ClownLoach wrote: ↑March 1st, 2023, 1:08 pm
pseudo3d wrote: ↑March 1st, 2023, 10:59 am
storewanderer wrote: ↑February 28th, 2023, 9:16 pm
And basically that is what needs to be accomplished by the divest program. They need to essentially create a competitor in CA/OR/WA/AZ that has the scope Safeway has. But I am not sure with Safeway NorCal "missing" how well that will work. Then again if that competitor is Save Mart, I guess they have their NorCal assets to "fill in the gap."
The whole circle here is just highly questionable. Albertsons-Safeway merger was very sketchy from a divesting stores perspective and what happened with Haggen (and that they were able to buy ANY stores back). Now this merger we have another thing going where the divest situation is starting to look real fuzzy. I still think Kroger would be better off agreeing to divest 650 stores and even divest some stores that aren't even overlapping that just flat out do not appear to be the type of store Kroger is interested in running (those real small low volume rural stores in towns of 3k population or less).
I think Kroger is headed for a Supervalu with this merger. History tends to repeat itself. Kroger has become a shade of overly proud and not customer friendly in recent years. They remind me a lot of Safeway in the years leading up to it liquidating/divesting territories and being sold to Albertsons. However, Kroger is much stronger than Safeway ever was and I don't think the current Kroger operation is in danger of liquidating/divesting any territories at the present time. There is a reason Kroger's stock price hasn't been very excited about this pending merger.
If Kroger spun off its West Coast operations and merged with Albertsons (trading assets to avoid overlap) it would create a strong national competitor with a good regional competitor in California, Washington, Arizona, and Oregon. But the problem is that a lot of those West Coast assets are in way better shape, especially places like Phoenix or Denver. Why throw good money after bad?
This is why I think something stinks from the Kroger end of this merger. They don't owe anything to Cerberus and the investors (at least, not to my knowledge) and either Rodney McMullen is either covering up for something or a complete fool. On a broad scale, Kroger's not getting much out of this. They would get Montana, the Dakotas, NorCal, the Northeastern stores, and smaller markets in various shapes and orders of repair, and in the bigger of those markets like Austin, Albertsons isn't a #1 or even a safe #2. Even NorCal is not a big prize. It would be nice for Kroger but definitely not worth billions and billions of dollars (not to mention the general costs of doing business in NorCal), and things like the manufacturing and distribution centers are just surplus assets. I've said it before that although Albertsons and Safeway had to divest a lot of stores, there was a lot Albertsons was getting out of it, including the distribution/brand name backbone that had ripped out of it with the SuperValu sale.
Not sure how to locate such information but I wonder if Kroger has any activist investors or private equity types that have taken a significant stake and are demanding a transaction? It does seem like they have less to gain from this deal. I find it very difficult to believe that they are experiencing margin pressure due to lack of scale. This is why I call out their questionable comparisons to Walmart, Amazon and Costco, all of whom probably get between 60% to 80% of their revenue from general merchandise. Heck Amazon is probably closer to 95% general merchandise and digital revenue even with WFM thrown in. I am 100% confident that Kroger is a strong #2 in overall US foods revenue even with some holes in their coverage area. But they aren't going to publicize that kind of "apples to apples" comparison as it will undermine their merger strategy.
The real problem Kroger and Albertsons have can't be solved with this merger. Conventional supermarkets continue to bleed share because they can't compete on price. This is driven by the fact that Walmart, Costco, and even Amazon can absorb cost increases in foods by raising the prices of general merchandise items. Winco also takes share by running a truly low cost, high volume operation allowing a once or twice a month stock up shop at rock bottom prices on non-perishables (their produce is okay at best, I wouldn't touch their meat or deli). On top of that Kroger and Albertsons insist on growing costly, labor intensive e-commerce pickup and delivery sales which force them to raise all prices to absorb the cost of these unprofitable services. When I go into Ralphs and see prices like yesterday's $8.49 for a tub of Philadelphia Cream Cheese - and know I can go to Sam's and get four bars for $7.29 or six bars for $9.99 at Costco - obviously I'm not going to buy it from Ralphs. Same kind of comparison happens in every aisle and ultimately I leave with just the few items I absolutely needed for dinner and the rest goes in a list for the weekly Sam's or Costco or Winco run.
What is happening to Kroger and Albertsons is that they are being squeezed into a grocery "convenience store" option where they get shopped for a few items by a customer in a hurry. They are still losing share of the big ticket transactions to Walmart, Target, Costco, and Winco. As long as they continue to lose share they would both be better served shrinking down and culling stores.
This merger won't solve those structural problems. They won't suddenly have each store converted to a Fred Meyer "in its heyday" with enough GM volume to offset volatile food prices and build an ad of loss leaders. It may help with the real estate issues I've stated before, but both chains could handle these on their own as well (the ex Safeway management folks should be experts on this with all the stores they've already redeveloped into urban formats with basement or rooftop parking, integrated apartments etc.). If the goal is a massive culling of stores resulting in thousands of dark boxes in a combined entity I'm not sure how that would help; my favorite example where Kroger implemented this scorched earth strategy is Long Beach, CA and they wound up with maxed out stores incapable of absorbing additional transactions from the growing population. Everyone else gained share as they brutally consolidated down to a handful of overcrowded stores that are dirty 24/7 with long lines and impossible parking. If that's the goal they should have just sold to Walmart instead of buying Albertsons.
So you're right, not sure how Kroger wins anything here. Very strange transaction.
Here's the thing. About 7 - 8 years ago Kroger was firing on all cylinders. They were successfully operating a successful Walmart competitor with slightly higher pricing for slightly higher quality. They had a new format, the Marketplace store, that was to be their primary store model in expansion markets as well as new builds in existing trade areas. They also had just completed the purchase of Harris Teeter and Roundy's, two regional chains that mostly complemented Kroger's existing footprint and ran stores that were compatible with the standard Kroger format. Kroger seemed to have a lot of momentum going for it.
Somehow, inexplicably, they decided to start the "restock Kroger" initiative which is when everything began to go awry. They halted new store construction almost everywhere (only has it recently restarted some places). They invested a lot of money into programs that they scrapped soon after like "Scan. Bag. Go". They changed their product assortment and raised prices. Then they spent a ton of money on Ocado automated warehouses with the intention of delivering groceries directly to consumers from the warehouses (skipping the stores completely).
From my vantage point, none of these "restock Kroger" initiatives really worked. They simply drove up costs which caused Kroger to have to raise prices which caused the "slightly higher priced slightly higher quality than Walmart" proposition to become a "significantly higher priced very slightly higher quality" than Walmart proposition. This, in turn, helped turn loyal Kroger customers into "free agents" and gave an opportunity for HEB, Hy Vee, Meijer and Publix (which all offer something a bit different from Kroger at either slightly lower or slightly higher pricing levels) to decide it was prime time to further encroach on Kroger's core territory.
While Kroger was engaged in this "restock Kroger" initiative Walmart was making strategic blunder after strategic blunder of its own. Walmart's real estate strategy in the early 2010s seemed to be to locate a store anywhere that they could without much thought to pretty much anything other than increasing its market share / presence in certain markets. As soon as it realized that this strategy was a failure (and started closing a lot of these stores to try to mitigate its losses from poor real estate decisions) they decided that the next strategy was to purchase any online retailer with a pulse to grow its presence online (purchasing Jet.com, flipkart, Moosejaw, Bonobos, etc.). This also has been strategy riddled with failure which has caused it to lose focus on its core retail operations. A smart Kroger would've been able to squeeze Walmart more than Kroger has been able to.
Purchasing Albertsons seems like Kroger's strategy to insulate itself from competition in markets where it holds a leading position and/or markets where Walmart is fairly weak. Albertsons has enough of its own issues and I don't think adding a collection of stores that has only recently been preforming well but for most of the last 2 decades has been controlled by rudderless parent companies is a great strategy for the health of either company. The Albertsons stores are generally smaller and do lower volume than their Kroger competition. The two key markets: Chicago and Northern California are really the only places where Kroger gains significant value (other than insulating itself from competition in the So Cal, PNW, AZ, NV and CO). The Mid Atlantic and New England is still a competitive mess with / without the Albertsons assets and I'm not sure Albertsons assets there are very strong (there are stronger competitors in both New England and the DC/MD/VA/DE/PA/NJ/NY area).
Kroger would do better to see what value it could get out of selling the Ocado infrastructure and invest capital in pricing initiatives in its core markets. That, not a merger with 75% overlap, would serve Kroger better long term.
