Albertsons announces strategic review of company

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Re: Albertsons announces strategic review of company

Post by storewanderer »

We don't know exactly how much real estate they've sold off either. I wonder if some of these real estate sales have seriously screwed up the operation especially if you sell real estate that Safeway owned for 70 years in California and now you are paying a lease on the property that you just sold to some investors at some multiple and those investors probably also took out debt on the purchase so they are indirectly paying the investor's debt service cost too (baked into the lease rate) plus the higher property taxes that take place as a result of a property sale (also being baked into the lease rate).

I find it a bit odd the chain is not "working" well enough that they feel the need to explore strategic alternatives. I also wonder if they would have done this a couple years ago, if not for the big volume boost they got from COVID... to me their operation seems stronger now than it was two years ago; the attitude throughout the operation has certainly been refreshed positively over the past two years.
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Re: Albertsons announces strategic review of company

Post by storewanderer »

Super S wrote: March 1st, 2022, 8:39 am

Having spent some time living in Boise in the 1980s, I got to experience a different era of Albertsons and I kinda wish it would have remained its own company.
I would have liked to see the Cerberus group after buying the Supervalu units stop, and repair Albertsons in its entirety. Then they could have made some selective acquisitions in whatever markets they wanted to.

I think the Safeway purchase was a mistake. Safeway was in the process of imploding and was being seriously misrun. I expect Safeway would have exited Texas, Denver, and even Phoenix (probably in that order unless they could make some serious adjustments) had it remained on its own as a public company (doing the exits in a fashion similar to how they exited Genuardi's and Dominick's) and Albertsons LLC already knew very well what it took to turn around poorly performing stores in those markets.

United has not been integrated into the rest of Albertsons/Safeway at all. The only integration of United is that they sell the Signature private label items (and before that they had the Essential Everyday/Supervalu labels for a short time). United still has its own IT, separate loyalty program for digital coupons, separate fuel program, completely separate pricing...
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Re: Albertsons announces strategic review of company

Post by SamSpade »

It is interesting to see how some things happen...
In Seattle, this little Safeway that's adjacent to major growth/redevelopment near UW property's long-term lease was bought by Albertsons alongside nearby properties on or before 2021. Now in 2022, major upzoning (preferred policy of Seattle at this point) announced.

Purchase: https://shoppingcenterbusiness.com/cbre ... n-seattle/
Redevelopment announced: https://www.king5.com/article/news/loca ... 4c526cd902

Albertsons also is pursing something similar with the 15th Ave E and E John St. property I believe.
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Re: Albertsons announces strategic review of company

Post by ClownLoach »

I'll just bring up what I previously mentioned; that except in cases of imminent financial ruin (which isn't happening here or the stock would be a penny stock) these announcements of seeking strategic alternatives are the result of months, if not years, of planning and internal actions. They usually are not influenced by recent events. This probably began right after the IPO was completed.

It is also possible that the firms were exposed or leaked and they received an inquiry from a major investor or more likely the news media which forced them to go public with it. Usually the whole process is pretty much done already when it is first revealed to the public.

So just remember that things we have already seen completed in the very recent past could already be a part of this process... Tests to determine what steps work and what steps don't. Things like recently remodeled very large stores now being redone again to accommodate Doordash "delivery hubs"... Introduction of new formats to different markets (Pavilions format being selectively tested out in NorCal, Oahu, Arizona, Las Vegas, and nameplate conversion being tested again in Montecito)... selective rebranding of Albertsons as Safeway in the PNW... The flagship format in Idaho... And even things that didn't go well like the Florida Safeway launch.

Sometimes these projects have a cost but also a large return on investment and the business can be greatly improved faster if they can get a capital infusion from issuing more shares to a new stakeholder, which requires going through the process of hiring investment bankers.
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Re: Albertsons announces strategic review of company

Post by ClownLoach »

storewanderer wrote: March 1st, 2022, 9:18 pm We don't know exactly how much real estate they've sold off either. I wonder if some of these real estate sales have seriously screwed up the operation especially if you sell real estate that Safeway owned for 70 years in California and now you are paying a lease on the property that you just sold to some investors at some multiple and those investors probably also took out debt on the purchase so they are indirectly paying the investor's debt service cost too (baked into the lease rate) plus the higher property taxes that take place as a result of a property sale (also being baked into the lease rate).

I find it a bit odd the chain is not "working" well enough that they feel the need to explore strategic alternatives. I also wonder if they would have done this a couple years ago, if not for the big volume boost they got from COVID... to me their operation seems stronger now than it was two years ago; the attitude throughout the operation has certainly been refreshed positively over the past two years.
Maybe it is just the companies I've worked for but the property taxes were tenant responsibility and not part of the lease rate. I remember a fairly new store getting hit with a massive reassessment that delivered a $150K impact to the bottom line. The Manager called me in tears because she thought her bonus was going to be wiped out (thankfully there was an exception program for expenses like this that could not be controlled). So yes, these sale and leaseback transactions will create serious tax liabilities.

These are the same kind of transactions that led to the demise of Sears. They owned most of their buildings for decades and did leaseback sales which rendered them completely unprofitable after market rent and reassessed property taxes. In California I believe the commercial property taxes are similarly handled to residential property where an annual appreciation is capped but upon a sale will reassess to the new purchase price.

This is one of the reasons why I have called out the rapid destruction of retail properties in California - right now even active and highly successful properties with very profitable tenants are being targeted by real estate investors who lobby the city to allow "mixed use zoning" which is a fancy way of just rezoning commercial back to residential then removing all the stores and building those ugly 5 story tall apartment complexes with maybe a Starbucks where previously 250K square feet of productive retail stood. Sometimes a Trader Joe's or something small like that will go in, but in general 90% of the retail selling space is wiped out never to return. The new property taxes are so high because of the increased property value that few if any stores can turn a profit. There are surprisingly few retailers that own their buildings (about 80% of Target, Costco and Walmart locations are owned) so they can protect their profitable and high volume stores from being evicted and demolished. To these investment firms the cost of forcing a lease severance payout is like clipping coupons.

They can buy a good neighborhood shopping center anchored by an Albertsons, CVS and maybe a couple dozen other stores or restaurants for around $50M. If they clear it out entirely and go 5 stories high of either apartments or condos with a minimal retail presence of a convenience store or sandwich shop the same property is worth $200M. Construction is maybe $50M. So there is literally no future for retail in these areas if developers can keep doubling their money by removing it. And by giving up their ownership of the buildings for a one time cash infusion Albertsons has opened the door to lose their best and most profitable stores this way.
Last edited by ClownLoach on March 2nd, 2022, 11:13 am, edited 3 times in total.
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Re: Albertsons announces strategic review of company

Post by pseudo3d »

storewanderer wrote: March 1st, 2022, 9:53 pm

United has not been integrated into the rest of Albertsons/Safeway at all. The only integration of United is that they sell the Signature private label items (and before that they had the Essential Everyday/Supervalu labels for a short time). United still has its own IT, separate loyalty program for digital coupons, separate fuel program, completely separate pricing...
I believe they did have their buying and merchandising centralized, unfortunately. Still, if they play their cards right, they could basically play it like they did with Vons and the old Safeway SoCal division...spin off United Supermarkets along with the Southern Division, continue to license the name via Albertsons Market (the Louisiana stores will probably have to go back under the Albertsons Market name), hold a share in the company, and have United license back the Market Street concept to Albertsons.

It probably wouldn't benefit the bigger company in the long run, though.
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Re: Albertsons announces strategic review of company

Post by retailfanmitchell019 »

Oh hell no...
https://www.bizjournals.com/cincinnati/ ... ition.html
Kroger has already dumbed down Ralphs in SoCal. They are Kroger in all but name at this point. If Albertsons is purchased by Kroger, I will do much less of my shopping there.
I just hope some foreign company like Loblaws or Sainsbury saves Albertsons if they are fully up for sale. Hell, having Tesco buy them would be better than letting Albertsons collapse like Kmart.

Being logical, I could see Albertsons selling off its parking lot gas stations.
Albertsons should give up on Randalls and put that chain out of its misery. They are #4 in Austin and Houston (in Austin, they have lower share than Costco).

If I am being negative and jumping to bad conclusions in this topic, I am sorry. :(
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Re: Albertsons announces strategic review of company

Post by Alpha8472 »

Albertsons went overboard taking over so many chains. They bought Andronico's, United, Safeway, etc. The company had gotten too big, and it is definitely under pressure to sell off different divisions. Safeway Canada was doing good business, but it was sold off to make money. Perhaps, the Northern California Safeway division is something they want to sell off. The land alone of many of these Safeway stores could be sold off for million dollar condominium complexes. The condominium craze is very profitable right now. Real estate is where the money is being made right now. Houses and condos are selling for outrageously high prices.

These private equity firms are all about real estate.
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Re: Albertsons announces strategic review of company

Post by jamcool »

There would be too much overlap in the West if Kroger bought Albertsons, especially in Arizona, Colorado, and the PNW.
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Re: Albertsons announces strategic review of company

Post by ClownLoach »

Let's turn this completely upside down.

Amazon got a new CEO several months ago.
They just announced tonight that all the non grocery stores will be closing as they've discovered that retail isn't as easy as they thought it would be. Is this only the beginning? Does the new CEO think they need to get back to their roots and just be a straight e-commerce company?

Is this Albertsons strategic review not to downsize the company - but to up size instead? Did they get wind of a potential merger opportunity and decide they want to be the lead bidder?

Could Albertsons, with some new large institutional investors, be lined up to buy the Whole Foods-Amazon Fresh division of Amazon?

Could they also, as the buyer of Amazon's grocery operation, be looking at a mass licensing of their technology such as Just Walk Out? And also a partnership where Albertsons family stores are added to the Amazon app like Fresh and WFM?

Strategic Reviews again take time and don't just sprout up normally. But if Amazon called and asked if there was interest in acquiring WFM/Fresh that would be a hell of a reason to quickly call investment bankers and rally the troops. All of the timing of these events is suspiciously aligned.

I would also say don't look at the upcoming Amazon Style store as a sign of commitment to launching that format either as it clearly was in the works when the new CEO took over. Contrary to popular belief it usually takes a new CEO 6 months to a year before they start making drastic changes. Clearly the new CEO is not happy with these brick and mortar operations. I suspect that they have been shopping WFM/Fresh. That would also explain the rapid acceleration of new store construction, only to stop and mothball the buildings for months. If they were going to just take a loss and kill the money losing Fresh operation that would make sense... Unless it was being bundled with WFM for sale so if it needs to die it does so on someone else's books.

I'm already convinced... WFM has got to be out for sale. Albertsons wants to be the winning buyer. Instead of WFM being sold to a private equity firm outright or a competitor they can engineer a takeover with a PE firm riding along who will have a stake in the combined company when it's all done. And since Kroger is much larger a WFM takeover would be more difficult and probably less worthwhile than a combination with Albertsons.

There is no possible way that Albertsons could do a worse job of operating Whole Foods than Amazon is right now. With just some basic changes they could get years of double digit growth out of Whole Foods, changes that Amazon does not have the institutional knowledge to deliver otherwise they already would have done so.

I'm calling it. I think it's going to be "Amazon to sell WFM and Fresh to Albertsons, who acquires in partnership with [insert name of private equity vultures here]."
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