storewanderer wrote: ↑July 25th, 2023, 9:24 pm
ClownLoach wrote: ↑July 23rd, 2023, 3:21 pm
No, they didn't promise anything goes into Spinco except retail stores. They've explicitly promised to keep every warehouse, manufacturing plant, distribution center, office and so forth from both companies gets kept, stays open, and becomes part of the new Kroger. That was an attempt to appease the more powerful Teamsters union that controls most of the DC and trucking aspect by promising full employment and the stability of working for a larger company with less long term risk than ACI. As we heard a few weeks ago the promise was not enough and they've announced formal opposition to the merger.
Spinco was really a solution to a problem that didn't exist; the entire idea being a new organization that would have to take ownership of stores nobody wanted to buy but then would have to create an entire support network out of thin air which is damned near impossible. Obviously someone would buy them before a merger would take place, they just would pay a lot less than what Kroger would like to see. But in the unlikely scenario of no buyers and the necessary creation of Spinco the wheels of closure will be turning faster than they did for Haggen.
Getting stores only means the need for expensive supply chain and IT and so forth that Kroger won't include in a spinoff. Maybe the intention was they could provide paid short term contracts for IT, distribution etc. but that really would just guarantee the Spinco stores would carry costs others don't making them the highest priced stores in town and a guaranteed failure. They could say they're offering such services "at cost" but that would be dubious at best. I'm not going to rehash the logical fallacy that Spinco would then be acquired because it's an illogical concept for a buyer to refuse to buy the stores directly, only to turn around and buy them for a much higher price because Spinco will need to take on hundreds of millions, if not billions in debt on day one of existence to even be able to keep the shelves full their first week open. In theory a buyer could get a store for a dollar if the FTC ordered the sale, but once it becomes part of a Spinco with new debt attached the same store couldn't sell for less than several million.
Now that Teamsters has opposed the merger (probably because they don't trust the representations about keeping every warehouse/plant), doesn't that also mean the promise to keep every warehouse/plant open is essentially void?
They could close this merger immediately if they put literally any overlapping asset into SpinCo... We will see what happens. I do know that both parties are continuing to work to get this merger pushed through before the end of the year.
Another approach/thought: could they merge the non-overlapping portions of the company and do fire sales of the very limited number of the ~30-40 overlapping stores total in those divisions (NorCal, Jewel, Acme, Shaws), then start to slowly digest the pieces of non-overlapping stores in regions like OR/WA over to Kroger control/Kroger warehouses while keeping the OR/WA Albertsons warehouses under Albertsons to supply the not yet merged overlapping stores? Then ultimately what does not get merged in ends up as SpinCo... This seems like a messy arrangement but if they are really so dead set on pushing this merger through...
SpinCo has zero chance of success without a distribution network within its markets to support its stores. And no, a distribution center in Sacramento to supply stores in Las Vegas and New Mexico (Raleys in 1999) does not count as "within its markets."
The issue is that if they put anything at all that anyone could find objectionable (due to perceived overlap) into Spinco they lose too many stores for a merger to be worth the time.
A slightly interesting twist I'm trying to research: apparently there is a new interview (searching for a link) in which the execs state again they have no interest in closing any stores whatsoever as part of the merger. But an interesting comment was made in regards to pensions that gives some interesting context as to the merger plans. Apparently they talked about pension funding will be handled by "the company the store is a part of."
That makes it sound like they might intend to follow the SoCal model we saw with Albertsons and Vons being loosely run as two different chains (three if you count Pavilions). They might intend to treat Albertsons like it's a subsidiary, with the cost savings only coming from new economy of scale on the back end plus optimization of logistics?
I know it's hard to trust anything these guys say, but how many Kroger stores could absorb all the sales of, say, the Safeway down the street if it closed? Maybe they really mean it when they say zero store closures as a result of the merger?
Kroger "optimized" their store fleets to death in the 2000's and 2010's. I talked about how they basically set themselves up for failure in Long Beach by culling so many stores that now the few remaining stores literally cannot absorb one more customer because they're at capacity in every way from shelf space to parking spaces. That city is seeing arguably the most growth it has in decades as they are building massive new apartment clusters and towers with a set goal of just under 25,000 new units. Kroger isn't going to sell one dollar of food to any of these new residents because they culled the store count so much that there are lots where one must circle for ten minutes to find a parking space. And the biggest winners in town have been ACI (via their remaining Albertsons and Vons stores), Stater and basically every other competitor. This scenario has played itself out in their highest volume markets. So let's say they had a city with six Ralphs and three ACI stores. They keep every store unless one is across the street from the other as a true overlap (don't bring up zip codes because they're pointless and need to be completely replaced due to lack of population balance). This represents an actual sales growth opportunity if they keep them all and figure out how to somewhat balance the sales between them. But if they divest or consolidate (close) the majority of the ACI stores then there's nothing to win. If their store literally can't take on more volume and they close or divest the Albertsons five blocks away then all those sales go to literally everyone else now.
I'm not sure that every market for Kroger is like this, where they are limited in ability to absorb more sales, but the places where this is the most likely scenario are locations that have enough business to support both a KR store and a ACI store.
Maybe they're recognizing that the strategy of running fewer stores to maximize volume and productivity has actually been destructive to the organization and has hindered their growth? Maybe that's the real reason for "needing" this merger?
