Kroger to merge with Albertsons?

[storewanderer]

I felt that when Albertsons wanted to buy Safeway they were pretty upfront about they wanted and how they could use this to their advantage and how the new divisions would be laid out.

In comparison, Kroger and Albertsons seem rather vague on what they want to do and how they intend to do it. They could start sorting out how the divisions worked...maybe combine the Mississippi Kroger stores with the Louisiana Albertsons (in fact, I believe some of those Kroger stores actually started out as Albertsons stores in the Houston division), make a "Gulf Coast" division...maybe that SpinCo could have whole chains, like having QFC or Randalls. Sure, Kroger might peel off a few of the best stores from the divisions, but it would help sell the concept, that SpinCo is a real company with real brands that has hope for the future, not some trash barge with brands on borrowed time that will be sold off or closed the minute the deal closes.

Of course, I can imagine that Kroger is very reluctant to sell off any of its brands, even if it gains much more in the process. If Ralphs got booted to SpinCo, for instance, even if the "best" stores were converted to Vons (which Kroger would own), that name could be used as well with converted Safeway/Albertsons/Fry's stores that get divested. However, Kroger is obviously not going into this process willing to throw a few of its own brands out to get...well, basically NorCal, Jewel-Osco, and the Northeast. It brings to mind how American Stores was forced to sell Alpha Beta (which, of course, eventually got rebranded to Ralphs) in order to buy Lucky...but that whole process came at a horrific cost, and if American Stores knew what they would sacrifice just to have Lucky, they probably wouldn't have bothered.

If Albertsons (Cerberus) is looking to make some cash and Kroger is looking to expand, selling off Mid-Atlantic and Shaw's/Star Market would not be an issue at all.

I agree. This deal has not been presented very clearly as to what is going on, what they plan to do, etc. I don't know why they are not more up front with their plans (maybe they are still trying to figure out their plans?).

Meanwhile they have state attorney generals suing to stop the special dividend, politicians who have no business experience or knowledge of the grocery business claiming the merger will hurt consumers with zero merit to their comments, unions against the merger, and at this point the opposition forces are just getting stronger and stronger due to a lack of clear communication about this merger, its actual plans, etc.

Kroger should buy the parts it wants of Albertsons and integrate those parts into Kroger. Whole divisions. And let the other divisions be- as they are- not gutted of their best stores, not gutted of their associated manufacturing or distribution, etc. I suspect the "whole hog" approach is easier to get Cerberus paid and out in a timely manner- yet they did this SpinCo thing which Cerberus will continue to control.

So what is the difference between doing SpinCo and just keeping a block of stores under the Albertsons Companies Inc.?

[pseudo3d]

The whole Kroger merger is the worst possible choice for "I want to get out and get cash" because at the end of the day they'll still have leftover grocery stores and the major overlap with Kroger means a lot of costly time and money sorting everything out with unions and politicians.

Even if no other easier target company took the bait, they could've sold the Northeastern stores for
shareholder purposes, then spun it as a "non-core asset to focus on our other divisions", especially if it was paired with other changes. NorCal, Jewel-Osco, and the rest of the crew stay onboard, Cerberus gets its pound of flesh. Everybody's happy.

[HCal]

I agree. This deal has not been presented very clearly as to what is going on, what they plan to do, etc. I don't know why they are not more up front with their plans (maybe they are still trying to figure out their plans?).

Meanwhile they have state attorney generals suing to stop the special dividend, politicians who have no business experience or knowledge of the grocery business claiming the merger will hurt consumers with zero merit to their comments, unions against the merger, and at this point the opposition forces are just getting stronger and stronger due to a lack of clear communication about this merger, its actual plans, etc.

Kroger should buy the parts it wants of Albertsons and integrate those parts into Kroger. Whole divisions. And let the other divisions be- as they are- not gutted of their best stores, not gutted of their associated manufacturing or distribution, etc. I suspect the "whole hog" approach is easier to get Cerberus paid and out in a timely manner- yet they did this SpinCo thing which Cerberus will continue to control.

So what is the difference between doing SpinCo and just keeping a block of stores under the Albertsons Companies Inc.?

Maybe that is their plan all along. Once the opposition intensifies, they can say "never mind, we are calling off the merger, and we have a new plan to just buy a few divisions from Albertsons". That way Cerberus gets some money, ACI shareholders are left with some divisions just like they would have been with SpinCo, and Kroger looks like the good guys because they struck a compromise.

[pseudo3d]

I agree. This deal has not been presented very clearly as to what is going on, what they plan to do, etc. I don't know why they are not more up front with their plans (maybe they are still trying to figure out their plans?).

Meanwhile they have state attorney generals suing to stop the special dividend, politicians who have no business experience or knowledge of the grocery business claiming the merger will hurt consumers with zero merit to their comments, unions against the merger, and at this point the opposition forces are just getting stronger and stronger due to a lack of clear communication about this merger, its actual plans, etc.

Kroger should buy the parts it wants of Albertsons and integrate those parts into Kroger. Whole divisions. And let the other divisions be- as they are- not gutted of their best stores, not gutted of their associated manufacturing or distribution, etc. I suspect the "whole hog" approach is easier to get Cerberus paid and out in a timely manner- yet they did this SpinCo thing which Cerberus will continue to control.

So what is the difference between doing SpinCo and just keeping a block of stores under the Albertsons Companies Inc.?

Maybe that is their plan all along. Once the opposition intensifies, they can say "never mind, we are calling off the merger, and we have a new plan to just buy a few divisions from Albertsons". That way Cerberus gets some money, ACI shareholders are left with some divisions just like they would have been with SpinCo, and Kroger looks like the good guys because they struck a compromise.

"ACI left with some divisions" is not a healthy company. Selling the Northeastern divisions will not hurt ACI, especially if they renew their commitment to other markets. Letting Kroger pilfer NorCal and Jewel-Osco would. And either way, they can't just sell divisions without making some sort of substantial change. Lower prices, raise wages, and maybe a small (3 to 12 stores) acquisition in their existing market areas. Replacing Sankaran with someone like Jim Perkins would also be a help. Throwing weaker divisions a bone with something like "Five of our Denver Division stores will enter a pilot program with ACE Hardware..." wouldn't hurt either. All of this would restore stockholder and shopper confidence.

Shaw's, Star Market, the former Eastern Division, and ACME are really the only divisions that have both substantial worth and could be sold wholesale AND be able to say, "We want to focus on our core markets" with a straight face.

[arizonaguy]

I agree. This deal has not been presented very clearly as to what is going on, what they plan to do, etc. I don't know why they are not more up front with their plans (maybe they are still trying to figure out their plans?).

Meanwhile they have state attorney generals suing to stop the special dividend, politicians who have no business experience or knowledge of the grocery business claiming the merger will hurt consumers with zero merit to their comments, unions against the merger, and at this point the opposition forces are just getting stronger and stronger due to a lack of clear communication about this merger, its actual plans, etc.

Kroger should buy the parts it wants of Albertsons and integrate those parts into Kroger. Whole divisions. And let the other divisions be- as they are- not gutted of their best stores, not gutted of their associated manufacturing or distribution, etc. I suspect the "whole hog" approach is easier to get Cerberus paid and out in a timely manner- yet they did this SpinCo thing which Cerberus will continue to control.

So what is the difference between doing SpinCo and just keeping a block of stores under the Albertsons Companies Inc.?

Maybe that is their plan all along. Once the opposition intensifies, they can say "never mind, we are calling off the merger, and we have a new plan to just buy a few divisions from Albertsons". That way Cerberus gets some money, ACI shareholders are left with some divisions just like they would have been with SpinCo, and Kroger looks like the good guys because they struck a compromise.

"ACI left with some divisions" is not a healthy company. Selling the Northeastern divisions will not hurt ACI, especially if they renew their commitment to other markets. Letting Kroger pilfer NorCal and Jewel-Osco would. And either way, they can't just sell divisions without making some sort of substantial change. Lower prices, raise wages, and maybe a small (3 to 12 stores) acquisition in their existing market areas. Replacing Sankaran with someone like Jim Perkins would also be a help. Throwing weaker divisions a bone with something like "Five of our Denver Division stores will enter a pilot program with ACE Hardware..." wouldn't hurt either. All of this would restore stockholder and shopper confidence.

Shaw's, Star Market, the former Eastern Division, and ACME are really the only divisions that have both substantial worth and could be sold wholesale AND be able to say, "We want to focus on our core markets" with a straight face.

Honestly, they should sell those divisions to Kroger and the rest of the company to Ahold Delhaize. Minimal to no overlap and no issues getting anything approved by regulators.

[storewanderer]

Maybe that is their plan all along. Once the opposition intensifies, they can say "never mind, we are calling off the merger, and we have a new plan to just buy a few divisions from Albertsons". That way Cerberus gets some money, ACI shareholders are left with some divisions just like they would have been with SpinCo, and Kroger looks like the good guys because they struck a compromise.

"ACI left with some divisions" is not a healthy company. Selling the Northeastern divisions will not hurt ACI, especially if they renew their commitment to other markets. Letting Kroger pilfer NorCal and Jewel-Osco would. And either way, they can't just sell divisions without making some sort of substantial change. Lower prices, raise wages, and maybe a small (3 to 12 stores) acquisition in their existing market areas. Replacing Sankaran with someone like Jim Perkins would also be a help. Throwing weaker divisions a bone with something like "Five of our Denver Division stores will enter a pilot program with ACE Hardware..." wouldn't hurt either. All of this would restore stockholder and shopper confidence.

Shaw's, Star Market, the former Eastern Division, and ACME are really the only divisions that have both substantial worth and could be sold wholesale AND be able to say, "We want to focus on our core markets" with a straight face.

Honestly, they should sell those divisions to Kroger and the rest of the company to Ahold Delhaize. Minimal to no overlap and no issues getting anything approved by regulators.

NorCal can go to Kroger........ but is Kroger the right fit?

I think Ahold passed on a deal. Short of a few divests I don't see Ahold getting involved in this. They probably looked at Safeway's pricing and saw it was 2x what they charge back at Giant across center store and said they want nothing to do with this mess because getting prices to competitive levels out west is going to be painful.

[pseudo3d]

"ACI left with some divisions" is not a healthy company. Selling the Northeastern divisions will not hurt ACI, especially if they renew their commitment to other markets. Letting Kroger pilfer NorCal and Jewel-Osco would. And either way, they can't just sell divisions without making some sort of substantial change. Lower prices, raise wages, and maybe a small (3 to 12 stores) acquisition in their existing market areas. Replacing Sankaran with someone like Jim Perkins would also be a help. Throwing weaker divisions a bone with something like "Five of our Denver Division stores will enter a pilot program with ACE Hardware..." wouldn't hurt either. All of this would restore stockholder and shopper confidence.

Shaw's, Star Market, the former Eastern Division, and ACME are really the only divisions that have both substantial worth and could be sold wholesale AND be able to say, "We want to focus on our core markets" with a straight face.

Honestly, they should sell those divisions to Kroger and the rest of the company to Ahold Delhaize. Minimal to no overlap and no issues getting anything approved by regulators.

NorCal can go to Kroger........ but is Kroger the right fit?

I think Ahold passed on a deal. Short of a few divests I don't see Ahold getting involved in this. They probably looked at Safeway's pricing and saw it was 2x what they charge back at Giant across center store and said they want nothing to do with this mess because getting prices to competitive levels out west is going to be painful.

One of the interesting about the Albertsons South division is that there are a handful of sub-20k square feet Tom Thumb stores (and a few Randalls) that are located in urban areas. I'm not that familiar with NorCal, but I wouldn't be surprised if Safeway has some tiny storefronts that are kicking around but still decent business. Kroger, on the other hand, doesn't have much of a record handling tiny storefronts like that. I mean, I guess they could...when Albertsons took over American Stores, they inherited some tiny stores...but then again, the Albertsons/American Stores acquisition is hardly seen as a good idea in retrospect.

Ahold Delhaize and Albertsons would've been an odd fit. As far as Ahold Delhaize's stores go in the United States, Albertsons has slightly more stores than Ahold Delhaize's holdings as-is (less if you cut the 425 or so stores under the Northeastern division), but over half of what Ahold Delhaize has is Food Lion. From what I've been told, the Ahold stores don't cut meat in stores, it's all pre-pack (not sure on Food Lion/Hannaford).

It would be a huge problem as they try to integrate, either Albertsons would remain semi-independent as its own operational company (I believe that's how Ahold Delhaize does things? ...but I could be wrong), or worse, all those bad Safeway practices that course through Albertsons start to infect the Ahold chains as well.

Apart from that, Ahold Delhaize hasn't really acquired chains in years (yeah, they came close to King Kullen but that only has a little more than two dozen locations). The oldest current holdings on the Ahold side date back to the 1990s. In 2005, they sold off Bruno's/BI-LO (the holding company that they created to sell to Lone Star Funds became what we now know as SEG), and in 2006 dumped Tops. They did merge with Delhaize but it wasn't for the American side's benefit.

[mjhale]

Ahold Delhaize and Albertsons would've been an odd fit. As far as Ahold Delhaize's stores go in the United States, Albertsons has slightly more stores than Ahold Delhaize's holdings as-is (less if you cut the 425 or so stores under the Northeastern division), but over half of what Ahold Delhaize has is Food Lion. From what I've been told, the Ahold stores don't cut meat in stores, it's all pre-pack (not sure on Food Lion/Hannaford).

Ahold moved to pre-pack meat for Giant-MD several years ago. Everything is coming from a DC in southcentral PA that both Giant-MD and Giant-PA use. I haven't been in a Giant-PA store in a couple of years. I'd be curious to know if Ahold moved Giant-PA to pre-pack as well. I'm not sure how much of a disadvantage that is over Safeway. Even though Safeway still says they have butchers in store, how much do they can actually do? Poultry, Pork and Ham is pre-pack from the manufacturer so unless you might need some special beef cut you are buying what is on the shelf anyway. Safeway does seem to have a better seafood selection. However, at least at the store nearest me, there does not seem to be enough turnover and more frequently than it should there is a strong fish smell to what you buy like it is starting to go bad.

It would be a huge problem as they try to integrate, either Albertsons would remain semi-independent as its own operational company (I believe that's how Ahold Delhaize does things? ...but I could be wrong), or worse, all those bad Safeway practices that course through Albertsons start to infect the Ahold chains as well.

When Ahold first purchased Giant-MD it was integrated into Stop and Shop. Both are union chains so it made sense. Local corporate management was removed and the major store functions were moved to Stop and Shop in New England. This did not go over well with Giant-MD shoppers especially given the history and good will Giant-MD had prior to sale to Ahold. Over time Ahold has brought back local corporate management to Giant-MD. I think it has helped as Giant-MD seems more in tune with local needs and is less of a carbon copy of Stop and Shop within the confines of being one cog in the wheel of Ahold.

I still have to wonder what Ahold would want with any large group of Albertsons stores on the east coast. They have to deal with overlap in DC, Baltimore, Philly and the Boston area. Other than picking off certain stores for relocations or new stores to fill in gaps, it seems more trouble than it is worth. Further, would the FTC allow Ahold to run the Albertsons stores as a separate entity, maybe like Food Lion is now within Ahold? For instance, at the two Giants and Stop and Shop, the private label stuff says mostly distributed by Foodhold USA or Ahold Licensing. But at Food Lion, the private label stuff says DZA Brands. Is there different distribution going on or is it just different packaging for the different stores? Food Lion does overlap some with Giant-MD more so in the Baltimore area than in DC. I'm guessing the FTC didn't see substantial saturation of Ahold stores in those area. Overlap with Safeway, even as an separate entity would be more substantial.

[pseudo3d]

Ahold Delhaize and Albertsons would've been an odd fit. As far as Ahold Delhaize's stores go in the United States, Albertsons has slightly more stores than Ahold Delhaize's holdings as-is (less if you cut the 425 or so stores under the Northeastern division), but over half of what Ahold Delhaize has is Food Lion. From what I've been told, the Ahold stores don't cut meat in stores, it's all pre-pack (not sure on Food Lion/Hannaford).

Ahold moved to pre-pack meat for Giant-MD several years ago. Everything is coming from a DC in southcentral PA that both Giant-MD and Giant-PA use. I haven't been in a Giant-PA store in a couple of years. I'd be curious to know if Ahold moved Giant-PA to pre-pack as well. I'm not sure how much of a disadvantage that is over Safeway. Even though Safeway still says they have butchers in store, how much do they can actually do? Poultry, Pork and Ham is pre-pack from the manufacturer so unless you might need some special beef cut you are buying what is on the shelf anyway. Safeway does seem to have a better seafood selection. However, at least at the store nearest me, there does not seem to be enough turnover and more frequently than it should there is a strong fish smell to what you buy like it is starting to go bad.

It would be a huge problem as they try to integrate, either Albertsons would remain semi-independent as its own operational company (I believe that's how Ahold Delhaize does things? ...but I could be wrong), or worse, all those bad Safeway practices that course through Albertsons start to infect the Ahold chains as well.

When Ahold first purchased Giant-MD it was integrated into Stop and Shop. Both are union chains so it made sense. Local corporate management was removed and the major store functions were moved to Stop and Shop in New England. This did not go over well with Giant-MD shoppers especially given the history and good will Giant-MD had prior to sale to Ahold. Over time Ahold has brought back local corporate management to Giant-MD. I think it has helped as Giant-MD seems more in tune with local needs and is less of a carbon copy of Stop and Shop within the confines of being one cog in the wheel of Ahold.

I still have to wonder what Ahold would want with any large group of Albertsons stores on the east coast. They have to deal with overlap in DC, Baltimore, Philly and the Boston area. Other than picking off certain stores for relocations or new stores to fill in gaps, it seems more trouble than it is worth. Further, would the FTC allow Ahold to run the Albertsons stores as a separate entity, maybe like Food Lion is now within Ahold? For instance, at the two Giants and Stop and Shop, the private label stuff says mostly distributed by Foodhold USA or Ahold Licensing. But at Food Lion, the private label stuff says DZA Brands. Is there different distribution going on or is it just different packaging for the different stores? Food Lion does overlap some with Giant-MD more so in the Baltimore area than in DC. I'm guessing the FTC didn't see substantial saturation of Ahold stores in those area. Overlap with Safeway, even as an separate entity would be more substantial.

There was some overlap of Safeway and Albertsons in the Delaware area and of course Denver but I guess in those situations they just weren't a threat to consumers.

One thing that Ahold Delhaize is already dealing with is the Food Lion chain, which still numbers around 1000 and takes up a huge percentage of Ahold Delhaize's total stores. I don't think I've ever seen one in person, but their takeover of some 60 BI-LO stores looks like they're at least trying to modernize the chain (though they still average 44k square feet). The new-build Food Lion of the 1990s were ~33k square feet stores that were never really loved even from the start (they pulled out of Texas in 1997). Still, the real moneymakers seem to be Giant and Stop & Shop.

[storewanderer]

One of the interesting about the Albertsons South division is that there are a handful of sub-20k square feet Tom Thumb stores (and a few Randalls) that are located in urban areas. I'm not that familiar with NorCal, but I wouldn't be surprised if Safeway has some tiny storefronts that are kicking around but still decent business. Kroger, on the other hand, doesn't have much of a record handling tiny storefronts like that. I mean, I guess they could...when Albertsons took over American Stores, they inherited some tiny stores...but then again, the Albertsons/American Stores acquisition is hardly seen as a good idea in retrospect.

NorCal Safeway has just a few sub 20k square feet stores mostly in San Francisco city limits and the Andronicos units (also the Lovelock unit), but does have a larger number of sub 35k square feet stores and many sub 42k square foot stores (probably 1/2 of the division is sub 42k square feet). Kroger will have to learn how to handle those stores as they are the most profitable stores in NorCal as they are small size and do HIGH sales volumes with super high prices and tight labor controls.

And you are right, it is going to be a problem. Safeway NorCal since the 90's does 7 day delivery where these small stores get a (small) truck daily. The closing head clerk is to scan outs to generate the order for the store the next day or sometimes night crew will do that but it has to be done by a certain time each night depending on the location. When labor is tight and this task gets missed you get a poorly stocked store the next day (happens more often than it should). This is because they have small backrooms and do such high volume they need daily replenishment. Kroger from the best I can tell tries to send loads to stores a few times a week and send full trucks. That isn't going to work with these smaller stores. Kroger also likes to send palletized displays that the stores unload and throw on the floor to display; again that isn't going to fly in these small stores, they do not have space for those displays.

Albertsons did lousy with tiny storefronts; that was one of the bombs they made with the Lucky purchase. Albertsons did not understand small stores (Lucky did). Lucky had many sub 30k square foot stores. Albertsons spent the 90's expanding and replacing almost all of their sub 30k square foot stores.