Kroger to merge with Albertsons?

[storewanderer]

One big question is, what private labels will this Albertsons/Kroger use?

I am positive the entire Kroger private label portfolio will be rolled out to Albertsons/Safeway, immediately.

That would be one of the few positive things for consumers in this merger.

Albertsons/Safeway constant lagging behind and constant shifting of strategies on private label was a big reason why the chain was behind held back the past few years.

Maybe they'd keep one or two of the labels that don't overlap Kroger such as Waterfront Bistro on seafood, and perhaps Refreshe (dump the stupid Signature Select logo from it though) for bottled water/seltzer products, but really, why bother keeping even those? Would be interesting to see what decision would be made with regards to Lucerne. Toss up on that in my opinion. What is interesting is if Lucerne went away, you'd be back to a Safeway banner brand on milk.

[retailfanmitchell019]

I am positive the entire Kroger private label portfolio will be rolled out to Albertsons/Safeway, immediately.

That would be one of the few positive things for consumers in this merger.

Albertsons/Safeway constant lagging behind and constant shifting of strategies on private label was a big reason why the chain was behind held back the past few years.

Maybe they'd keep one or two of the labels that don't overlap Kroger such as Waterfront Bistro on seafood, and perhaps Refreshe (dump the stupid Signature Select logo from it though) for bottled water/seltzer products, but really, why bother keeping even those? Would be interesting to see what decision would be made with regards to Lucerne. Toss up on that in my opinion. What is interesting is if Lucerne went away, you'd be back to a Safeway banner brand on milk.

I think with all that presence, they should dump the Kroger name on private label and go with Signature Select.
Nothing at Albertsons, apart from meat, uses the Albertsons name at this point. They still wrap their ground beef in packaging with the Albertson's script logo from the late 90's.
Another question is, what brand would SpinCo go with?

[cw06]

One big question is, what private labels will this Albertsons/Kroger use?

That also depends on the existing contracts that Albertsons has with it's suppliers. It'll probably be several years before they're completely transferred over to Kroger suppliers.

[jamcool]

There was a Lucerne dairy before there was Safeway, and it has a higher reputation than Kroger’s dairy label. Would Kroger keep the Lucerne brand or spin it off to the new company-along with the Signature/O Organic brands.

[arizonaguy]

I think when all is said and done, there could be 2 banners used for Kroger. Albertsons could be used west of the Mississippi, Kroger east of the Mississippi. Jewel on the other hand? Up in the air.

I don't think Jewel is going to be touched. Jewel is too profitable to be touched. There is no overlap to speak of (Mariano's and F4L are different formats). There is zero benefit to rebranding Jewel.

Same goes for Safeway NorCal, OR, WA. There is no reason to rebrand. The chain is dominant and widely utilized by consumers.

My guess for these guys going forward is they run banners for conventional stores in markets with overlap and at the end of the day I don't think the Albertsons banner survives either. Would be interesting if both banners Albertsons and Vons go to "SpinCo" for exclusive use.

This also assumes Fred Meyer stays Fred Meyer.

NorCal, OR, WA, HI, Alaska- Safeway
SoCal - Ralphs
AZ - Frys
UT/NM/NV - Smiths
WY/MT/ID/SD/ND - mix of Smiths and King Soopers/City Market
TX/Arkansas - Kroger
CO - King Soopers/City Market (expect some smaller marginal Safeways in the rurals to be converted to City Market)
*one wild card here- do you let the United Stores stay as United (including rebranding their Albertsons Market units into United)?

I'm really convinced that the banners are going away. This whole situation is giving me distinct vibes of Kroger's former Cincinnati neighbor (Federated Department Stores) merger with May Company.

Around the time of that merger announcement, Federated converted its stores from the different regional banners to the Macy's banner (and rebranded everything it acquired to Macy's as well).

Kroger management has been quoted as wanting to make Kroger into a nationwide grocer and I think they intend to use the Kroger banner (with that fruit basket logo which reminds me of the Macy's "star" that they started putting everywhere right before re-bannering everything to Macy's as well). The new Fry's store that opened about 2 weeks ago has the fruit basket logo next to the Fry's logo on the outside of the building.

This merger doesn't seem to make much sense to me other than eliminating its main competitor (other that Walmart) out west. The "new" markets would be:

Northern California: Kroger has had a presence here before with Fry's (failed in the 1980s), Ralph's (failed in the early 2000s).

Chicago: Kroger itself failed there 1970. It currently has a token presence with Mariano's and Food4Less.

Boston / New England: It's buying a damaged chain that is #3 in market share behind Ahold Delhaize's combination of Stop and Shop / Hannaford and a very strong independent in Market Basket.

DC / MD / VA /Southeast PA / DE / NJ / NY: It's buying a group of somewhat neglected stores from a hodge podge of different original owners. There is also no shortage of competitors in this region (including a token presence of Kroger itself). Like Boston / New England Ahold Delhaize is the stronger chain here (with its various banners) and this market has become a free for all with Wegman's, Lidl, Publix, etc. all showing interest.

West Texas, El Paso, and Austin: United seems like a good chain with nice stores but its territory is being invaded by H-E-B. Kroger also had previously exited the El Paso market (with Smith's stores there). The Austin stores seem like a token presence that do not have a long term future with Kroger.

The above markets are pretty much it. Kroger wants to be a national chain but even after spending this kind of money it won't have any stores in Cleveland, Pittsburgh or St. Louis (all fairly short drives from Cincinnati). It gets 2 behemoth divisions (Northern California and Chicago), a sinking ship on the East Coast, and a bunch of duplicative stores in almost every region it operates in on the West Coast.

I find it laughable that they think that they'll only need to divest 100 - 375 stores. They're not HEB (in San Antonio) or Publix (in Florida) where they can get away with having a grocery store on every corner as they're publicly traded and shareholders will have less tolerance for stores that drag down the bottom line to simply preserve market share. However, this is exactly the scenario that will play out in Arizona, Colorado, SoCal, Nevada, New Mexico, Idaho, Oregon and Washington if this merger goes through. Maybe they think they can sell the land (that they own) for these duplicative stores to developers who will build condos or apartments on them or they can deed restrict others from occupying the stores.

If they really only divest this number I think that within 2 - 3 years of the merger they'll close (at minimum) another 100 - 375 stores.

Looking at the combined footprint of 5,000 stores I'd expect that the final number (within 5 years) will end up at around 3500 stores (so they'll close 1500 stores or the equivalent of Safeway before it merged with Albertsons). Of course nobody in the media will report that 1500 stores will close but it is by far the most likely outcome (based upon past history).

Another thought that popped into my head is that instead of outright closing stores, it will convert a number of locations to pickup and delivery hubs (Order is made at Ocado warehouse ---> sent to a "dark" store ---> picked up at the "dark" store and then delivered to the customer). This could reduce the "pickup" traffic at the stores open to the public and declutter the stores. A pickup and delivery only store could also potentially service a larger trade area.

If I really truly wanted to grow Kroger and I was running it, I would've bought Giant Eagle, Ahold Delhaize USA, Schnuck's, and Cub Foods. This combination would've required far fewer divestures (simply around Columbus and maybe the Harris Teeter stores in DC/MD/VA) and would've given Kroger stores that are better run in better market positions. Then if I was running Kroger I'd wait for the impending Albertsons implosion and buy the scraps in Northern California and Illinois for pennies on the dollar.

HEB, Hy Vee, Publix and Wegman's didn't view Kroger as a threat prior to this merger announcement (as they've announced more and more new stores locations into Kroger's current territory). If I was running any of those chains I'd say that those executives might've bet on the right horse and their continued expansion into Kroger territory may yield good results. This merger, if it goes through, looks like it's Albertsons / ASC all over again.

[pseudo3d]

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.

If Albertsons was doing that poorly, then playing with smoke & mirrors for the "strategic review" that downplayed real issues should be worth suing over, and Vivek Sankaran-the-company-into-the-ground should be dumped. But again, if Albertsons was doing that poorly, then why is Kroger considering it? It adds a lot to their debt and doesn't really add new markets. Okay, they get Austin and the ever-shrinking Randalls there, with the area growing but Randalls not taking advantage of it. Okay, they get Hawaii and Alaska. Okay, they get some Northeastern stores, but collectively they're all second-place at best. Okay, they get NorCal, which even that has been really drained of its assets due to Albertsons' sale-leaseback program and the difficulties of operating in California. Okay, they get Louisiana. But the Louisiana stores aren't exactly going anywhere either and are only facing increasing competition from Rouses.

If it was the other way around, like, let's say that Kroger was doing poorly and Albertsons took advantage of it (never mind the debt load), Albertsons would gain a huge boost in Houston, they'd gain access to the Marketplace format and Fred Meyer, they'd gain access to most of the eastern United States and southeastern United States, and in overlap markets, they'd gain the better stores. When it comes to places like Arizona or Colorado, Kroger isn't going to win big.

And again, if Kroger is really sniffing at acquisition candidates again, then there are a number of regionals they could start sniffing at, in addition to the ones arizonaguy mentioned, they could also look at SEG to gain brick-and-mortar access into the growing Florida market (which the Albertsons purchase wouldn't do) or Price Chopper/Tops. Or even take advantage of Target's recent troubles, and meld their grocery expertise into a true Walmart killer that incorporates Fred Meyer.

Unless the Ocado stuff is a disaster in the making in Florida, absorbing SEG would let them buy out Winn-Dixie, rebrand them to Kroger stores (never used on Florida stores!) and they could bridge the Houston division with the Atlanta division.

This isn't even equivalent to the Safeway/Albertsons merger. However ill-conceived that was, Safeway did have a lot of features Albertsons was missing, like back office support, food manufacturing, distribution, and brands, but in this case, Albertsons doesn't have much that Kroger doesn't already have.

[storewanderer]

I think with all that presence, they should dump the Kroger name on private label and go with Signature Select.
Nothing at Albertsons, apart from meat, uses the Albertsons name at this point. They still wrap their ground beef in packaging with the Albertson's script logo from the late 90's.
Another question is, what brand would SpinCo go with?

Kroger name is very valuable on private label products; it has a strong reputation with customers. Even in the acquired regions, this label has been in place for 20+ years and despite some initial resistance of customers at Ralphs/Fred Meyer, the label has been accepted and sells well across all of the banners. Plus Simple Truth is a very strong label. There is no way they will keep Open Nature/O Organics joke and low SKU labels going when Simple Truth is a far stronger label with significantly more SKUs, more sales volume, and far lower price points for the same items.

"Signature Select" is a worthless, useless, underperforming label. The label does not sell well, has no reputation for quality, and offers a very poor value (as it is priced so high). It is a messy mixture of low end, mid end, and premium items and there is no way for the customer to tell what is low end, mid end, or premium within the line. Too many changes in management have led to complete inconsistency and instability with this label. Product mix and presentation of labels are also questionable. "Signature Home" "Signature Care" "Signature Farms" - why? Do those still exist even? "Signature Reserve" seems to be getting discontinued; notice it is gone from various categories most recently the dry pasta category. "Signature Cafe" - guess it is that vs. Home Chef. Or None of the above. I'd go with none of the above.

I get the impression with this merger Kroger wants to keep things as "similar" as possible, for the existing Kroger operations. The existing Kroger operations are doing so well, why would you want to rock that cart? But the distressed Albertsons operation needs a shake up, it is going to be the side that sees changes. And introduction of Kroger private labels is going to be one of those changes, I am very sure of that fact.

As far as what brand SpinCo will use, I am sure Essential Everyday is ready.

[storewanderer]

I'm really convinced that the banners are going away. This whole situation is giving me distinct vibes of Kroger's former Cincinnati neighbor (Federated Department Stores) merger with May Company.

Around the time of that merger announcement, Federated converted its stores from the different regional banners to the Macy's banner (and rebranded everything it acquired to Macy's as well).

Kroger management has been quoted as wanting to make Kroger into a nationwide grocer and I think they intend to use the Kroger banner (with that fruit basket logo which reminds me of the Macy's "star" that they started putting everywhere right before re-bannering everything to Macy's as well). The new Fry's store that opened about 2 weeks ago has the fruit basket logo next to the Fry's logo on the outside of the building.

This merger doesn't seem to make much sense to me other than eliminating its main competitor (other that Walmart) out west. The "new" markets would be:

Northern California: Kroger has had a presence here before with Fry's (failed in the 1980s), Ralph's (failed in the early 2000s).

Chicago: Kroger itself failed there 1970. It currently has a token presence with Mariano's and Food4Less.

Boston / New England: It's buying a damaged chain that is #3 in market share behind Ahold Delhaize's combination of Stop and Shop / Hannaford and a very strong independent in Market Basket.

DC / MD / VA /Southeast PA / DE / NJ / NY: It's buying a group of somewhat neglected stores from a hodge podge of different original owners. There is also no shortage of competitors in this region (including a token presence of Kroger itself). Like Boston / New England Ahold Delhaize is the stronger chain here (with its various banners) and this market has become a free for all with Wegman's, Lidl, Publix, etc. all showing interest.

West Texas, El Paso, and Austin: United seems like a good chain with nice stores but its territory is being invaded by H-E-B. Kroger also had previously exited the El Paso market (with Smith's stores there). The Austin stores seem like a token presence that do not have a long term future with Kroger.

The above markets are pretty much it. Kroger wants to be a national chain but even after spending this kind of money it won't have any stores in Cleveland, Pittsburgh or St. Louis (all fairly short drives from Cincinnati).

I find it laughable that they think that they'll only need to divest 100 - 375 stores. They're not HEB (in San Antonio) or Publix (in Florida) where they can get away with having a grocery store on every corner as they're publicly traded and shareholders will have less tolerance for stores that drag down the bottom line to simply preserve market share. However, this is exactly the scenario that will play out in Arizona, Colorado, SoCal, Nevada, New Mexico, Idaho, Oregon and Washington if this merger goes through. Maybe they think they can sell the land (that they own) for these duplicative stores to developers who will build condos or apartments on them or they can deed restrict others from occupying the stores.

Looking at the combined footprint of 5,000 stores I'd expect that the final number (within 5 years) will end up at around 3500 stores (so they'll close 1500 stores or the equivalent of Safeway before it merged with Albertsons). Of course nobody in the media will report that 1500 stores will close but it is by far the most likely outcome (based upon past history).

HEB, Hy Vee, Publix and Wegman's didn't view Kroger as a threat prior to this merger announcement (as they've announced more and more new stores locations into Kroger's current territory). If I was running any of those chains I'd say that those executives might've bet on the right horse and their continued expansion into Kroger territory may yield good results. This merger, if it goes through, looks like it's Albertsons / ASC all over again.

I think we will know pretty quick their intentions with banners. Because I don't think they are going to run so many banners in the same market the way Albertsons has. This is going to be the moment where they have to make a definitive decision- rebrand everything Kroger, or stick to a smaller number of regional brands? If they plan to rebrand everything Kroger, do they do it market by market, rebrand their own stores first then rebrand these over time as they remodel/reset, or what.

This merger is for Albertsons. The majority of the benefit here is to put Albertsons out of its misery. And to eliminate a major competitor.

It will be interesting with FTC if they note how the business is changing and how many stores they want to convert into dark stores for fulfillment purposes. Raleys closed the dark store they had in Sacramento though, so the dark store for whatever reason did not pan out for them.

Kroger did not exit in a traditional market exit per se from El Paso in 2001, rather, they left there due to a store swap with Fleming. Kroger ended up with some Furrs in NM and Fleming took the El Paso Smiths. Fleming brokered the deal to get the El Paso Smiths in order to add supply volume. This was back in the days when Fleming was releasing press releases monthly of all their "new business customers" and how many millions of dollars of sales per year they would add. So Fleming wasn't going to just let Smiths take Furrs locations without a favor of adding volume... My guess is Smiths was considering leaving El Paso (as Smiths was considering leaving a number of remote and marginal/money losing markets back in 2001 like MT/WY/Reno too) but had not left yet, somehow Fleming knew that and made this deal. https://www.bizjournals.com/dallas/stor ... aily6.html
Now, Rainbow (Fleming) was not open long in El Paso. So if Smiths had wanted these stores back, you'd think they could have taken them back. Instead, Albertsons ended up with those El Paso Stores.

[storewanderer]

If Albertsons was doing that poorly, then playing with smoke & mirrors for the "strategic review" that downplayed real issues should be worth suing over, and Vivek Sankaran-the-company-into-the-ground should be dumped. But again, if Albertsons was doing that poorly, then why is Kroger considering it? It adds a lot to their debt and doesn't really add new markets. Okay, they get Austin and the ever-shrinking Randalls there, with the area growing but Randalls not taking advantage of it. Okay, they get Hawaii and Alaska. Okay, they get some Northeastern stores, but collectively they're all second-place at best. Okay, they get NorCal, which even that has been really drained of its assets due to Albertsons' sale-leaseback program and the difficulties of operating in California. Okay, they get Louisiana. But the Louisiana stores aren't exactly going anywhere either and are only facing increasing competition from Rouses.

If it was the other way around, like, let's say that Kroger was doing poorly and Albertsons took advantage of it (never mind the debt load), Albertsons would gain a huge boost in Houston, they'd gain access to the Marketplace format and Fred Meyer, they'd gain access to most of the eastern United States and southeastern United States, and in overlap markets, they'd gain the better stores. When it comes to places like Arizona or Colorado, Kroger isn't going to win big.

And again, if Kroger is really sniffing at acquisition candidates again, then there are a number of regionals they could start sniffing at, in addition to the ones arizonaguy mentioned, they could also look at SEG to gain brick-and-mortar access into the growing Florida market (which the Albertsons purchase wouldn't do) or Price Chopper/Tops. Or even take advantage of Target's recent troubles, and meld their grocery expertise into a true Walmart killer that incorporates Fred Meyer.

Unless the Ocado stuff is a disaster in the making in Florida, absorbing SEG would let them buy out Winn-Dixie, rebrand them to Kroger stores (never used on Florida stores!) and they could bridge the Houston division with the Atlanta division.

This isn't even equivalent to the Safeway/Albertsons merger. However ill-conceived that was, Safeway did have a lot of features Albertsons was missing, like back office support, food manufacturing, distribution, and brands, but in this case, Albertsons doesn't have much that Kroger doesn't already have.

Everything is public record with regards to Albertsons debt structure, when the debt is coming due, and what happens when the debt comes due. Albertsons was set up as a company with a timeline of sorts. It was not set up to be there publicly traded long term, in order for Cerberus to profit/cash out they had to either grow the company and get the share price way up, attract new investors, or do a deal like this one. After COVID when Albertsons performance exploded when nothing else came to be, it was obvious when they announced the "strategic review" they were headed toward another break up. So here we are. This is 2006 all over again. You have the stuff being sold to Kroger and the other 20% of the company, supposedly overlapping stores but let's see, going to "SpinCo."

My guess is for whatever reason Kroger did not want to do the regional acquisitions. This may be for the better to keep those regionals going. I am surprised Kroger is comfortable with such a large debt load but I think the chance to make a "too big to fail" grocery chain was too appetizing to pass up.

Plus we don't fully know what Kroger's intentions are. Maybe they will sell off certain assets to pay down debt. Are Shaws/Star/Acme/Safeway East really assets worth keeping? Maybe Harris Teeter cherry picks a few stores from Safeway East, and runs them under that banner/format and the rest get sold off. I think they'd find buyers. There are a lot of potential buyers back there.

I anticipate Kroger already has gone through the entire Albertsons store portfolio in regions with overlap and has prepared what they want to divest, various what/if/than scenarios to play with FTC, and how this will go. The various state AGs suing may get in the way and cause Kroger some fun, but at the same time, anything divested, means a lower purchase price for Kroger. And if the stores are "overlapping" that probably also means they are marginal performing/poorly performing anyway because there are few situations with Albertsons/Kroger competing where the Albertsons operation is a higher volume store than the Kroger operation. The way the releases read, it sounds like everything going to SpinCo is going to be Albertsons assets. The divested stores will never even show up as assets on Kroger's books. At the time of the merger there will be two things that will happen, the divest stores will detach from Albertsons to separate public company SpinCo, then what is left of Albertsons will be merged into Kroger.

This is a very creative transaction with this SpinCo. This alleviates a number of scenarios. First, you no longer have the FTC breathing down your neck to sell the stores within x days from the merger or face fines. You no longer have a scenario saying the buyer has to operate for x years and the seller cannot open a new store nearby for x years. Further it reduces the cash outlay for Kroger to buy Albertsons.

Also I find it entirely possible the stores sold to SpinCo just stay part of the main chains but under different ownership, for an extended time period. As in the customer who goes to a Safeway run by "SpinCo" does not even know they are in a Safeway with a different owner. Sort of like those Rite Aids that were owned by Walgreens but still operated as Rite Aid for as much as 3 years, on Rite Aid systems, Rite Aid private label, Rite Aid ads, etc.

[retailfanmitchell019]

Everything is public record with regards to Albertsons debt structure, when the debt is coming due, and what happens when the debt comes due. Albertsons was set up as a company with a timeline of sorts. It was not set up to be there publicly traded long term, in order for Cerberus to profit/cash out they had to either grow the company and get the share price way up, attract new investors, or do a deal like this one. After COVID when Albertsons performance exploded when nothing else came to be, it was obvious when they announced the "strategic review" they were headed toward another break up. So here we are. This is 2006 all over again. You have the stuff being sold to Kroger and the other 20% of the company, supposedly overlapping stores but let's see, going to "SpinCo."
I anticipate Kroger already has gone through the entire Albertsons store portfolio in regions with overlap and has prepared what they want to divest, various what/if/than scenarios to play with FTC, and how this will go. The various state AGs suing may get in the way and cause Kroger some fun, but at the same time, anything divested, means a lower purchase price for Kroger. And if the stores are "overlapping" that probably also means they are marginal performing/poorly performing anyway because there are few situations with Albertsons/Kroger competing where the Albertsons operation is a higher volume store than the Kroger operation. The way the releases read, it sounds like everything going to SpinCo is going to be Albertsons assets. The divested stores will never even show up as assets on Kroger's books. At the time of the merger there will be two things that will happen, the divest stores will detach from Albertsons to separate public company SpinCo, then what is left of Albertsons will be merged into Kroger.

I could give my usual spiel about this crap, but I don't want to repeat myself.
All this merger stuff is just turning me into a fan of Stater Bros. They have come a long way in the past 10 years with better quality.
Larry Johnston must be very proud of himself after hearing about this. He is the Eddie Lampert of the grocery industry.
From what I have seen so far, looks like it's game over for the Albertsons name. I fear they may not be around within 5 years.