HCal wrote: ↑March 30th, 2024, 2:12 am
Stater is probably not interested in expanding to new markets, and is not an acceptable buyer for most SoCal stores because that would reduce competition.
No, a closed, boarded up store subleased to a random fitness center that is under contract to remove and destroy or render permanently inoperable all food related facilities like refrigeration, electrical, plumbing, grease traps, etc to prevent any future use as a supermarket unless the building is demolished and rebuilt is a loss of competition. As we know, Kroger and Albertsons have been pushing for such requirements for any store they close as part of the leases and other operating agreements. There's zero reason to believe that preexisting rights of first refusal by low end businesses like Planet Fitness and EOS Fitness would be nullified by the store being transferred from say Vons to C&S who subsequently closes it, then Planet Fitness swoops in and executes their contractual obligations to make sure it never can be a supermarket again. And when they don't work out they close and now it becomes what, another Ross? A Dollar Tree? It doesn't ever revert back to groceries. That's why the stores have to stay open which means they need operators who know how to keep them open first and foremost.
Read between the lines. The concern is that C&S is not going to keep the stores open and that is disqualifying them despite the fact that they are financially secure. The state AG's and Feds want these stores to be open for business and operating in a competitive manner so they stay open. The court filings talk about what a viable and competitive store is, and there's no way you can say Stater doesn't qualify. And Stater slots in well all across SoCal. Ralphs has basically abandoned San Bernardino county where they are dominant so no issue. Stater is absent from LA for the most part and operates many stores in the 30K range, although they prefer to be in a 45K they could definitely handle a former Ralphs or Vons as they have many smaller ones
Realistically every divest in every market may wind up going to a strong operator expanding into new territory, but that is far less risky than anything going to a loser like C&S who is not able or willing to be a serious competitor. And although they might not want to grow, most operators are smart enough to know that when they're offered a massive expansion opportunity for pennies the sky is the limit. Stater might not want LA County, but if they got a couple dozen viable Ralphs and Vons for a million or less a piece plus another warehouse to service them thrown into the deal they really have nothing to lose and everything to gain. That is probably why Save Mart was gearing up only to learn that Kroger had found a new sucker in C&S to take over and kill their rejects.
The entire issue is that the government authorities don't want to see hundreds of closed grocery stores, and there's a credible concern that's what C&S will deliver. This is why I expect they will state they'll negotiate to approve if they can control the process of divestiture and they can find suitable operators for every market. If they cannot find suitable operators that will keep all stores open then they'll block the deal. That's the way it sounds like it is going to go, and they're not going to buy the argument that a Costco, a Kroger and a Walmart are the same thing.
Since Kroger decides to open Pandora's box and challenge the FTC definition of a grocery store, they're now facing a even stricter definition that the store is convenient, clean, affordable, full service, rewards loyalty of the customer, prices and operates in a competitive manner to attract and retain customers etc. They're not just accepting "a place that sells food." They are more concerned about the competitive
behavior because that is what keeps prices down and doors open. Their stated concerns in the lawsuit are that C&S in most cases will be too small and insignificant to provide pricing pressure, and that they lack the experience of creating best in class practices to attract new customers and retain existing ones through loyalty and other measures. Yes, all the Wall Street buzzwords are being used in the lawsuit as weapons against Kroger and Albertsons, and I personally couldn't be happier as they state C&S lacks skill and experience in all of those "buzzword" behaviors that "make a grocery store competitive."