🛒 Kroger-Albertsons Merger: National Impact

[marketreportblog]

Remember, with the exception of Northern California, there's barely any new territory that Kroger will gain with Albertsons anyway. (You're kidding yourself if you think they want Austin or Baton Rouge).

The entire PA/Northeast is gained territory. I don't know why Kroger wants it... they're taking over lousy assets and I don't think their operating style will work in the Northeast especially with the assets they are purchasing which contain far too many undersized poor stores...

Ahold (minus Food Lion) would have been a way better play for Kroger (yes even Stop N Shop, which I think Kroger could have fixed).

Right! I always forget about it...probably because it's never talked about. But if Kroger really wanted ACME, Shaw's/Star Market, etc. that would go over very easily and ACME would be Fresher Than Fresh(TM) right now.

Agreed on all that. Stop & Shop has problems, but nothing insurmountable. Shaw's is still kind of a wild card; they are doing better than they had been but that's not saying much, and they have troubles with Market Basket in southern New England and Hannaford to the north. ACME is probably 1/3 or 1/4 made up of acquired A&P stores, and Kroger already passed on those one time around. Are the stores doing better under ACME than A&P? Based on my North Jersey observations, some absolutely are, some are decidedly not. Kroger already rejected the A&P stores 10 years ago, and people believed that's because they didn't want fixer-uppers. (Although apparently they were interested in the Pathmarks, which really surprises me.) Has ACME put in enough work to make those acquired stores no longer fixer-uppers? Many are quite nice, but not significantly different from A&P. Sure, A&P's problems with expired food and poor perishables quality are gone and ACME has done quite well on freshness lately, but more than anything, the ACMEs feel just like a better-run A&P -- not a step forward. Even though Kroger isn't in the northeast, I doubt they're pursuing the merger for the northeast.

And don't forget, in addition to Star Market, you also have Kings and Balducci's. Star Market runs very nice, large, and modern stores, and they're very busy. Looking at Placer.ai foot traffic data, they're slightly busier than their Stop & Shop counterparts within Boston and its immediate suburbs. Kings and Balducci's are a mess. Both are intended to be positioned as gourmet markets, but execution is not better than meh and the stores seem to be very low-volume. Kroger, too, doesn't want gourmet markets.

I will push back slightly on the idea that the stores are undersized. Some definitely are, but don't forget, everything is a little smaller and older in the Northeast. Many of the stores are small because there simply isn't room to build a newer, larger one, or (in some of the tiny New England towns) there just isn't a demand for anything more than that. In Wilmington, VT, the Shaw's is a former Grand Union of around 20,000 square feet, but does the town of 2200 people need more than that? In Hoboken, NJ, the ACME is about 24,000 square feet, but where in Hoboken could you build a larger store? Then again, neither ACME nor Shaw's has many stores above about 65,000 square feet, and there are definitely places they could have larger stores. But on the other hand, I believe the 60-90,000 square foot Stop & Shop stores in my area are way too big. Kroger, though, might be able to fill the space in a way that Stop & Shop or Albertsons can't.

[pseudo3d]

Remember, with the exception of Northern California, there's barely any new territory that Kroger will gain with Albertsons anyway. (You're kidding yourself if you think they want Austin or Baton Rouge).

Austin and Baton Rouge are Randalls in all but name. They are both former Kroger territories. I don't know the circumstances of their Austin departure, but I do know they left Baton Rouge simply over a labor dispute. I'm pretty sure they want back in, if nothing else to compete with Walmart, Rouses, and the host of independents there.

Given that Kroger is seemingly in love with its own brand name and their willingness to give C&S long-term usage of it in California and Colorado, I would think they would convert those stores over to Kroger, since they do have a base in Houston (and have the better/larger/busier stores than Randalls; though I imagine they'd keep Randalls just to keep business there as they ran out leases). However, converting to Kroger would mean unionizing, and in recent times they've had to deal with the Houston division unions (nothing too dramatic in the end) while their market share slips more and more compared to H-E-B.

I would think that if they wanted to truly go into Baton Rouge and the Gulf Coast, they'd simply buy out Rouses (if they're willing to sell). If they went ahead and bought Albertsons, then any other potential acquisitions...Stop & Shop, Schnucks, Rouses, etc. would be off the table for years.

[wnetmacman]

Remember, with the exception of Northern California, there's barely any new territory that Kroger will gain with Albertsons anyway. (You're kidding yourself if you think they want Austin or Baton Rouge).

Austin and Baton Rouge are Randalls in all but name. They are both former Kroger territories. I don't know the circumstances of their Austin departure, but I do know they left Baton Rouge simply over a labor dispute. I'm pretty sure they want back in, if nothing else to compete with Walmart, Rouses, and the host of independents there.

Given that Kroger is seemingly in love with its own brand name and their willingness to give C&S long-term usage of it in California and Colorado, I would think they would convert those stores over to Kroger, since they do have a base in Houston (and have the better/larger/busier stores than Randalls; though I imagine they'd keep Randalls just to keep business there as they ran out leases). However, converting to Kroger would mean unionizing, and in recent times they've had to deal with the Houston division unions (nothing too dramatic in the end) while their market share slips more and more compared to H-E-B.

I would think that if they wanted to truly go into Baton Rouge and the Gulf Coast, they'd simply buy out Rouses (if they're willing to sell). If they went ahead and bought Albertsons, then any other potential acquisitions...Stop & Shop, Schnucks, Rouses, etc. would be off the table for years.

I can pretty much guarantee that Rouses is not for sale. They are the vulture for failing stores in Louisiana, Mississippi and Southern Alabama. Almost every store outside LA save for one or two used to be Winn Dixie or Delchamps. The current generation Rouse family members managing the shop are doing quite well.

[marketreportblog]

Reuters says C&S is buying 166 more stores, along with the Haggen banner, and the Signature and O Organics brands:
https://www.reuters.com/markets/deals/k ... 024-04-22/

My gut reaction is that this isn’t going to satisfy the question the FTC is asking — essentially, is divestiture of any scale sufficient for a merger like this? — but that would give C&S close to 600 stores, several recognizable private label brands, and several key banners. But it’s also clear that C&S hasn’t committed and won’t commit to running these for the long haul.

[marshd1000]

The Reuters article doesn't mention that the Safeway banner will be licensed to C&S in Arizona and Colorado. The Kroger website mentioned that! But here in Washington, I think that IF the merger happens, Haggen and QFC kind of belong together. I wonder if the Haggen banner will stay in King, Pierce, Thurston or Snohomish counties? Or if both names will appear on ads? But it seems that in Stanwood, where both QFC and Haggen exist in close proximity, which one will be turned into Safeway or a Fred Meyer Marketplace? But going back into history, QFC's expansion into Snohomish County came because QFC bought the only Haggen stores that were there at the time! So it seem appropriate that they operate together!

https://ir.kroger.com/news/news-details ... fault.aspx

[pseudo3d]

Reuters says C&S is buying 166 more stores, along with the Haggen banner, and the Signature and O Organics brands:
https://www.reuters.com/markets/deals/k ... 024-04-22/

My gut reaction is that this isn’t going to satisfy the question the FTC is asking — essentially, is divestiture of any scale sufficient for a merger like this? — but that would give C&S close to 600 stores, several recognizable private label brands, and several key banners. But it’s also clear that C&S hasn’t committed and won’t commit to running these for the long haul.

I thought one of the main issues was that C&S wasn't a reliable buyer, and the divestiture doesn't seem to address any other states beyond some western states. Plus the Signature brands are produced in Albertsons' plants, which Kroger seems to be keeping.

[BillyGr]

Reuters says C&S is buying 166 more stores, along with the Haggen banner, and the Signature and O Organics brands:
https://www.reuters.com/markets/deals/k ... 024-04-22/

Actually, in an article I saw it said that C&S would have ACCESS to those two brands, not that they were buying them outright.

Seems that makes sense with what pseudo3d said about them being produced in plants that Kroger would keep, so they still make them but offer them to C&S to use as well for the stores they get, to keep a certain volume of the items perhaps?

[babs]

Did the purchase price.change? I don't see that anywhere.

[Retailuser]

Merger still should be denied

[ClownLoach]

Did the purchase price.change? I don't see that anywhere.

Not significantly. The sale of stores to C&S followed my math from a post elsewhere and went from $1.9B to $2.9B. The price paid by C&S is to be deducted from the purchase price. So this deal actually increases the cost per store acquired by Kroger even more should the deal come to pass. It is to be assumed that all of this new wave of stores are in better condition, higher sales volume, more profitable and more productive locations than the initial group. The initial group would be only severe overlaps (across the street from each other) and dumpy stores they would close if divests weren't required.

I also think it's interesting that they didn't agree to divest a single additional California store. It's still a count of 63 according to an article I just saw. So they are just playing around here as the store count isn't the issue, the buyer is the issue. Also makes me think my theory was somewhat accurate, that they're just listening to who screams loudest (Washington, Colorado, and Arizona currently) then adding more divests in their states. The entire argument by the government is that C&S is not a suitable buyer.

At this point I expected they would need to attempt to fight for the merger to meet any due diligence clauses and such in their contracts. There is likely a option that can be exercised later where they can end the deal without paying the required break up fee if the Government blocks the deal entirely or forces it out of the parameters set originally which cap the merger at 650 divests.

It's actually a worse deal for their investors now than it was before simply due to the increased cost per acquired store.

I don't think the government is going to back off, although this might quiet down Washington, Arizona and Colorado.