Kroger to merge with Albertsons?

[CalItalian]

Food inflation, food insecurity, Kroger's ridiculous rants while closing down SoCal stores, its profits during Covid, stronger unions today, debt - along with the monopolies this is going to cause in many markets & setting up a weak SpinCo company post Haggen - are all going to be issues that will k.o. this buyout.

I hope you're right. I am wondering who pushed this deal. I think Albertsons is who pushed this deal. My guess is after an Ahold deal failed (probably since Ahold realized they didn't want anything to do with Albertsons with many poorly performing regions and terrible pricing), Albertsons got desperate to find SOMEONE, ANYONE to buy them and for whatever reason Kroger decided to agree to this.

I think Albertsons would have been better off "restructuring" basically dumping every asset other than NorCal, SoCal, OR, WA, Southwest, and maybe Intermountain/Jewel, forming what would have largely been the strongest parts of the old Safeway, and just running those and focusing on defending those regions/growing in those regions, as they would have had a highly profitable high performing chain that would run in a number of growing markets with a lot of opportunities. So yes, dump off Texas, dump off PA, dump off Safeway Eastern Division, dump off Shaws, and dump off Denver. Let the old owning family have United back; they are still running it anyway. My suspicion is Kroger has very smart people running their market research operation and they did the math on this and realized an Albertsons like I propose above would cause a serious threat to multiple successful Kroger divisions and the best course of action for Kroger despite the many risks is this merger attempt.

I think Albertsons way of doing business in Las Vegas/Phoenix is putting some serious heat on Kroger; they seem to have figured out how to compete on all levels (price, quality, service, store appearance) using what is basically the old Albertsons LLC model but for whatever reason cannot or will not do that in the Safeway markets (Safeway probably just can't help itself from being lousy overpriced Safeway). If that happens across more markets it will be very difficult for Kroger and could threaten Kroger out west.

Why a Kroger/Albertsons Merger is a Bad Idea

I forgot A&P was broken up over 12% market share
https://www.forbes.com/sites/errolschwe ... 480a1853af

[storewanderer]

Why a Kroger/Albertsons Merger is a Bad Idea

I forgot A&P was broken up over 12% market share
https://www.forbes.com/sites/errolschwe ... 480a1853af

I could support the idea of letting Kroger take regions they don't really currently operate in (including NorCal and Chicago in that bucket) and in the case of serious overlaps like SoCal, OR/WA, AZ, CO, NV, ID, spin off ENTIRE divisions including a banner/related distribution/manufacturing of Safeway/Albertsons to some new operator. I assume Kroger does not want to spin off any of its own assets (though I wonder about QFC/F4L).

Where I run into problems on this is in regions with serious overlap.

Albertsons was probably a few quarters from imploding again. There is a reason why they did this, vs. try to grow on their own buying more regional chains. Given what they have been doing to pricing lately they have clearly been trying to shore up their numbers desperately. Ahold probably took a look at some of their pricing and saw them out west charging triple what a Giant charges for various center store items and said there is no way we can make this work with our model. Kroger either has no clue (unlikely, they do price analysis steadily) or figures when there is no competition left we can charge triple too.

[CalItalian]

Combined Kroger would have 460,000 union employees (260k Kroger, 200k Albertsons - just talkin' union employees). It would be the largest private sector company with union employees surpassing UPS in the United States.

[veteran+]

Food inflation, food insecurity, Kroger's ridiculous rants while closing down SoCal stores, its profits during Covid, stronger unions today, debt - along with the monopolies this is going to cause in many markets & setting up a weak SpinCo company post Haggen - are all going to be issues that will k.o. this buyout.

I hope you're right. I am wondering who pushed this deal. I think Albertsons is who pushed this deal. My guess is after an Ahold deal failed (probably since Ahold realized they didn't want anything to do with Albertsons with many poorly performing regions and terrible pricing), Albertsons got desperate to find SOMEONE, ANYONE to buy them and for whatever reason Kroger decided to agree to this.

I think Albertsons would have been better off "restructuring" basically dumping every asset other than NorCal, SoCal, OR, WA, Southwest, and maybe Intermountain/Jewel, forming what would have largely been the strongest parts of the old Safeway, and just running those and focusing on defending those regions/growing in those regions, as they would have had a highly profitable high performing chain that would run in a number of growing markets with a lot of opportunities. So yes, dump off Texas, dump off PA, dump off Safeway Eastern Division, dump off Shaws, and dump off Denver. Let the old owning family have United back; they are still running it anyway. My suspicion is Kroger has very smart people running their market research operation and they did the math on this and realized an Albertsons like I propose above would cause a serious threat to multiple successful Kroger divisions and the best course of action for Kroger despite the many risks is this merger attempt.

I think Albertsons way of doing business in Las Vegas/Phoenix is putting some serious heat on Kroger; they seem to have figured out how to compete on all levels (price, quality, service, store appearance) using what is basically the old Albertsons LLC model but for whatever reason cannot or will not do that in the Safeway markets (Safeway probably just can't help itself from being lousy overpriced Safeway). If that happens across more markets it will be very difficult for Kroger and could threaten Kroger out west.

Why a Kroger/Albertsons Merger is a Bad Idea

I forgot A&P was broken up over 12% market share
https://www.forbes.com/sites/errolschwe ... 480a1853af

Excellent article!

No one wins with this except Wall Street and E Suite/Stakeholders.

Los Angeles area is NOT as competitive as many think. The traffic and congestion dynamics affects shopping choices differently than it would in more spread out areas. Traveling 5 miles to your fav store in Denver is not the same thing in Los Angeles. I know MY choices will be reduced substantially.

[storewanderer]

Combined Kroger would have 460,000 union employees (260k Kroger, 200k Albertsons - just talkin' union employees). It would be the largest private sector company with union employees surpassing UPS in the United States.

The union needs to be careful. If they try to kill this deal, there will very likely be painful impacts to their membership. I expect outright division closures and other serious problems on the Albertsons side. UFCW needs to step lightly here.

At what point is a union so tied to a single chain that it is conflicted due to the "eggs in one basket" type of situation? Conflicted to the point that UFCW will be so dependent on dues from Kroger employees to keep going that it will potentially do things that are in the best interest of Kroger and not in the employees, in order to keep the dues flowing. That seems to be where this is going with Kroger.

That could be an argument against this. But unions historically don't exist to promote competition; unions exist to help the employees. Other issue is UFCW failure to organize other chains that are actually growing (Target, Wal Mart, Sprouts, Aldi, etc.).

[storewanderer]

Excellent article!

No one wins with this except Wall Street and E Suite/Stakeholders.

Los Angeles area is NOT as competitive as many think. The traffic and congestion dynamics affects shopping choices differently than it would in more spread out areas. Traveling 5 miles to your fav store in Denver is not the same thing in Los Angeles. I know MY choices will be reduced substantially.

Short term win for the investment bankers and lawyers advising the deal and possibly for Albertsons shareholders who sell out at the right time. Look at the response of Kroger stock to this deal (yes the market is down today, but Kroger stock is down twice as much % as the market) and that is all you need to know about how Kroger shareholders feel about this.

Sprouts, Trader Joes, Smart & Final, Whole Foods, the Bristol/Gelsons type stores, various ethnic chains... not to mention the amount of groceries Target and Wal Mart are moving; lots of choices in SoCal. Also I am sure a number of SoCal Stores will end up in "SpinCo" which should be a choice for about 4 months.

At this point now that we see what Albertsons wants to do, it going forward running great/competitive grocery stores obviously isn't in the cards. We have to accept this and realize the best path forward is continued expansion of the smaller chains/regional chains/other formats.

[submariner]

I could support the idea of letting Kroger take regions they don't really currently operate in (including NorCal and Chicago in that bucket) and in the case of serious overlaps like SoCal, OR/WA, AZ, CO, NV, ID, spin off ENTIRE divisions including a banner/related distribution/manufacturing of Safeway/Albertsons to some new operator. I assume Kroger does not want to spin off any of its own assets (though I wonder about QFC/F4L).

Where I run into problems on this is in regions with serious overlap.

Albertsons was probably a few quarters from imploding again. There is a reason why they did this, vs. try to grow on their own buying more regional chains. Given what they have been doing to pricing lately they have clearly been trying to shore up their numbers desperately. Ahold probably took a look at some of their pricing and saw them out west charging triple what a Giant charges for various center store items and said there is no way we can make this work with our model. Kroger either has no clue (unlikely, they do price analysis steadily) or figures when there is no competition left we can charge triple too.

I would expect Albertsons to disappear from Southern California altogether (via closures or rebrands), and Pavilions will either go away in lieu of Ralphs Fresh Fare, or RFF will disappear in favor of Pavilions.

[storewanderer]

I would expect Albertsons to disappear from Southern California altogether (via closures or rebrands), and Pavilions will either go away in lieu of Ralphs Fresh Fare, or RFF will disappear in favor of Pavilions.

SoCal is a case of- too many banners:
Ralphs
Food 4 Less
Pavilions
Vons
Albertsons

If F4L stays around (seems logical to dump it off), it can stay its own banner.

Does Pavilions have any value at this point though?

I think in SoCal the best go forward banner is Ralphs.

I suppose they could do Ralphs and Vons. Maybe keep Vons to use on lousy small stores that don't meet the standards to have the Ralphs name.

I see the Albertsons banner becoming a property of SpinCo to use on its stores, and it should be exclusive use. That would ultmately mean the death of the Albertsons banner. In the few markets where Albertsons is a strong banner (like Las Vegas, Intermountain, and El Paso, I am not sure how this all would play out).

[retailfanmitchell019]

I see the Albertsons banner becoming a property of SpinCo to use on its stores, and it should be exclusive use. That would ultimately mean the death of the Albertsons banner.

I think SpinCo should go to Jim Pattison Group (Canada), who bought Roth's in Oregon and Chuck's Produce. Bob Miller was on their Board of Directors at one point, so it would make some sense.
I don't even want to know what the SpinCo logo would look like...

[storewanderer]

I see the Albertsons banner becoming a property of SpinCo to use on its stores, and it should be exclusive use. That would ultimately mean the death of the Albertsons banner.

I think SpinCo should go to Jim Pattison Group (Canada), who bough Roth's in Oregon and Chuck's Produce.

That would end in disaster, likely even faster than Haggen, and take down the Jim Pattison Group with it.

SpinCo isn't going to anyone other than the shareholders. They want to set SpinCo up as a stand alone publicly traded company. Part of the compensation for shareholders will be shares in SpinCo. It looks like they expect about 20% of the proceeds for Albertsons shareholders to be in the form of shares in SpinCo. The details of this SpinCo thing could be the sticking point that kills the whole deal if shareholders go and re-familiarize themselves with the Haggen story and catch wind that SpinCo is not going to be a viable enterprise. But remember, Haggen operationally failed and tanked, and went bankrupt but it is widely believed that the investment ownership group of Haggen who funded the deal actually made money on that venture after the carve up/sale of stores to various parties. So shareholders may not mind at all if SpinCo goes like Haggen did. And this time since it would be publicly traded we would see the finances behind that type of maneuver.