Kroger to merge with Albertsons?

[veteran+]

Ralphs sends huge amounts of palletized displays and shippers to their stores regardless of the size of the store. Even their larger stores are extremely over merchandised, affecting navigation. I had first hand experience with this and it seems to have gotten worse.

If the way they run that very small format (I am guessing less than 14000 sq ft) Ralphs Fresh Fare on Beverly and Doheny is any indication...........................I think they will bomb with those small stores.

[storewanderer]

Ralphs sends huge amounts of palletized displays and shippers to their stores regardless of the size of the store. Even their larger stores are extremely over merchandised, affecting navigation. I had first hand experience with this and it seems to have gotten worse.

If the way they run that very small format (I am guessing less than 14000 sq ft) Ralphs Fresh Fare on Beverly and Doheny is any indication...........................I think they will bomb with those small stores.

At Smiths, the palletized displays are generally on a schedule and removed after a time period of a few weeks. At smaller stores (50k square feet is a smaller store at Smiths), they take whatever is left after taking the pallets down and just put it on managers special markdown tags. The key with these displays to be effective is they only should be left up during the sale period and if they get picked over, they need to be removed even if that's a few days after putting them out. They can be replaced with a dump bin also which cleans up the physical boxes, plastic wrap, and pallets mess but looks like what it is a dump bin.

That overmerchandising at Ralphs you talk of comes from Smiths. That period really messed up Ralphs store appearance but it was also the period where Ralphs pricing seemed to get better and their center store business looked to really pick up... Pallets, dump bins, carts of items... They had a Smiths person running center store for Ralphs for a number of years. Now that person, after returning to Smiths as division president, is in a Kroger position. Suspect if some of those strategies had a chance to be used in NorCal, there would still be a NorCal Ralphs.

I will be interested to see how NorCal Safeway people handle these palletized items. NorCal Safeway has some of its strongest and most tenured people running center store operations at the division and district levels (they're not in charge of buying or pricing... except the price cut program used in certain stores...).

[marketreportblog]

An extensive writeup of today’s hearing (one of several good articles out there): https://boisedev.com/news/2022/11/29/al ... er-senate/

It’s been said that regulators, not lawmakers, will approve or deny this merger ultimately, but this is not great publicity for the merger. Might be ultimately inconsequential, though.

[HCal]

Yes, the FTC and state agencies are the only ones who ultimately have the authority to block the merger. These hearings in congress are more for show. They get press coverage, and voters feel satsified that their representatives are doing something. In the end, it will be top people in the Biden administration that decide.

I wonder if any states will try to block it on their own or force additional concessions. Perhaps one of the Pacific coast states or Alaska?

[pseudo3d]

Archive link. What a mess.

My thoughts:

Klobuchar said she talked to Sankran and McMullen about the example before the hearing, and they said they have a different concept for store divestment than the one used for Safeway. The chains hope to create a new SpinCo, which would be owned by Albertsons’ shareholders and contain perhaps a few hundred stores.

How is that any different than shoving them off to Haggen? They'd better come up with a plan for SpinCo beyond "this is composed of the garbage stores that we were forced to get rid of". Sacrificing a brand name--QFC and/or Vons to go with it would help sell it.

McMullen said the merger will not result in the closure of any stores in the combined company if the acquisition goes forward. He also said they will not “lay off any frontline associates through the merger,” though the phrasing leaves open the possibility of back-office and corporate office layoffs. A significant number of Albertsons’ non-frontline employees work in Boise.

The whole of the back support of Albertsons is at the risk, not just in Boise but in the food factories they own as well, as well as other facilities in California and Arizona. And no way will they not close stores...Albertsons didn't keep most of the "side by side" stores that kept operating, even if it took a while.

“From an administrative support standpoint, we’ll look at – when we’ve looked at (past acquisitions of) Harris Teeter or Roundy’s, we haven’t laid off anyone because what we’ve found is the merged companies do things better than we do, and one of the key things is to find the best of both,” McMullen said.

Apples to oranges. The Roundy's and Harris Teeter acquisitions were largely in markets where Kroger didn't have a lot of stores. For Roundy's, they only had some Food 4 Less stores around Chicago, and Harris Teeter had a handful of markets that they've since consolidated.

However, Kroger’s own statement stands in contrast to Sankaran’s testimony. In a news release announcing the deal, Kroger expressly said the dividend was part of the transaction: “As part of the transaction, Albertsons Cos. will pay a special cash dividend of up to $4 billion to its shareholders.”

Haha. Oops.

“Kroger and Albertsons claim this will benefit consumers. We are not convinced,” Sharma said. “The transaction will result in less competition which will be bad for consumers. It will merge the first and second largest supermarkets in a sector that is already highly concentrated.”

See, this is why Albertsons' base of the West Coast and Kroger's expansion of the West Coast through acquisitions in the 1980s and 1990s would lead to a disaster like this. If you combined Albertsons with Ahold Delhaize or SEG, or Kroger with Ahold Delhaize or SEG, there would be no or very little issues (the Albertsons-Ahold Delhaize would lead with some issues regarding the existing Albertsons divisions, but wouldn't be a major problem). If Kroger was in the midst of problems that saw them retreating from the West Coast, say, already eliminated QFC as a functional brand (now basically a grocery-only Fred Meyer), the King Soopers strike was a complete disaster that saw an unprecedented market pull-out, and rumors circulating that they were about to pull the plug on Ralphs, then a Kroger-Albertsons merger makes more sense.

[storewanderer]

Sigh. I just read the article or transcript or whatever it is. Sigh. I am not any more sold on this merger than before.

I think this merger needs to just not go through...

Also see they throw a 300 store target around for SpinCo. Be realistic and throw 650 stores to SpinCo. It will help get debt down anyway to throw more stores onto it. Also no store closures- really? For how long?

[buckguy]

Hearings can serve a lot of different functions including self-promotion or informing future legislative proposals. What's probably most useful here is that the hearings bring light to documents likely to be considered by state officials or federal legislators and indications of who may submit evidence to regulators or attorneys general via amicus "friend of the court" briefs. There seem to be a range of stakeholders here such as Consumers Union as an advocate for consumers, Needler--an ambitious existing Kroger competitor (mostly operating in small markets) who is concerned about supply chain/purchasing consequences of the merger and probably their ambitions in existing or future territories. Kroger seems to have handicapped favorable review of the merger because of basically talking out of both sides of its mouth and its implied silences about functions where employment might be cut. That the Senate is interested in any of these suggests that this won't be treated as a routine regulatory matter.

[veteran+]

I never have trust in what any of these corporations say.

I focus on what they actually do which is often in direct contradiction of what they said.

Not one statement they make should be believed.

[arizonaguy]

Sigh. I just read the article or transcript or whatever it is. Sigh. I am not any more sold on this merger than before.

I think this merger needs to just not go through...

Also see they throw a 300 store target around for SpinCo. Be realistic and throw 650 stores to SpinCo. It will help get debt down anyway to throw more stores onto it. Also no store closures- really? For how long?

I agree.
'
Looking at Phoenix / Tucson I see at least 50 - 70 overlapping Albertsons / Safeway stores. I did a full count for the Albertsons banner and saw the potential of 10 - 12 stores surviving the merger (out of 30). Safeway had too many stores for me to count.

The number of stores to divest does mean that someone could inherit a viable operation if it bought the divested operation.

If they don't divest that many stores I can easily see 40 - 50 or so closures within the next 5 years.

[pseudo3d]

I never have trust in what any of these corporations say.

I focus on what they actually do which is often in direct contradiction of what they said.

Not one statement they make should be believed.

I can't tell which is more infuriating, how Albertsons "needs" to merge with Kroger for financial reasons but then says that the finances are good when pressed, or how Kroger is 100% complicit with Cerberus' plans to exit their investment and destroy the company in the process.

Between McMullen's "a little inflation is good for business" comment when consumers are facing runaway numbers not seen in decades and his hefty paycheck a few years ago, he's certainly not a friend of the people; he seems more unlikeable than Sankaran. At least Sankaran is a stooge for Cerberus, McMullen isn't. And while I'm not very sympathetic to modern unions, Kroger willing to drop $25B on Albertsons for what isn't much new territory and a lot of dead weight exposes the "this is our last, best, and final offer" negotiations as dishonest fearmongering.

They need to give it up. If Kroger wants territory that badly, they'd be better off asking Lone Star Funds to take Winn-Dixie off their hands for a discount, or going after Ahold Delhaize's U.S. holdings. If Albertsons wants to sell that badly, they need to offload stock to other investors, not trying to waste time and money trying to force a marriage with Kroger.