on the perception I have of a lot of other competition in the market, and I hope there are people going against this merger who are making his arguments and making them strongly.

Similar for how Jewel (in Chicago) and ACI SoCal are volume machines (particularly Albertsons banner in SoCal).
Chicago is another issue- Mariano's is getting casted off. Probably a store or two downstate also... I'd think Jewel has upwards of 25-30% share in Chicagoland.

And then we have the Smith's failures in MT/WY out of the Albertsons/Buttrey deal, and the Minyard flop in D/FW (in which Albertsons/Tom Thumb bought back a store or two after Minyard trainwrecked. Minyard acted like Haggen on a smaller scale).

King Soopers has a duopoly with Walmart by now in Metro Denver: King Soopers has 33% share, Walmart has 19%. Safeway is down to 11%. Kroger would have 44% share in Denver without divests. Kroger already has what it wants in Denver, a duopoly with Walmart like they have in every other market in the Lower Midwest/Upper South.

[ClownLoach]

This is where Kroger becomes a victim of its own success. King Soopers, Fred Meyer, and Frys are literal volume machines in their markets. They are SO successful. PNW has a bigger wrinkle as much of the Safeway operation up there also does relatively well.

We have the issue in Las Vegas where Kroger was allowed to acquire Raleys Stores that got divested in 1999 after Raleys completely failed in Las Vegas miserably and this gave them an extra mass of stores in that market (even if many closed over time and the ones left are some of Smiths worst performing stores in the entire Smiths chain). Then we have the issue across the west where Albertsons was allowed to re-acquire divested Haggen units in that bankruptcy. Then we have the issue in Albuquerque where Albertsons was allowed to re-acquire divested 1999 units from Raleys. All of these activities have created rather serious overlap issues due to stores that were supposed to be divested to new operators ending up back with these chains. I think this is a wrinkle that could also doom this merger.

I think AZ/NV/CO are serious problems too. Yes Wal Mart has major share in those markets but Wal Mart also actually has pretty high share in OR/WA even if they are like 4th place or something below Costco.

SoCal I just don't know with all of the competition at this point... and I don't think any of these chains are doing particularly well in SoCal either. They have completely mismanaged their chains ever since 1999 and after that strike they really paid dearly. I know Veteran+ doesn't agree on the perception I have of a lot of other competition in the market, and I hope there are people going against this merger who are making his arguments and making them strongly.

Similar for how Jewel (in Chicago) and ACI SoCal are volume machines (particularly Albertsons banner in SoCal).
Chicago is another issue- Mariano's is getting casted off. Probably a store or two downstate also... I'd think Jewel has upwards of 25-30% share in Chicagoland.

And then we have the Smith's failures in MT/WY out of the Albertsons/Buttrey deal, and the Minyard flop in D/FW (in which Albertsons/Tom Thumb bought back a store or two after Minyard trainwrecked. Minyard acted like Haggen on a smaller scale).

King Soopers has a duopoly with Walmart by now in Metro Denver: King Soopers has 33% share, Walmart has 19%. Safeway is down to 11%. Kroger would have 44% share in Denver without divests. Kroger already has what it wants in Denver, a duopoly with Walmart like they have in every other market in the Lower Midwest/Upper South.

Yeah all of this probably should have landed under the merger thread, but from a pure store count perspective it is much more difficult to cure the PNW issue and building a new chain under the tainted QFC brand isn't going to do it. C&S will have to spend an absurd fortune to relaunch the brand and repair it's reputation which will just cause them to need to raise pricing and render the whole thing a fruitless exercise. Without Fred Meyer, every one of the sites they currently stand on would likely be a Walmart Supercenter or a SuperTarget and they would dominate the area, but instead their share is limited and their stores all skew towards lower end clientele versus Freddy's.

I still do believe there is a legitimate percentage of customers who may go shop Safeway because of the fact that it isn't a colossal Fred Meyer that's larger than a Costco, the same way that SoCal customers may shop at Ralphs or Albertsons because it isn't a Walmart Supercenter. Being in an area with big stores reminds you how time consuming they are, thus you make your selection of store based on your current needs and time frame. But if many of those Safeway (and Albertsons) suddenly became a QFC that runs the way that chain currently does I wonder how many customers would make the decision to change their shopping practices and just deal with the giant Fred Meyer store thus rendering QFC irrelevant.

QFC just winds up in a very weird place. It's currently viable simply because so many of its current locations are good enough to attract traffic out of a lack of better alternatives, mainly due to lack of space in their immediate areas and very high rents/operating costs. That small cluster of stores reminds me of the phrase I've heard about a famous DC area store that is similar in that it's crappy and small but somehow works because of location and lack of competition, the "Soviet Safeway." Yes there are some nicer QFC stores but the fundamental problem is that they serve a purpose almost like a grocery convenience store today in their unique little pockets like Wallingford or a bunch of "Soviet Safeways", but if you took the same pricing model and spread it into areas where they have ample competition they will be smothered immediately. And if you now take those hundreds of new QFC stores and price them fairly, then the new perception of the existing units kept will be redlining and discrimination since they have $8 Wonder bread and other such pricing nonsense. The bad PR once again torpedoes the new QFC brand. And if you lower the prices at these locations expecting the rest of the newly expanded chain to make up for the losses that is a risky gamble which is most likely going to end in disaster if the new QFC locations don't start off on fire and remain hot.

To put it simply, I don't see any positive path forward for QFC as the new brand for divested stores if this merger is allowed. And adding more stores to the pile which regulators would probably do just makes the situation worse and increases the risk of hundreds of closed stores. The lack of viability here in my eyes is the #1 reason why the merger can't go forward in its current form, if at all. Far more of a problem than SoCal where the big three are really quite insignificant these days and quality operators like Northgate and Stater are lined up to take over sites the second they become available so there is little to no risk of empty stores.