SpinCo

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storewanderer
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Re: SpinCo

Post by storewanderer »

I think the 3 stores in Astoria area will fly. 75-80% share in a county is not quite uncommon in these more remote locations anyway. Costco has grocery share there too. Safeway already has practically 100% marketshare in other places like Burns and Lakeview (tough to imagine Kroger wanting to bother with stores like Lakeview.. Lovelock, NV another store I have a tough time thinking Kroger is going to want anything to do with...). There is a Thriftway in Hines but it does little volume.

Roth's may work on Newport given it has no pharmacy and hardly does any volume anyway. I don't think they'd be in business long there, but I suppose they can give it a try and the low volume may be okay for them. Florence is a problem as it has pharmacy and fuel, Roth's does not offer either service. They'll lose 30% of traffic there. Is Roth's union? Also keep in mind those coastal stores have a good amount of tourist traffic and tourists know Safeway but don't know Roth's. They are at a real disadvantage.

I'm sure Kroger will try to spin everything from a Grocery Outlet to a Dollar Tree as a grocery competitor. That won't be anything new though. That is part of Kroger's go to market strategy if you go back and look at the stuff David Dillon used to say about how Kroger became so much sharper of a competitor in the 00's; they didn't just look at other grocers as competitors, they looked at these alternate formats that sold food too, and they made adjustments to their pricing and mix to address these alternate formats and try to capture sales from those too. And if you look at center store in Kroger you will see, for instance, a key group of items priced everyday 4 for $5 that are the small group of food items sold with most frequency at Dollar Tree (all were previously 10 for $10 everyday).

I can tell you Grocery Outlet does make a difference. Out in Quincy, CA there are currently 3 stores: Safeway (old), Grocery Outlet (new) and Sav-Mor (old). There really wasn't enough business for 2 stores there, then Grocery Outlet built for some reason. Still Safeway was always busier there in the past than Sav-Mor; better location, etc. At this point there with the current environment and pricing, Safeway has largely lost the center store business entirely and what business it has is heavily skewed toward perimeter but the store only has a deli. Grocery Outlet and Sav-Mor are both running some traffic on packaged goods. Grocery Outlet has changed owners multiple times and I suspect is not profitable there. I believe Sav-Mor is quite profitable as they rehabilitated their building recently (went from 70's style drop ceiling to open ceiling), added in many more SKUs, and added self checkout.
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Re: SpinCo

Post by VibeGuy »

There’s a real difference between being the only game in town due to town size or organic growth (being the best game in town and winning over time) and being the only game in town for several towns running through acquisition. The trading area analysis just isn’t going to support creating a Wall of Krogersons across exurban and rural trading areas. Regulators may not love a duopoly but it’s better than a manufactured monopoly.

That’s why I come back to the “tiled census tract” as a unit of analysis. The FTC’s own antitrust chief has said they’re going to consider things like commute and transportation patterns and that strongly indicates that mere physical separation won’t be presumed to render two locations non-competitive.
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Re: SpinCo

Post by storewanderer »

VibeGuy wrote: November 3rd, 2022, 11:17 am There’s a real difference between being the only game in town due to town size or organic growth (being the best game in town and winning over time) and being the only game in town for several towns running through acquisition. The trading area analysis just isn’t going to support creating a Wall of Krogersons across exurban and rural trading areas. Regulators may not love a duopoly but it’s better than a manufactured monopoly.

That’s why I come back to the “tiled census tract” as a unit of analysis. The FTC’s own antitrust chief has said they’re going to consider things like commute and transportation patterns and that strongly indicates that mere physical separation won’t be presumed to render two locations non-competitive.
I am not entirely sure if the FTC Chief's considerations are going to be used to justify more divests or justify fewer divests when they come out with the press release announcing the merger can go through and only 100 stores are getting divested... (pipe dream yes... pipe dream I HOPE...).

Other issue I see at this point is this: some of these stores subject to being divested, are marginal stores. They are breakeven or losing money and SpinCo will essentially get them for free. If this divest process starts to go ugly or screwy, we will likely see store closures announced to conveniently "remove problem stores that won't be worth anything" from the mix. This would also allow Kroger to continue to control the lease on such closed stores or conveniently transfer closed store real estate to some other group to deal with.

Maybe the union should use its pension fund money to take the divested stores over, demand a 10 year at cost supply agreement from Kroger, and show everyone how to run a store... I suppose they could call themselves employee owned.

If we go with these census tracts which is an idea I find somewhat intriguing (keeping in mind the old "one store per zip code" thing in the old Albertsons/Lucky merger of 1999), I am looking at my area in Nevada.
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Re: SpinCo

Post by VibeGuy »

Yeah, I think there is going to be real crap in SpinCo and possibly also in onesie-twosie Kroger-side divestitures.

All parties know there’s crap in there, and conventional due diligence wouldn’t include things like sat survey results or out of stock frequencies from e-commerce so while the numbers off the p&l show many things, they aren’t as full of a picture of store success and vector as is available to the current operator. Caveat emptor.
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Re: SpinCo

Post by storewanderer »

VibeGuy wrote: November 3rd, 2022, 11:20 pm Yeah, I think there is going to be real crap in SpinCo and possibly also in onesie-twosie Kroger-side divestitures.

All parties know there’s crap in there, and conventional due diligence wouldn’t include things like sat survey results or out of stock frequencies from e-commerce so while the numbers off the p&l show many things, they aren’t as full of a picture of store success and vector as is available to the current operator. Caveat emptor.
Safeway doesn't even do satisfaction surveys anymore. They do a question via the pinpad to rate them 0-10 and check the reasons for your rating (good value, clean store, easy to shop, friendly associates, in stock). I give them a 1 every time and check the "good value" option. A good number of Safeway's units still don't even have an e-commerce operation in the store. In my area, only about half of the stores have it. Slowest roll out I've ever seen. Raleys has only done it at 2 of the 6 former Scolaris units though so these chains seem to just not be eager in some cases.

E-Commerce is an issue for divesting stores now though... a new operator shouldn't want to walk that business. But who is going to be able to replicate the Kroger Pick Up or the Albertsons Drive Up and Go system? Maybe someone could sign up with Instacart but... just not sure how that would work. And for customers who always ordered from a divested store, they would have to start over with a new provider and build their order from scratch (vs using a reorder option). Also during the merchandising flux the customer is going to be confused; always orders Signature Select Canned Corn and Lucerne Milk, what is the store brand now at this new divest owner? What a mess. I would actually propose selling the E-Commerce side of the divested stores to whatever nearby store Kroger keeps and getting some compensation for it (similar to how pharmacies are sold), then just have the new operator start over on E-Commerce once they get the store fully converted.

I believe Haggen got about 20% "poorly performing" stores in its mix. I would expect to see similar with SpinCo, though I would argue at this point there are fewer "poorly performing" stores than there were then.
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Re: SpinCo

Post by VibeGuy »

There’s also mystery shop data, complaint letters, union grievance activity. . .

Instacart has a shop-and-collect offering available to grocers - this isn’t the original ISS offer with w2 Instacart employees doing the pick, but rather one with 1099 contractors - they just “deliver” to the coolers and racks in the front of the store. For small volume operators it solves for both the tech and the variable labor. Metropolitan Market uses it under a white label for both delivery and click-and-collect. It’s also available for use by store employees, but I don’t know who is using it that way. It’s a VERY fast way to deploy with very low CapEx.

The other thing IC has is the out of stock data, and it is VERY granular - does this store run out of romaine lettuce at 4pm? Are rotisserie chickens ready at 11am? I don’t know how successful they’ve been marketing this data to the merchants. I do know there have been several CPG companies that use it to monitor both merchandiser and overall location performance. Again, not generally available as part of a due diligence review.
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Re: SpinCo

Post by VibeGuy »

You make an interesting point that I haven’t considered, though.

Safeway’s (and Albertsons in their overlap markets, at least) e-commerce model is very, very different than Kroger’s - aside from the Ocado partnership markets. In the “bulk divest” markets like the PNW and SoCal and maybe Phoenix, I see the operations going to the new buyer. In the “asset sale” markets where a legacy DC isn’t involved, I don’t see the buyer getting the delivery business.

What I haven’t considered is if Albertsons hands over their delivery customer data to Kroger in the block-divested markets. It’s clearly valuable to both parties and there’s no legal reason they can’t. (privacy policies generally allow for transfer to new owners). This could very much reduce the sting to Kroger of not being allowed to pick up the retail locations.
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Re: SpinCo

Post by retailfanmitchell019 »

storewanderer wrote: October 28th, 2022, 12:47 am Your idea of spinning QFC and Fred Meyer off to Loblaw is actually quite a good fit. I hate to say it, but that may be the easiest way to satisfy things when it comes to divesting, and the proceeds from selling the assets would be significant and could help debt somehow for them. The biggest problem I see with that is Fred Meyer does SO well, letting go of that would be very difficult. Plus, Fred Meyer does non food procurement for all of Kroger. Those aisles in Kroger with non food, that "little bit better" than other grocers hardware/automotive supply/office supply/candle/seasonal area you see in any Kroger banner anywhere in the US is fully controlled and merchandised by Fred Meyer.
I'd think Loblaws should also acquire ACI's SoCal operations, and perhaps the entire Albertsons banner. Perhaps Loblaws can bring their Real Canadian Superstore format down here (brand it Real American Superstore, or Real Superstore, as it was in Louisiana).
Lucky (and possibly Lucky-turned-Albertsons stores for a short time after) carried the President's Choice banner in SoCal years ago, and it would mean the return of PC to the states. Fred Meyer also carried President's Choice at one time. So did Smitty's in AZ.
Loblaws has experience operating T&T Supermarkets (an Asian supermarket) in Canada. T&T was related to 99 Ranch at one point. That being said, Loblaws should acquire 99 Ranch as a complement to the potential US stores. Loblaws could maybe acquire one of the Hispanic operators in SoCal (perhaps Apollo could spin off Cardenas to Loblaws someday).
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Re: SpinCo

Post by jamcool »

Loblaw pulled out of the US because Of too much competition, why would they enter it again?
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Re: SpinCo

Post by pseudo3d »

jamcool wrote: November 4th, 2022, 6:17 pm Loblaw pulled out of the US because Of too much competition, why would they enter it again?
The two National divisions left when Loblaws sold out in the 1990s included St. Louis and New Orleans. By the time that happened, Schnucks was ruling the roost at St. Louis, with Kroger having pulled out in 1986. National actually bought about 26 stores in that exchange. The New Orleans division was facing competition with Schwegmann, Winn-Dixie, A&P, and Delchamps. That division actually had Superstores (branded as "Real Superstore"), though in the U.S. case it appeared that most of the non-food sections were operated by local third parties, and really weren't that large compared to the early 1990s hypermarkets, from bigg's to Wal-Mart Supercenter.
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