Kroger to merge with Albertsons?

[marketreportblog]

A group of consumers is suing to block the merger: https://www.reuters.com/markets/deals/g ... 023-02-03/

[marshd1000]

Not sure why Florida, would be represented here in this lawsuit as Albertsons is totally gone from that state. Plus Kroger only has one Harris Teeter and delivery through Ocado in Florida!

[pseudo3d]

From krogeralbertsons.com

"With Walmart and Amazon as competitors, it’s understandable that traditional grocery stores need to scale up to stay competitive. Critics see this as one less competitor in the market, but if Kroger and Albertsons are prevented from merging and go out of business because they can’t combine their resources to compete on price, it will be government meddling that stifled competition. If allowed to merge, they’ll be better able to put competitive pressure on the other market leaders and that’s a win for consumers."

Jessica Melugin


Isn't this "analyst's" argument counter-intuitive? It's more of a point to not approve the merger. If both chains can't survive against Walmart and Amazon separately and need to merge how the heck is Spinco supposed to survive? The statement actually foreshadows another Haagen fiasco. I think they picked the wrong analyst.

Hopefully the unions pick up on that fact. Because that is definitely a fact.

I still think whatever happens with this merger, Albertsons as we know it gets broken up again.

I disagree on three reasons. The first reason is that they don't have a lot of non-core assets they can monetize anymore, which wasn't the case in 2006 (this is why I think suggestions like "reduce debt by dismantling the Southern Division" are both ineffective and does more harm to the company than good). Secondly, with the dividend secured, there's less pressure for Cerberus et. al. to extract more money from ACI. Thirdly, the reason why Albertsons broke up is that the company was too much for SuperValu to take on at once, so the financier of the company (Cerberus, etc.) got five of the underperforming divisions to deal with until SuperValu could acquire them back (which never happened, instead they bought back SuperValu's share).

Is it possible that Kroger (or another competitor) could still strip off stores from Albertsons after a merger fails? Sure. It wouldn't exactly be a "breakup" on Albertsons' part, but there's not a lot that Kroger would be interested in. (After all, the non-overlapping markets in the merger are either too remote or don't have much market share). The Northeast region is not a core ACI market and will provide functionally no FTC issues if Kroger bought it.

The possibility of another operator (that would have less issues than Kroger) buying it is still there, too, and if they can swallow Albertsons whole then there is no need for a "breakup". In the past, I've brought up the discussion of Amazon and SpartanNash getting involved somehow. It sounds implausible on the surface, but Amazon has already entered into contracts with SpartanNash that would only make sense if they had a bigger hold in the grocery industry than they did.

In October 2020, Amazon entered into a deal to purchase its 15% stake by October 2027. Through the deal, Amazon must buy $8 billion worth of goods from SpartanNash over seven years, according to multiple reports at the time. Weeks after this agreement was announced, BISNOW reported that that SpartanNash closed a $25.8 million deal to lease distribution centers for seven years.

I could imagine some sort of semi-complicated rearrangement where Amazon buys a major stake in Albertsons, transitions the better stores of Amazon Fresh to the company, quietly closes out the remainder of Amazon Fresh, then has Albertsons buy most of SpartanNash's retail operations while having the remainder of SpartanNash contractually distribute to those stores, because as of right now there's trouble brewing if Amazon welches on the deal against SpartanNash. I assume that even as Amazon Fresh operation crumbled, they were still talking up the Michigan stores, which I assume were all going to be distributed by SpartanNash.

Even if a SpartanNash merger is all just fantasy, the position of Amazon is important in the merger or lack thereof.

[storewanderer]

I disagree on three reasons. The first reason is that they don't have a lot of non-core assets they can monetize anymore, which wasn't the case in 2006 (this is why I think suggestions like "reduce debt by dismantling the Southern Division" are both ineffective and does more harm to the company than good). Secondly, with the dividend secured, there's less pressure for Cerberus et. al. to extract more money from ACI. Thirdly, the reason why Albertsons broke up is that the company was too much for SuperValu to take on at once, so the financier of the company (Cerberus, etc.) got five of the underperforming divisions to deal with until SuperValu could acquire them back (which never happened, instead they bought back SuperValu's share).

Is it possible that Kroger (or another competitor) could still strip off stores from Albertsons after a merger fails? Sure. It wouldn't exactly be a "breakup" on Albertsons' part, but there's not a lot that Kroger would be interested in. (After all, the non-overlapping markets in the merger are either too remote or don't have much market share). The Northeast region is not a core ACI market and will provide functionally no FTC issues if Kroger bought it.

The possibility of another operator (that would have less issues than Kroger) buying it is still there, too, and if they can swallow Albertsons whole then there is no need for a "breakup". In the past, I've brought up the discussion of Amazon and SpartanNash getting involved somehow. It sounds implausible on the surface, but Amazon has already entered into contracts with SpartanNash that would only make sense if they had a bigger hold in the grocery industry than they did.


Even if a SpartanNash merger is all just fantasy, the position of Amazon is important in the merger or lack thereof.

I think Amazon is in significant trouble right now where we sit in 2023. I am not sure if Whole Foods is somehow insulated from Amazon's problems and can continue doing what it does. As far as Amazon goes, I do not see them buying anything or expanding physical stores further at this time unless they are forced to open something due to a lease requirement.

I also think they could very easily monetize a 2006 style break up of Albertsons/Safeway. Certain divisions like NorCal and Chicago are almost guaranteed to go to Kroger with a few stores divested out of each. Southwest Division while not great in market share is a good asset and is absolutely viable for someone to keep running as a stand alone division. United could also stand alone again. SoCal Division has pockets of good stores that could go to another conventional operator and many others that could be sold piecemeal to ethnic operators (I think Eastern Division/Acme is in the same spot). Intermountain/Denver can be easily split up between multiple wholesalers and go to independents and smaller regional chains. Shaws and the TX Albertsons/Randalls/Tom Thumb operation may be mostly useful for real estate value only.

[pseudo3d]

I disagree on three reasons. The first reason is that they don't have a lot of non-core assets they can monetize anymore, which wasn't the case in 2006 (this is why I think suggestions like "reduce debt by dismantling the Southern Division" are both ineffective and does more harm to the company than good). Secondly, with the dividend secured, there's less pressure for Cerberus et. al. to extract more money from ACI. Thirdly, the reason why Albertsons broke up is that the company was too much for SuperValu to take on at once, so the financier of the company (Cerberus, etc.) got five of the underperforming divisions to deal with until SuperValu could acquire them back (which never happened, instead they bought back SuperValu's share).

Is it possible that Kroger (or another competitor) could still strip off stores from Albertsons after a merger fails? Sure. It wouldn't exactly be a "breakup" on Albertsons' part, but there's not a lot that Kroger would be interested in. (After all, the non-overlapping markets in the merger are either too remote or don't have much market share). The Northeast region is not a core ACI market and will provide functionally no FTC issues if Kroger bought it.

The possibility of another operator (that would have less issues than Kroger) buying it is still there, too, and if they can swallow Albertsons whole then there is no need for a "breakup". In the past, I've brought up the discussion of Amazon and SpartanNash getting involved somehow. It sounds implausible on the surface, but Amazon has already entered into contracts with SpartanNash that would only make sense if they had a bigger hold in the grocery industry than they did.


Even if a SpartanNash merger is all just fantasy, the position of Amazon is important in the merger or lack thereof.

I think Amazon is in significant trouble right now where we sit in 2023. I am not sure if Whole Foods is somehow insulated from Amazon's problems and can continue doing what it does. As far as Amazon goes, I do not see them buying anything or expanding physical stores further at this time unless they are forced to open something due to a lease requirement.

Amazon Fresh's physical stores has probably indeed hit a dead end. But if they invest in a proven grocery store brand they might be able to work out issues with outstanding contracts and leases, and by acting like a "silent partner" to Albertsons, they could both save the company and their own reputation.

I also think they could very easily monetize a 2006 style break up of Albertsons/Safeway. Certain divisions like NorCal and Chicago are almost guaranteed to go to Kroger with a few stores divested out of each. Southwest Division while not great in market share is a good asset and is absolutely viable for someone to keep running as a stand alone division. United could also stand alone again. SoCal Division has pockets of good stores that could go to another conventional operator and many others that could be sold piecemeal to ethnic operators (I think Eastern Division/Acme is in the same spot). Intermountain/Denver can be easily split up between multiple wholesalers and go to independents and smaller regional chains. Shaws and the TX Albertsons/Randalls/Tom Thumb operation may be mostly useful for real estate value only.

Well, I'm sure they could monetize a total liquidation of the company...but that's not exactly a "2006 style breakup", now is it? In 2006, all of the divisions (except for the drug division) that survived 2002 were spared (except for Great Plains, which was cut in 2004). Even the NorCal division sale was not announced until about six months into Cerberus' ownership.

[storewanderer]

Well, I'm sure they could monetize a total liquidation of the company...but that's not exactly a "2006 style breakup", now is it? In 2006, all of the divisions (except for the drug division) that survived 2002 were spared (except for Great Plains, which was cut in 2004). Even the NorCal division sale was not announced until about six months into Cerberus' ownership.

The quality and marketshare of the divisions now is much different than it was in 2006. The entire grocery business has changed radically since 2006. There are more alternate formats/ethnic concepts than ever expanding now. They could do the same exact thing they did in 2006 now, if the merger doesn't work out.

[jamcool]

Face it….all Kroger really wants is Jewel, the NE stores, NorCal, and parts of the PNW.

[Bagels]

Face it….all Kroger really wants is Jewel, the NE stores, NorCal, and parts of the PNW.

I'd bet there are more Albertsons/Vons/Pavilions locations that Kroger would like to pick off, than taking ownership of the Shaw/Star chain.

[arizonaguy]

Face it….all Kroger really wants is Jewel, the NE stores, NorCal, and parts of the PNW.

I'd bet there are more Albertsons/Vons/Pavilions locations that Kroger would like to pick off, than taking ownership of the Shaw/Star chain.

Ralphs has enough coverage gaps in Southern California that I can see Kroger trying to hang on to some of those Albertsons/Vons/Pavilions locations and they probably wouldn't cause antitrust issues especially with Stater Bros, all of the ethnic supermarkets, Smart and Final and Trader Joe's everywhere in Southern California. Of course, Kroger has closed close to 100 Ralphs stores over the last 25 years to create those coverage gaps.

Albuquerque, Colorado Springs, Denver, Las Vegas, Phoenix and Tucson are places where Albertsons offers little to no value to Kroger and I don't expect Kroger to pick up many (if any) stores there.

[retailfanmitchell019]

I also think they could very easily monetize a 2006 style break up of Albertsons/Safeway. Certain divisions like NorCal and Chicago are almost guaranteed to go to Kroger with a few stores divested out of each. Southwest Division while not great in market share is a good asset and is absolutely viable for someone to keep running as a stand alone division. United could also stand alone again. SoCal Division has pockets of good stores that could go to another conventional operator and many others that could be sold piecemeal to ethnic operators (I think Eastern Division/Acme is in the same spot). Intermountain/Denver can be easily split up between multiple wholesalers and go to independents and smaller regional chains. Shaws and the TX Albertsons/Randalls/Tom Thumb operation may be mostly useful for real estate value only.

If Jewel and Safeway NorCal go to Kroger, I also expect Safeway Northwest (Alaska/Seattle and Portland divisions) to go to Kroger. Safeway is very profitable in the PNW, and having those store separate from Kroger would result in confusion. In return, QFC goes into Albertsons.
SoCal is a profitable division, it has been that way for Albertsons since they bought Lucky. Albertsons/Vons/Pavilions is even with Kroger (Ralphs/F4L) in LA/OC market share and the big dog in San Diego. I see it staying alive.
Safeway East/Acme: I expect the core of Acme around Philly to stay intact while the stores around NYC are sold off to competitors like Ahold and ShopRite operators.
I see Southwest and Intermountain remaining intact, they are also profitable.
Shaw's: broken up, stores parted out to Big Y, Price Chopper, ShopRite operators, etc.
Texas: I expect the remaining Randalls stores to close. Albertsons/Tom Thumb/Market Street in DFW should be sold to HEB. United could be sold back to management.
Denver: AWG should buy the I-25 corridor/eastern CO Safeway stores (along with the Denver distro) and convert them to Price Chopper. CO mountain stores and WY/NE/SD stores get merged into Intermountain.

What is left of ACI (SoCal, QFC, Intermountain, Southwest, and the core of Acme) could form an alliance with Loblaw, Sobeys, or get picked up by Ahold.