Kroger to merge with Albertsons?

[retailfanmitchell019]

What a mess.

The more I think about this merger the less I like it. I think Cerberus needs to sell *good, non-overlapping* divisions to Kroger (basically NorCal and Jewel...) and do whatever with the leftovers. IPO Pacific Northwest into its own company if it is so great and so profitable and package it up as an attractive package for a new market entrant. Maybe roll Intermountain into that Pacific Northwest IPO. Find a foreign buyer out of Mexico for SoCal and Southwest.
Texas, Mid Atlantic, Shaws, Acme, sorry- slice and dice. Denver- fire sale.
I am sure in the slice and dice and fire sale Kroger will pick up some additional non-overlapping stores. After analysis of VibeGuy and some further research I've done I do think Pacific Northwest overlap is going to be the straw that "breaks" this merger from happening. Something tells me if the above is the route that is taken, many parties involved will look back at how the slice and dice and grind up goes, and think "it would have been easier if Kroger had merged the whole company in." Also in the above example Safeway banner is gone from NorCal which would be a problem. It will need to remain in Pacific Northwest to maintain the value of that store group for the later IPO.

I agree with your ideas assuming the merger doesn't go through.

For the NW/Intermountain ACI stores, that new market entrant would be Loblaws. Given if Safeway NorCal were to go into Kroger, those NW/Intermountain Safeway stores would be renamed to the Albertsons nameplate.

SoCal/Southwest: Hypothetically, the buyer from Mexico would probably be Soriana (that or the owner of Sears Mexico). I'd expect everything in that block to be converted over to the Vons nameplate. Otherwise, Loblaws could get those stores too.

Texas: United could also be sold to Kroger. Albertsons Market would be merged back into the Southwest Division.
As for the D/FW stores, those could go to Brookshire's. I expect Randalls to be parted out in both Austin and Houston.

Safeway East: I'd think Publix would buy those. UNFI looks to be expanding again, so some of those Safeways could go into Shoppers Food.

Shaw's/Star Market: Those stores would be parted out to Big Y, ShopRite, and Price Chopper, the latter having stores in the far out Boston suburbs. Market Basket is out of the question as they prefer to build their own stores.

Acme: I expect ShopRite operators to buy those stores. Price Chopper or Big Y could buy the Acme stores in the NYC suburbs.

Denver: I expect the Safeway stores in the Rockies (along with Albertsons/Safeway in WY/SD) to be merged into Intermountain. Safeway stores along the Front Range, from Fort Collins to Pueblo, should be sold to AWG, along with their Denver warehouse. Those would take the Price Chopper name. The ones in eastern CO/western NE should be sold to Hy-Vee for their Dollar Fresh format.

[storewanderer]

Albertsons nameplate is basically worthless in the Pacific Northwest; it has been run into the ground by Supervalu. Since then the new Albertsons Companies Inc. has made the decision to convert various random stores to Safeway yet keep other random stores branded Albertsons with no rhyme or reason to what they are doing. They have centralized all marketing and sponsorship efforts into the Safeway name in the market as babs previously pointed out in Portland. Those stores lose the Safeway name, they lose 20-30% of their sales from a name change to Albertsons which many in the Pacific Northwest remember best from the Supervalu days of dark dirty stores with the highest prices in the market. The remaining Albertsons stores are much better now, but after so many closures by Supervalu, divests to Haggen that didn't reopen, etc., many Pacific Northwest customers haven't set foot in an Albertsons in 10 years... maybe that is enough time for them to give it a fresh look...?

Maybe NorCal ends up being the region that loses the Safeway nameplate. Frankly, I don't think a name change would impact them much given the competitive situation (or lack thereof) in the NorCal market. It would not be optimal to change the name on those stores for a variety of reasons (not limited to how hard it is to do any changes to signs in NorCal).

I don't buy that "multiple parties" will operate the Safeway name in the US. I don't see it going that way for long.

But after that hearing I am less and less convinced this merger is going to be going through. I do think the questions were stacked against the grocers, but, really not sold on this after listening to their answers to the questions.

[veteran+]

I do not imagine Publix being interested in Albertson's east coast stores.

Perhaps cherry picking some units in non union areas close to their own stores.

[pseudo3d]

What a mess.

The more I think about this merger the less I like it. I think Cerberus needs to sell *good, non-overlapping* divisions to Kroger (basically NorCal and Jewel...) and do whatever with the leftovers. IPO Pacific Northwest into its own company if it is so great and so profitable and package it up as an attractive package for a new market entrant. Maybe roll Intermountain into that Pacific Northwest IPO. Find a foreign buyer out of Mexico for SoCal and Southwest.
Texas, Mid Atlantic, Shaws, Acme, sorry- slice and dice. Denver- fire sale.
I am sure in the slice and dice and fire sale Kroger will pick up some additional non-overlapping stores. After analysis of VibeGuy and some further research I've done I do think Pacific Northwest overlap is going to be the straw that "breaks" this merger from happening. Something tells me if the above is the route that is taken, many parties involved will look back at how the slice and dice and grind up goes, and think "it would have been easier if Kroger had merged the whole company in." Also in the above example Safeway banner is gone from NorCal which would be a problem. It will need to remain in Pacific Northwest to maintain the value of that store group for the later IPO.

I agree with your ideas assuming the merger doesn't go through.

For the NW/Intermountain ACI stores, that new market entrant would be Loblaws. Given if Safeway NorCal were to go into Kroger, those NW/Intermountain Safeway stores would be renamed to the Albertsons nameplate.

SoCal/Southwest: Hypothetically, the buyer from Mexico would probably be Soriana (that or the owner of Sears Mexico). I'd expect everything in that block to be converted over to the Vons nameplate. Otherwise, Loblaws could get those stores too.

Texas: United could also be sold to Kroger. Albertsons Market would be merged back into the Southwest Division.
As for the D/FW stores, those could go to Brookshire's. I expect Randalls to be parted out in both Austin and Houston.

Safeway East: I'd think Publix would buy those. UNFI looks to be expanding again, so some of those Safeways could go into Shoppers Food.

Shaw's/Star Market: Those stores would be parted out to Big Y, ShopRite, and Price Chopper, the latter having stores in the far out Boston suburbs. Market Basket is out of the question as they prefer to build their own stores.

Acme: I expect ShopRite operators to buy those stores. Price Chopper or Big Y could buy the Acme stores in the NYC suburbs.

Denver: I expect the Safeway stores in the Rockies (along with Albertsons/Safeway in WY/SD) to be merged into Intermountain. Safeway stores along the Front Range, from Fort Collins to Pueblo, should be sold to AWG, along with their Denver warehouse. Those would take the Price Chopper name. The ones in eastern CO/western NE should be sold to Hy-Vee for their Dollar Fresh format.

In the event of a total Albertsons failure, which you seem to be speculating, most of that comes off as unrealistic. It would probably be like the end of BI-LO, A&P, and when a competitor is forced to leave a market—a feeding frenzy. Kroger would probably take a good part of the stores across every division, smaller competitors start working off the remains, a lot of stores close. Stuff with Soriana and Loblaws might be a fun thought but it's not realistic.

If we look at the fact that Cerberus just needs to sell the majority of the stock, and not the entire company, it opens up a lot more options on exactly who they could sell it to. Other investment groups and investors would be the most seamless option, obviously. Even if Lone Star Funds bought into Albertsons and merged SEG in, that wouldn't necessarily be a good thing, as it would require Albertsons to babysit Winn-Dixie instead of using funds for its own fixer-upper operations.

With the announcement of the Kroger merger, we know the Ahold Delhaize meeting was real (and obviously fell through). Ahold Delhaize is the only European company that operates mainstream stores in the United States (well, them and the two Aldi companies and Lidl). Maybe a foreign company could buy Albertsons or in part.

Tesco would obviously be a poor choice, given their fiasco with Fresh & Easy and not even being able to handle the F&F account they had with Hy-Vee, and still unable to have demonstrated that they learned their lesson. Maybe Carrefour or Auchan. Like Tesco they once had American options, but they're farther in the past. As long as they don't muck around with the company too much they might even be able to bring fresh ideas to the chain, like larger stores with apparel store-within-a-stores, much like Hy-Vee.

[veteran+]

Keen insight pseudo!

[mjhale]

I do not imagine Publix being interested in Albertson's east coast stores.

Perhaps cherry picking some units in non union areas close to their own stores.

Is Publix that averse to operating in unionized areas? If so that rules out any kind of expansion further up the east coast. Going beyond where they are now in each market there are one or more unionized operators. There has been much speculation about Publix wanting to enter the DC market. I had thought that perhaps if this merger led to Harris Teeter in the DC area being spun off in parts or in whole that would give Publix an entry point with non-union stores in affluent areas that they would typically target. However, if Publix isn't interested in operating in areas with any unionization at all then that wouldn't work for them. And honestly, I'm not sure if the market even needs Publix. It is very competitive as it is. What would Publix bring to the market that isn't already here? I've been in several of their Richmond areas stores. They are nice stores, clean with good selection. But they aren't enough that I would change my current grocery routines.

[mjhale]

One thing that Ahold Delhaize is already dealing with is the Food Lion chain, which still numbers around 1000 and takes up a huge percentage of Ahold Delhaize's total stores. I don't think I've ever seen one in person, but their takeover of some 60 BI-LO stores looks like they're at least trying to modernize the chain (though they still average 44k square feet). The new-build Food Lion of the 1990s were ~33k square feet stores that were never really loved even from the start (they pulled out of Texas in 1997). Still, the real moneymakers seem to be Giant and Stop & Shop.

There are a lot of rural area where Food Lion operates that it is the only traditional grocery store in town or it is them and Walmart for groceries. I was recently on a trip that took me into some areas where Food Lion was the sole store in town. They are a lot better than they used to be. It seems more like a grocery store and less of the giant convenience store feeling you used to get in the 1990s and 2000s. There seems to be some crossover in distribution of store brand items that originated from Ahold. Also on the way back from said trip I stopped in a couple of the southernmost Martins (Giant-PA) stores. Those stores have a good number of Taste of Inspirations brand items which I'm pretty sure came from Delhaize and Food Lion. It is mostly in deli and it seems to be marketed as a specialty option beyond the usual fruit bowl logo stuff. Even with these changes Food Lion still doesn't seem to do the volume of either of the Giants and Stop and Shop. The sales percentage must come from the sheer volume of stores and Food Lion being captive in a lot of markets. But as you say the volume train is moving because of the two Giants and Stop and Shop. When Ahold and Delhaize merged I wondered what Ahold would want with all of the far flung Food Lion stores that took them out of their core Mid-Atlantic markets. I suppose Food Lion is profitable enough now for them to keep the stores. I've always wondered though in the long run if Ahold would keep the stores. Or if Ahold were to buy pieces of castoffs from whatever becomes of the Kroger-Albertsons thing if overlapping Food Lion stores would go. Ahold already went around once in the south with Bi-Lo and Brunos which they ended up selling.

[storewanderer]

In the event of a total Albertsons failure, which you seem to be speculating, most of that comes off as unrealistic. It would probably be like the end of BI-LO, A&P, and when a competitor is forced to leave a market—a feeding frenzy. Kroger would probably take a good part of the stores across every division, smaller competitors start working off the remains, a lot of stores close. Stuff with Soriana and Loblaws might be a fun thought but it's not realistic.

If we look at the fact that Cerberus just needs to sell the majority of the stock, and not the entire company, it opens up a lot more options on exactly who they could sell it to. Other investment groups and investors would be the most seamless option, obviously. Even if Lone Star Funds bought into Albertsons and merged SEG in, that wouldn't necessarily be a good thing, as it would require Albertsons to babysit Winn-Dixie instead of using funds for its own fixer-upper operations.

With the announcement of the Kroger merger, we know the Ahold Delhaize meeting was real (and obviously fell through). Ahold Delhaize is the only European company that operates mainstream stores in the United States (well, them and the two Aldi companies and Lidl). Maybe a foreign company could buy Albertsons or in part.

As far as a total Albertsons failure goes, I don't exactly predict that, but in the high interest rate environment and with the way their debt is structured they need to do a deal... they need out. If it was in their best interest to keep going as is, they would keep going and not pursue a merger.

I don't see Tesco coming back to the US, EVER again. Definitely not with Tesco Management controlling things. Maybe if some US company were to buy Tesco... don't see that happening either.

It would be nice if Cerberus would just sell their stock to a different investment group who actually wants to operate the grocer (granted we have to give Cerberus credit for operating it this long and doing the Supervalu and Safeway acquisitions). We don't really know if all of Cerberus and friends want out or just some of them want out. But the way the debt is set up, is not, how do I put it, set up for the chain to keep going long term. Major debt restructure is needed.

I do not see Publix buying ANY unionized stores as a going concern. And the politicians involved in this merger will ensure ANY unionized store is sold to an operator who will continue the union. The only way Publix ends up with these is if they go to some other buyer first with the blessings of the politicians who will proclaim victory when the store is sold with union agreement (like they did with Haggen) and that buyer goes under and the stores are then sold to Publix. Fortunately, they finally did something right, the politicians seem to have all familiarized themselves with the Haggen thing and that Haggen thing may well be what causes this Kroger/Albertsons merger to get denied.

I would have liked to see a different approach at the present time with Albertsons again split up- good parts of the company into one entity and bad parts into another. Thing is that would have basically ended up being good parts Jewel+CA/OR/WA and maybe AZ. I'm on the fence about Intermountain but that is an easily split up division; strong growing independents in those regions between URM and Associated who could take many stores and Smiths could take a few.

You are right Winn Dixie is such a beat down asset that it would not be good to mix it with Albertsons. Winn Dixie is basically at a Denver Safeway level or a Shaws level. Albertsons needs to be rid of those types of stores, not add more of those.

[veteran+]

I do not imagine Publix being interested in Albertson's east coast stores.

Perhaps cherry picking some units in non union areas close to their own stores.

Is Publix that averse to operating in unionized areas? If so that rules out any kind of expansion further up the east coast. Going beyond where they are now in each market there are one or more unionized operators. There has been much speculation about Publix wanting to enter the DC market. I had thought that perhaps if this merger led to Harris Teeter in the DC area being spun off in parts or in whole that would give Publix an entry point with non-union stores in affluent areas that they would typically target. However, if Publix isn't interested in operating in areas with any unionization at all then that wouldn't work for them. And honestly, I'm not sure if the market even needs Publix. It is very competitive as it is. What would Publix bring to the market that isn't already here? I've been in several of their Richmond areas stores. They are nice stores, clean with good selection. But they aren't enough that I would change my current grocery routines.

I worked for them for several years in Miami as well as my sister.

Their deep rooted and so far, seemingly unchangedable, ideology of anti Union is at the root of it. They also have some very disturbing "private" ideologies (not appropriate to discuss here).

The only way they would consider expansion in some areas (after a careful demographic analysis) is IF they determine that the State Labor Commissioner is very weak and the Union (if there is one) has no power. Also of course if a certain politcal party usually and historically "prevails".

It's just their thing.................unless their is a massive change in leadership.

[pseudo3d]

I do not imagine Publix being interested in Albertson's east coast stores.

Perhaps cherry picking some units in non union areas close to their own stores.

Is Publix that averse to operating in unionized areas? If so that rules out any kind of expansion further up the east coast. Going beyond where they are now in each market there are one or more unionized operators. There has been much speculation about Publix wanting to enter the DC market. I had thought that perhaps if this merger led to Harris Teeter in the DC area being spun off in parts or in whole that would give Publix an entry point with non-union stores in affluent areas that they would typically target. However, if Publix isn't interested in operating in areas with any unionization at all then that wouldn't work for them. And honestly, I'm not sure if the market even needs Publix. It is very competitive as it is. What would Publix bring to the market that isn't already here? I've been in several of their Richmond areas stores. They are nice stores, clean with good selection. But they aren't enough that I would change my current grocery routines.

There is no way that Publix would take over the Safeway stores in D.C. and flip them to non-union. Well, there could be a way under the right circumstances but it'd still be a hard sell. The other problem is that Publix's expansion into Virginia has been quite slow. They entered in 2016 with two leases and acquiring 10 stores from Martin's, and only have 19 stores today. In contrast, North Carolina was entered 2 years earlier and now has around 50 stores. At the end of 2017 (five years ago), they had eight Virginia stores and 11 North Carolina stores, so even accounting for the same time frame, North Carolina took off and Virginia did not. This is not to say Publix's Virginia expansion is a failure, but they have been very slow and methodical in Virginia.

Now that Sankaran has testified that Albertsons' finances are good, it would be difficult to smash the company into pieces immediately "for financial reasons" if the merger falls through lest Sankaran gets accused of perjury. And Cerberus' impatience drove them into this mess...no way they'd allow a slow Lampert-style liquidation while maintaining the pretense that the company could be "restored to profitability" by "reshaping the company" or whatever Lampert's excuse was.

Fortunately for Cerberus they have three real options:

1) Dump Sankaran and install someone new with plans to make positive changes and hold onto Albertsons a little while longer; it's essentially a recession-resistant company. The stock may even rise.
2) Work with Kroger and get serious about SpinCo. Develop a comprehensive plan. 650+ stores, include the rights to current brands and facilities. And not forking over all the debt to ensure it withers instantly.
3) Continue shopping Albertsons around to a company that wouldn't create as many problems.

EDIT: This took a while to post because for some reason it really didn't like the SEC link - http://www.sec.gov/Archives/edgar/data/ ... 302017.htm