Kroger to merge with Albertsons?

[jamcool]

Canadians pay more for groceries than Americans…and They have the same situation as the US…two nationwide operators (Empire and Loblaw), Walmart, and a number of regional operators (Like Metro)

[Super S]

The big question remains though....will the FTC scrutinize this more closely, or will we end up with locations such as Battle Ground and Salmon Creek (Vancouver) where Albertsons and Safeway already have stores less than a mile apart, each with a Fred Meyer in between....as well as places like Baker City, Oregon where Albertsons was briefly divested to Haggen, then ended up back under Albertsons ownership and now you have Albertsons and Safeway across from each other. Not to mention that Longview has Safeway right next to Fred Meyer, Hazel Dell has a Safeway and Fred Meyer less than a mile apart, and I am sure there are other areas with similar situations. If all of these banners are allowed to remain, and especially if some of these already close locations are allowed to continue, all faith in the FTC will be lost.

Fred Meyer has become more heavily "Krogerized" in the last ten years or so but QFC seems to be struggling. The Albertsons name has faltered in Oregon and Washington, while Safeway still seems strong they seem to have a bit of an identity crisis.

Knowing how WinCo is also headquartered in Boise, I have to wonder if they could end up with some of these locations.

[ClownLoach]

I've thought more about this deal. Without repeating much of what has already been said I am trying to figure out WHAT is possibly positive about this deal to the consumer...

I can't come up with much of anything here that will help the consumer. This just seems like a terrible merger.

What it comes down to is Albertsons has obviously failed, AGAIN. Rather than fix their operation they are wanting the easy way out, AGAIN. And their plan is going to basically lead to a break up/split up that will likely seem very similar to 2006, AGAIN. Of course following the path of Safeway they failed... how could following the footsteps of a chain that failed have worked? As the old Albertsons LLC slogan went "new ideas at work" - that is what they needed. NOT Safeway ideas.

My guess is this time, Kroger is the Supervalu (taking the so called "better" assets- the ones that don't already compete with Kroger). What happens to the supposedly poor assets (the ones that already compete with Kroger, largely)... is anyone's guess. Though we have a new twist this time of what I'd call "so so" assets (such as the Southwest division or the Seattle division) that compete with Kroger and will need to be divested.

The union and politicians can cry all they want. They can speak out against the merger. If the company wants to sell that bad, it will only get worse. What if the company takes one of those poor performing divisions and announces a Dominick's or a Genuardi's (everyone is fired, fast forward a few years and multiple stores sold to/reopened by non-union operators) and says well since we couldn't complete the merger we have to cease operations of poorly performing assets, had we completed the merger thousands of Union jobs would have been saved.

I have little confidence in FTC under Biden Administration, or any other administration in the past 20 years. Heck, remember 7-Eleven and Speedway completed their merger WITHOUT FTC approval... basically picked what they wanted to divest, did their merger, told FTC to pound sand. FTC ultimately said case closed.

If it weren't for converting Lucky (a chain known for low prices), if it weren't for the ill-advised acquisition of Shaw's, if the company kept Joe Albertson's ideals, if they didn't get a reckless guy from GE to run Albertsons (Jack Welch's reckless management style influenced GE people running Home Depot and Chrysler, which both saw profits fall. Jack Welch's style was putting shareholders first, which is a bad strategy that Larry implemented), Old Albertsons would still be alive.
Now that this merger with Kroger is happening, this is truly a new low for Albertsons, when you think they can't go even lower. As I've said, Kroger has taken Ralphs downhill. Ralphs has lost its identity in the past 10 years. It is now a Kroger with the sign out front saying "Ralphs".
The acquisition of Safeway was a big mistake. Albertsons should've stayed on its own and acquired the private label from SuperValu. SuperValu should've merged with C&S or gone private.
I honestly think that this deal would make the SVU era Albertsons look like when Joe ran the stores. It is that bad. Once this merger closes, I will switch to locally-owned Stater Bros. for my weekly grocery shopping.
Andrew T., another RetailWatcher, is living in paradise when it comes to grocery options in Canada. Walmart hasn't terrorized the grocery industry up there. I blame politicians in both parties for allowing Walmart to terrorize the American grocery industry and screw everything up.

I think Target should've acquired Albertsons. There has been rumors on and off over the years of Target and Albertsons merging. Even Tesco would've been a better acquirer. Why not give them a second chance, what the hell do we have to lose?
At least Eddie Lampert isn't buying Albertsons.

We need Hy-Vee or Publix to expand out here.

If Amazon is serious about the grocery store business, instead of playing around with camera filled stores decorated like a tin can, then they will immediately put together a superior cash offer for Albertsons. This is their last chance. They are literally going to be left out of the food market in the US under this insane Wall Street plan.

These Wall Street executives clearly have a vision to consolidate that graph shown earlier into only 5 or 6 bars, just like what they did to the airline industry over the last 20 years. And that graph already has bars on it that won't go away - Walmart (although they should have included Sam's in that), Costco, Kroger. Who will be the last two or three lines on that chart? That is what these people are trying to decide - because they intend to acquire, consolidate, and/or put anything that isn't part of their plan out of business. These lines are being drawn now.

What scares me is how small Target is. I've brought this up multiple times - Target makes plenty of profit, but look at how small it really is. If we are insane enough to allow for a Kroger-Albertsons merger then it's only a matter of time before we see Target acquired by either the new Kroger or Walmart or someone else. I'd hate to see them go. And then someone is going to fuel up a new shipload of debt (maybe whoever runs this ill-fated SpinCo, it should be branded Haggen II just to drive the point home) to plow through all the regional independents like Stater Bros in SoCal, Raleys and other such operators to consolidate them into another Albertsons-esque debt bomb that will need to be diffused by another competitor's acquisition in the future. They're going to go to these family operators first and "give em an offer they can't refuse" with the promise that they'll be squashed like a bug in this new future if they don't get on board and sell out. An agile new competitor yes, but a real pawn in their game of chess.

The only one who wins here is Wall Street. Everyone else loses. And what's more important is that Wall Street is operating with such insane tunnel vision that they don't really see the bigger picture - these investment banks are so myopic that they fail to realize that their holdings in the vendors that supply the new Kroger Goliath will be damaged by this lack of competition. To the extent that the vendors will likely be hurt more than Kroger will be helped. But they go along with it anyway because they anoint the "winners" in the market with their recommendations, then turn around and issue them loans where they benefit from the interest.

Here's the real question that nobody is willing to ask - it's very easy to determine when you just pull public company balance sheets which are public documents - HOW MUCH IS THE AMERICAN CONSUMER PAYING EACH MONTH IN CORPORATE DEBT SERVICING COSTS? I'll bet we are all paying more in debt service costs shopping these public companies than we pay in taxes now. This is the REAL cause of our rampant inflation and it is only going to get worse as long as these mergers keep getting approved and funded. Scary as all hell.

[retailfanmitchell019]

Canadians pay more for groceries than Americans…and They have the same situation as the US…two nationwide operators (Empire and Loblaw), Walmart, and a number of regional operators (Like Metro)

At least Canada has higher standards for quality than the US. You get what you pay for up there. Traditional supermarkets are still thriving up there while governments in the US (both parties) have allowed Walmart to terrorize the grocery industry here. Walmart is only #5 in Canadian market share.

[cw06]

The big question remains though....will the FTC scrutinize this more closely

By setting up SpinCo to take duplicate stores, Kroger/Albertsons seem to be answering any possible objections the FTC may have.

In the end I don't see why the FTC would block this though. Even combined Kroger/Albertsons aren't even approaching a monopoly of the grocery market.

[ClownLoach]

Canadians pay more for groceries than Americans…and They have the same situation as the US…two nationwide operators (Empire and Loblaw), Walmart, and a number of regional operators (Like Metro)

At least Canada has higher standards for quality than the US. You get what you pay for up there. Traditional supermarkets are still thriving up there while governments in the US (both parties) have allowed Walmart to terrorize the grocery industry here. Walmart is only #5 in Canadian market share.

I'd argue from my last few trips to Quebec that Loblaw does a better job operating Provigo (their primary brand in Montréal) than any American operator, and our inflation is so bad here that now they're priced about the same "dollar to dollar" - when you factor in the exchange rate they're no longer more expensive than our chains here. The fundamental difference is that they don't have massive debt servicing costs to pass along to the customer, so the quality keeps getting better. Labor is much tougher to manage there - wages are higher, unions are stronger, and employee protection laws are much costlier to operate under - yet they have lavishly stocked perimeter departments fully staffed with multiple employees, incredible bakery product, three part deli areas (a prepared foods counter, plus a deli meats counter, plus a separate cheese counter - each with their own full dedicated and trained staff), fully staffed produce departments with multiple employees working constantly, meticulously merchandised stores, and private brands like Presidents Choice which are arguably than the brand names and really taste like they are a gourmet brand competing with mainstream. Loblaw operates some warehouse type no frills operations that are very value focused but still are clean and reliable stores as well as a Fred Meyer type concept in Real Canadian Superstore, and even a world renowned Asian grocery store concept called T&T which is going to open their first Montréal location in a converted Loblaw building this Fall. The Loblaw building became available because they built a new Provigo down the street from the store to upgrade their offering in that part of town.

The real devil here is the banking industry that runs Wall Street. They are the only ones who actually win with these mergers. They win from extending new financing. They win from consumers being squeezed and putting more on their high interest credit cards. They win from consumer bounce fees. They win from higher interchange fees on higher priced transactions.

I have had to spend more time shopping at Walmart than in the past because of these high prices, as well as Costco and Sam's and Stater bros. What is obvious about all these chains is the fact that they are not heavily indebted and what the effect is on pricing. All three are still selling fresh fundamentals like lettuce so much lower than the heavily indebted Albertsons/Kroger stores - I just can't imagine how much higher prices will go with that merger completed. Saying a grand total of $1B in cost savings is basically saying that your average basket price in their store will drop a penny. And that's if your local store is still there, which it probably won't be when they cull through the stores.

Remember how Kroger handled Ralphs - they closed at least a third of the stores - especially where two stores were only a mile or two apart. In Long Beach for example they had six stores in East Long Beach, two of which were newer builds prior to the merger. One that stood for over 40 years and had just been lavishly remodeled with a complete interior tear down to a Fresh Fare went lights out almost immediately because there was another store a mile down the road. FM clearly paid a fortune on that remodel as everything from the entire drop ceiling to a conversion to all recessed lighting, moving produce and meats, etc. was done on the remodel, not just the usual redecorating. Kroger didn't care. The Ralphs that was rebuilt with less parking than permitted due to the fact that the community rallied behind their promise to keep a first class quality store in the very diverse Anaheim St. Area was promptly closed and converted to a Food4Less. Basically when they were done with the area they left three Ralphs stores in the market and all of them operate at what would best be described as "over capacity" - long lines and crowded aisles. They took advantage of the fact that they dominated the area and reduced store count to lower their overhead. Prices aren't any better than before and the shopping experience is far worse in the remaining overcrowded stores. East Long Beach is a prime example of what we can look forward to everywhere in this Kroger-Albertsons merger disaster. I guarantee you that they will only put the worst stinkers (and maybe the Food4Less/FoodsCo/Ruler formats) into the SpinCo - and they will close three stores over the next ten years for every one store that gets spun. I would fully expect to see that at least 1,000 stores close in the aftermath of this deal.

[pseudo3d]

I've thought more about this deal. Without repeating much of what has already been said I am trying to figure out WHAT is possibly positive about this deal to the consumer...

Albertsons has some debt that will come due in the next few years and the high interest rates will kill them. Some variable rate stuff, etc. They are up against a wall and it appears they have decided they must dissolve their company. I have no clue what Kroger is thinking- they must think they can become too big to fail or something.

The debt load won't vanish if Kroger buys them. If my numbers are right, Albertsons has $14B in debt, which if Kroger purchases them they lose that $24B and adds an additional $14B, so now you've got a low-margin grocery company pushing around close to $50B in debt! How on earth are they expected to compete with the more nimble regional competitors, Amazon, or Wal-Mart like that?

[veteran+]

I've thought more about this deal. Without repeating much of what has already been said I am trying to figure out WHAT is possibly positive about this deal to the consumer...

I can't come up with much of anything here that will help the consumer. This just seems like a terrible merger.

What it comes down to is Albertsons has obviously failed, AGAIN. Rather than fix their operation they are wanting the easy way out, AGAIN. And their plan is going to basically lead to a break up/split up that will likely seem very similar to 2006, AGAIN. Of course following the path of Safeway they failed... how could following the footsteps of a chain that failed have worked? As the old Albertsons LLC slogan went "new ideas at work" - that is what they needed. NOT Safeway ideas.

My guess is this time, Kroger is the Supervalu (taking the so called "better" assets- the ones that don't already compete with Kroger). What happens to the supposedly poor assets (the ones that already compete with Kroger, largely)... is anyone's guess. Though we have a new twist this time of what I'd call "so so" assets (such as the Southwest division or the Seattle division) that compete with Kroger and will need to be divested.

The union and politicians can cry all they want. They can speak out against the merger. If the company wants to sell that bad, it will only get worse. What if the company takes one of those poor performing divisions and announces a Dominick's or a Genuardi's (everyone is fired, fast forward a few years and multiple stores sold to/reopened by non-union operators) and says well since we couldn't complete the merger we have to cease operations of poorly performing assets, had we completed the merger thousands of Union jobs would have been saved.

I have little confidence in FTC under Biden Administration, or any other administration in the past 20 years. Heck, remember 7-Eleven and Speedway completed their merger WITHOUT FTC approval... basically picked what they wanted to divest, did their merger, told FTC to pound sand. FTC ultimately said case closed.

If it weren't for converting Lucky (a chain known for low prices), if it weren't for the ill-advised acquisition of Shaw's, if the company kept Joe Albertson's ideals, if they didn't get a reckless guy from GE to run Albertsons (Jack Welch's reckless management style influenced GE people running Home Depot and Chrysler, which both saw profits fall. Jack Welch's style was putting shareholders first, which is a bad strategy that Larry implemented), Old Albertsons would still be alive.
Now that this merger with Kroger is happening, this is truly a new low for Albertsons, when you think they can't go even lower. As I've said, Kroger has taken Ralphs downhill. Ralphs has lost its identity in the past 10 years. It is now a Kroger with the sign out front saying "Ralphs".
The acquisition of Safeway was a big mistake. Albertsons should've stayed on its own and acquired the private label from SuperValu. SuperValu should've merged with C&S or gone private.
I honestly think that this deal would make the SVU era Albertsons look like when Joe ran the stores. It is that bad. Once this merger closes, I will switch to locally-owned Stater Bros. for my weekly grocery shopping.
Andrew T., another RetailWatcher, is living in paradise when it comes to grocery options in Canada. Walmart hasn't terrorized the grocery industry up there. I blame politicians in both parties for allowing Walmart to terrorize the American grocery industry and screw everything up.

I think Target should've acquired Albertsons. There has been rumors on and off over the years of Target and Albertsons merging. Even Tesco would've been a better acquirer. Why not give them a second chance, what the hell do we have to lose?
At least Eddie Lampert isn't buying Albertsons.

We need Hy-Vee or Publix to expand out here.

If Amazon is serious about the grocery store business, instead of playing around with camera filled stores decorated like a tin can, then they will immediately put together a superior cash offer for Albertsons. This is their last chance. They are literally going to be left out of the food market in the US under this insane Wall Street plan.

These Wall Street executives clearly have a vision to consolidate that graph shown earlier into only 5 or 6 bars, just like what they did to the airline industry over the last 20 years. And that graph already has bars on it that won't go away - Walmart (although they should have included Sam's in that), Costco, Kroger. Who will be the last two or three lines on that chart? That is what these people are trying to decide - because they intend to acquire, consolidate, and/or put anything that isn't part of their plan out of business. These lines are being drawn now.

What scares me is how small Target is. I've brought this up multiple times - Target makes plenty of profit, but look at how small it really is. If we are insane enough to allow for a Kroger-Albertsons merger then it's only a matter of time before we see Target acquired by either the new Kroger or Walmart or someone else. I'd hate to see them go. And then someone is going to fuel up a new shipload of debt (maybe whoever runs this ill-fated SpinCo, it should be branded Haggen II just to drive the point home) to plow through all the regional independents like Stater Bros in SoCal, Raleys and other such operators to consolidate them into another Albertsons-esque debt bomb that will need to be diffused by another competitor's acquisition in the future. They're going to go to these family operators first and "give em an offer they can't refuse" with the promise that they'll be squashed like a bug in this new future if they don't get on board and sell out. An agile new competitor yes, but a real pawn in their game of chess.

The only one who wins here is Wall Street. Everyone else loses. And what's more important is that Wall Street is operating with such insane tunnel vision that they don't really see the bigger picture - these investment banks are so myopic that they fail to realize that their holdings in the vendors that supply the new Kroger Goliath will be damaged by this lack of competition. To the extent that the vendors will likely be hurt more than Kroger will be helped. But they go along with it anyway because they anoint the "winners" in the market with their recommendations, then turn around and issue them loans where they benefit from the interest.

Here's the real question that nobody is willing to ask - it's very easy to determine when you just pull public company balance sheets which are public documents - HOW MUCH IS THE AMERICAN CONSUMER PAYING EACH MONTH IN CORPORATE DEBT SERVICING COSTS? I'll bet we are all paying more in debt service costs shopping these public companies than we pay in taxes now. This is the REAL cause of our rampant inflation and it is only going to get worse as long as these mergers keep getting approved and funded. Scary as all hell.

Eruditely expressed and acutely prescient!

Thank you!

[storewanderer]

They're expecting a very lengthy review. So am I.

"The transaction is expected to close in early 2024, subject to regulatory clearance and other closing conditions."

I hope they like double digit interest rates. That's what they'll see by then.

"early" 2024- basically a year from now. Seems like an aggressive timeline to me.

Would be better if this deal falls apart very quickly but I suppose if they want to blow money on trying to push it through (all costs will just get passed on to the customers).

[storewanderer]

Remember how Kroger handled Ralphs - they closed at least a third of the stores - especially where two stores were only a mile or two apart. Basically when they were done with the area they left three Ralphs stores in the market and all of them operate at what would best be described as "over capacity" - long lines and crowded aisles. They took advantage of the fact that they dominated the area and reduced store count to lower their overhead. Prices aren't any better than before and the shopping experience is far worse in the remaining overcrowded stores. East Long Beach is a prime example of what we can look forward to everywhere in this Kroger-Albertsons merger disaster. I guarantee you that they will only put the worst stinkers (and maybe the Food4Less/FoodsCo/Ruler formats) into the SpinCo - and they will close three stores over the next ten years for every one store that gets spun. I would fully expect to see that at least 1,000 stores close in the aftermath of this deal.

On the topic of store closures:

Keep in mind though, Ralphs is a very unique case for Kroger. Kroger has closed a ton of stores. QFC is a close second for "unique case" where a lot of stores have closed (but seeing the stores, I understand why those closed). I don't understand why so many Ralphs closed. Granted NorCal was those Albertsons/Lucky divests (oh SpinCo...), it generally broke even and they could have made those stores profitable with better pricing and needed to convert 4-5 more to FoodsCo (a program that was successful for two stores in Sacramento).

Now let's look at the Smiths and Fred Meyer divisions. When do they close stores? Once Smiths closed up the failing Albertsons/Buttrey divests (there we go again...) stores in MT/WY in the 00's (most of which didn't even do $100k a week- dumpy stores and pricing was not good) I think we can count the number of closures on one hand in the past decade and on two hands in the past two decades.

Other Kroger Divisions with largely large stores do not close many stores. King Soopers- how many stores have they closed in the past 20 years? Count on one hand again. Fry's- some quiet closures there of junk 80's type stores. Dillons is messier with store swaps, market exits, strange acquisitions, closures of nearly brand new stores, and other stuff and has had almost a Ralphs-like closure spree in the 2001-2017 period outside core Wichita market yet keeps many decades old legacy stores in rural towns.

Recent Kroger closures scattered around the midwest seem to be in small non-growing towns with depressed economies. In some cases, in IL, this is the only store in town and they have closed it. Hopefully some regulator or politician picks up on that conduct and brings it up here because this is a potential serious concern.

But if we look at, specifically, the Safeway side of Albertsons, we have A LOT of stores in small non-growing towns with depressed economies. Some of these are very profitable stores, others just appear to be surviving but likely not overly profitable.