Stater Bros. Closing Escondido, CA on 1/8

[ClownLoach]

Stater Bros. might not be gone from Escondido for long... I expect them to buy either the Ralphs or Vons on Escondido's east side assuming the Kroger/Albertsons merger goes through. I think the nearby Albertsons will go into SpinCo along with all of the Albertsons brand stores.

There are two Ralphs left in the entire Temecula valley, two Vons one of which is literally across the street from an Albertsons, and 8 Albertsons. Do you see them spinning off 8 stores and keeping only 4? By the way the two Vons branded stores are the worst in that group? Do you see them exiting South Orange County (only one Vons left, dozen plus high performing Albertsons)? I don't see any way they could let all Albertsons branded stores go to SpinCo and exit two of their best markets almost entirely (South OC and Temecula valley). No way they can complete the transaction by spinning a nameplate intact. In both of those markets every Vons needs to go to SpinCo as they're the worst condition and worst performing stores they've got. If they were to spin the Albertsons brand then they would have to rebanner every store in OC and probably Riverside county entirely in the process. The problem there is we know that rebannering stores in SoCal is disasrerous for sales (see Lucky/Alb merger, Haggen debacle, etc.). So a rebannered store may be exponentially more difficult to establish a value for, which basically means that they would not be able to get any cash for any rebannered store in an auction due to the fact that sales history is now irrelevant. So if anything sold it would likely be a crapshoot on a lower price lease, near end of term, and probably a $1 winning bid. Stater did get stores like that in the Lucky merger but didn't bite on any in the Haggen bankruptcy. I don't remember if they bought more than a handful in the Albertsons Safeway merger either?

And Stater is a smart operator. Why should they spend one penny to help subsidize this merger? They know they are already taking share from Ralphs and Albertsons/Vons every day in their core market of the Inland Empire but are less successful elsewhere. They don't need more stores anywhere to increase their overhead and dilute their profits. They clearly have not been able to make a dent in San Diego as the few stores they operate there are noticeably slower than anywhere else they operate in. Look at the Oceanside store off the 78 and Jefferson which I think still has old Lucky decor after two decades. They're barely limping along in SD and can't figure out the market. I doubt they're doing well in the more remote areas they've tried out to the North like Pasadena.

SD is a completely different animal and requires a different assortment, different pricing, and ultimately isn't worth their investment as historically it hasn't paid off. SD County is one of the few places where you can still find incredible quality fresh local produce at local produce stands within ten minutes of your home. Ethnic stores and big boxes have massive share. Costco rules the market and literally can't build warehouses fast enough. Local chains like Frazier Farms take big share of produce and meat. When you factor in the many options SD County is probably already oversaturated with conventional stores. All SD stores up for bid will go to locals like Frazier, ethnic like Northgate or Hmart, or real estate developers to be razed for residential. I don't think Stater will take any SD stores unless they are $1+ongoing concern winning bids where they have short lease term left so they minimize risk. Maybe they will take a handful of South OC, but there are far less Ralphs and Albertsons overlaps than you might think there.

[storewanderer]

Stater on Mission in Oceanside is a former Super Saver (was a Lucky before that) and when Stater took over they had to basically re-finish the store into a conventional. Until very recently that store had what was Stater's late 90's store interior which could have passed for a mid 80's interior. This store looked maintained but outdated. Now that store is in the process of a total and complete gut, expansion, and renovation.

As you point out Stater on Vista Way in Oceanside still has the Lucky interior but that was a brand new Lucky/Sav-On in the late 90's. This store has way too much space for Stater and it has never done particularly well. It didn't do very well for Lucky either, that is why it was divested in the first place. I am kind of surprised it is still open. It looks pretty good save for the somewhat dated Lucky interior but considering its age it is a good looking store (since it has such low traffic).

Also Stater on N. Santa Fe in Vista is a former early 90's Albertsons and also does not seem to have much traffic. This store while it received a wall remodel by Stater, the refrigeration, flooring, perimeter, is all straight out of Albertsons and this store is quite run down. Again I don't think this is the best located store.

Then there is the Stater in San Marcos. An old store, also still has the Lucky interior. But curiously Stater replaced the floor in this store. The floor replacement was pointless and doesn't look very good. When you compare Carlsbad to this... really sad here. I don't think this place even has a bakery or deli (meat counter may roast some chicken and sell a few slabs of lunchmeat). No clue how this place stays open.

Also the Stater in Carlsbad is a former mid 90's Albertsons and has been fully remodeled. When I have been to this store it has been very busy and looks healthy.

The lone San Diego Stater in the far northern edge of San Diego is a run down small former Lucky that seems busy. It was also given a very thorough remodel around 2017-ish. They made a very radical improvement to this store in the remodel.

So I agree with your general assessment looking at the above Stater Stores- basically let's say 3 of them hum along like a typical busy well run and maintained Stater (Mission-Oceanside after it is done beign remodeled, Carlsbad, and Carmel Mountain Road in San Diego). The rest... not so much. But I would also argue whoever selected the stores to divest in this batch was able to find some real stinkers to divest off to Stater. That new Lucky/Sav-On may have looked nice on paper since it was new but its performance was terrible, it was a dog. Albertsons was also quite aggressive on building new stores of its own around San Diego to counter some of these divests.

So the question with what Stater has in north San Diego suburbs is- is the problem Stater, or is the problem the stores they got? The fact that they did not try to get anything out of Haggen in these areas, or build any stores of their own, speaks volumes. However as we sit here today they are doing that major remodel and expansion on that Oceanside store... so I don't think they are letting this block of stores run on fumes until leases end. It does appear they are trying.

They did not take any divests in the Albertsons/Safeway merger. They took one store directly in the Haggen bankruptcy hearings and some others later on. I don't know the exact order but Pasadena and Simi Valley are both former Haggen units and I have heard they are doing very well for Stater. There is a former Pavilions Stater got as well, have not heard how that is doing, but my guess is not great.

[ClownLoach]

Stater on Mission in Oceanside is a former Super Saver (was a Lucky before that) and when Stater took over they had to basically re-finish the store into a conventional. Until very recently that store had what was Stater's late 90's store interior which could have passed for a mid 80's interior. This store looked maintained but outdated. Now that store is in the process of a total and complete gut, expansion, and renovation.

As you point out Stater on Vista Way in Oceanside still has the Lucky interior but that was a brand new Lucky/Sav-On in the late 90's. This store has way too much space for Stater and it has never done particularly well. It didn't do very well for Lucky either, that is why it was divested in the first place. I am kind of surprised it is still open. It looks pretty good save for the somewhat dated Lucky interior but considering its age it is a good looking store (since it has such low traffic).

Also Stater on N. Santa Fe in Vista is a former early 90's Albertsons and also does not seem to have much traffic. This store while it received a wall remodel by Stater, the refrigeration, flooring, perimeter, is all straight out of Albertsons and this store is quite run down. Again I don't think this is the best located store.

Then there is the Stater in San Marcos. An old store, also still has the Lucky interior. But curiously Stater replaced the floor in this store. The floor replacement was pointless and doesn't look very good. When you compare Carlsbad to this... really sad here. I don't think this place even has a bakery or deli (meat counter may roast some chicken and sell a few slabs of lunchmeat). No clue how this place stays open.

Also the Stater in Carlsbad is a former mid 90's Albertsons and has been fully remodeled. When I have been to this store it has been very busy and looks healthy.

The lone San Diego Stater in the far northern edge of San Diego is a run down small former Lucky that seems busy. It was also given a very thorough remodel around 2017-ish. They made a very radical improvement to this store in the remodel.

So I agree with your general assessment looking at the above Stater Stores- basically let's say 3 of them hum along like a typical busy well run and maintained Stater (Mission-Oceanside after it is done beign remodeled, Carlsbad, and Carmel Mountain Road in San Diego). The rest... not so much. But I would also argue whoever selected the stores to divest in this batch was able to find some real stinkers to divest off to Stater. That new Lucky/Sav-On may have looked nice on paper since it was new but its performance was terrible, it was a dog. Albertsons was also quite aggressive on building new stores of its own around San Diego to counter some of these divests.

So the question with what Stater has in north San Diego suburbs is- is the problem Stater, or is the problem the stores they got? The fact that they did not try to get anything out of Haggen in these areas, or build any stores of their own, speaks volumes. However as we sit here today they are doing that major remodel and expansion on that Oceanside store... so I don't think they are letting this block of stores run on fumes until leases end. It does appear they are trying.

They did not take any divests in the Albertsons/Safeway merger. They took one store directly in the Haggen bankruptcy hearings and some others later on. I don't know the exact order but Pasadena and Simi Valley are both former Haggen units and I have heard they are doing very well for Stater. There is a former Pavilions Stater got as well, have not heard how that is doing, but my guess is not great.

I saw the Oceanside remodel project underway; that store probably has benefited from losing two Ralphs stores just to the South on Oceanside Blvd. I think Frazier Farms killed both stores off, one became a Big Lots. It looks like the entire center is being facelifted and that's probably why Stater could justify redoing the whole store as sales grew. If that was a 90's interior I'm really surprised; it felt absolutely ancient and was clearly neglected badly by Stater prior to the remodel/expansion. Noticed that they are not using their "new" design package in this remodel either which I thought was odd. I would imagine that they were going to close this store but then lucked out when Ralphs basically abandoned the area at the same time Oceanside in general started to take off. They also somehow survived the Winco opening which came after Ralphs left, but that is further South. Everything off Highway 76 serves compartmentalized neighborhoods because of how difficult it is to navigate the highway (its basically a freeway without any of the amenities of a freeway - no on/off ramps and still has traffic lights - so every shopping center has entrances down small side streets. PITA to get in/out of everything which could mean that Winco doesn't really service the locals around this Stater).

The former Pavilions is Ladera Ranch in South OC. That was a store that went to Haggen probably because of the fully remodeled "Jewel" format Albertsons a few blocks south. It was the real oddball format Pavilions that I had not seen used anywhere else where there was a wall on the right side that created a hallway with bakery, service meat and deli hidden from the store and freezers butted up against it. Terrible setup and being a wide/shallow 60,000 Sq ft store made it exhausting to shop. If I remember correctly packaged meat was back left wall despite service being on the right wall. Really funky. Gelsons took it over from Haggen, did a very basic remodel with just new wall paint and did make an attempt to operate it at their level. The OC Register had an article where Gelsons claimed that they were shocked to find zero actual cooking equipment; basically because it was a dumbed down Pavilions every food item was thaw and serve etc. But Gelson's was also building a new store down the street in Rancho Mission Viejo. Gelsons didn't do any serious volume in the former Pavilions again probably because of the horrid layout, I don't remember if they tried to wall off floor space to downsize like they did in Carlsbad or not. When Rancho opened they "relocated" there. No clue what Gelsons was thinking unless they got the site for a dollar or something like that. Stater gutted the Pavilions to the bare walls and started from scratch which could not have been cheap considering the move of all refrigeration, building a new meat cutting room, moving dairy etc. Fixed the funky layout and it is a perfect prototype for them - but it is also upgraded like a Pavilions in meat and produce. I suspect they mothballed about 10K or more of floor space on the left side, maybe gave themselves a super size stockroom because the floor is definitely smaller which in this case dramatically improves the experience due to the width of the building. They are the only Stater I know of with Prime dry aged beef and premium seafood. I think they are giving the Albertsons down the street a run for their money and are finally getting business to come back up the hill to Ladera. They are far busier than the Pavilions ever was.

The store you're calling Carlsbad I think is really just inside Encinitas. That appears to be a solid store for Stater and was remodeled a few years ago to their newer interior. Just a few blocks North there was a nice Albertsons that went to Haggen and then Gelsons; across the street from that was a disastrous old Vons which closed well in advance of its replacement opening at La Costa Town Square. The Vons looked like something from the 70s that had never been updated. So another example where Stater stuck around and all the competition left so they could now remodel and take on more business.

I just don't think they have enough momentum overall in San Diego County to grow much further. They don't have enough of a store base and rents down there have exploded (before interest rate hikes San Diego had become the #1 fastest growing housing market in CA despite the general exodus from the state - many people were settling for staying in California but moving to either San Diego or Riverside County especially Temecula Valley and Menifee). Because of the high rents the only stores they might want to pick up would be older divestitures which have lower rents locked in. But as terms run out new leases are probably double or triple for the same old buildings which is probably what happened in Escondido. They are running out of space and developers would happily remove shopping centers to build crappy apartments. Heck San Diego has suddenly fallen for the disastrous programs that have led to mass homelessness in Portland and Seattle - you can now tear down that shopping center, no rezoning process to make it residential, and no parking requirements at all. No idea where these developers think people are going to shop... Not to mention the fact that they are putting more polluting cars on the road as people have to drive further to shop - or even worse get deliveries from Amazon or others. They just want a fast buck on their way out of town to go destroy somewhere else.

[retailfanmitchell019]

The store you're calling Carlsbad I think is really just inside Encinitas. That appears to be a solid store for Stater and was remodeled a few years ago to their newer interior. Just a few blocks North there was a nice Albertsons that went to Haggen and then Gelsons; across the street from that was a disastrous old Vons which closed well in advance of its replacement opening at La Costa Town Square. The Vons looked like something from the 70s that had never been updated. So another example where Stater stuck around and all the competition left so they could now remodel and take on more business.

San Marcos Stater Bros. is a former Alpha Beta.

There is another Stater Bros. in Vista that is a late 80's build Albertsons. This one is off of Sycamore Ave, across the highway from where the Vista Sam's Club was. I personally do my grocery shopping there.

The Stater Bros. in Carlsbad is off of Palomar Airport Road in the new-money Bressi Ranch development. This a 2009 build store, a clone of the one in Wildomar. That is the only new store Stater has built in the county.

The Vista Way Lucky/Sav-on was divested as it was up the highway a mile from the Albertsons in Carlsbad Village (sold to Haggen, now Smart & Final).

Off topic, but ClownLoach, do you know what interior the Carlsbad Village Albertsons had? I'm not sure what interior it had before it got a 2011 SuperValu remodel.

[storewanderer]

I saw the Oceanside remodel project underway; that store probably has benefited from losing two Ralphs stores just to the South on Oceanside Blvd. I think Frazier Farms killed both stores off, one became a Big Lots. It looks like the entire center is being facelifted and that's probably why Stater could justify redoing the whole store as sales grew. If that was a 90's interior I'm really surprised; it felt absolutely ancient and was clearly neglected badly by Stater prior to the remodel/expansion. Noticed that they are not using their "new" design package in this remodel either which I thought was odd. I would imagine that they were going to close this store but then lucked out when Ralphs basically abandoned the area at the same time Oceanside in general started to take off. They also somehow survived the Winco opening which came after Ralphs left, but that is further South. Everything off Highway 76 serves compartmentalized neighborhoods because of how difficult it is to navigate the highway (its basically a freeway without any of the amenities of a freeway - no on/off ramps and still has traffic lights - so every shopping center has entrances down small side streets. PITA to get in/out of everything which could mean that Winco doesn't really service the locals around this Stater).

The former Pavilions is Ladera Ranch in South OC. That was a store that went to Haggen probably because of the fully remodeled "Jewel" format Albertsons a few blocks south. It was the real oddball format Pavilions that I had not seen used anywhere else where there was a wall on the right side that created a hallway with bakery, service meat and deli hidden from the store and freezers butted up against it. Terrible setup and being a wide/shallow 60,000 Sq ft store made it exhausting to shop. If I remember correctly packaged meat was back left wall despite service being on the right wall. Really funky. Gelsons took it over from Haggen, did a very basic remodel with just new wall paint and did make an attempt to operate it at their level. The OC Register had an article where Gelsons claimed that they were shocked to find zero actual cooking equipment; basically because it was a dumbed down Pavilions every food item was thaw and serve etc. But Gelson's was also building a new store down the street in Rancho Mission Viejo. Gelsons didn't do any serious volume in the former Pavilions again probably because of the horrid layout, I don't remember if they tried to wall off floor space to downsize like they did in Carlsbad or not. When Rancho opened they "relocated" there. No clue what Gelsons was thinking unless they got the site for a dollar or something like that. Stater gutted the Pavilions to the bare walls and started from scratch which could not have been cheap considering the move of all refrigeration, building a new meat cutting room, moving dairy etc. Fixed the funky layout and it is a perfect prototype for them - but it is also upgraded like a Pavilions in meat and produce. I suspect they mothballed about 10K or more of floor space on the left side, maybe gave themselves a super size stockroom because the floor is definitely smaller which in this case dramatically improves the experience due to the width of the building. They are the only Stater I know of with Prime dry aged beef and premium seafood. I think they are giving the Albertsons down the street a run for their money and are finally getting business to come back up the hill to Ladera. They are far busier than the Pavilions ever was.

The store you're calling Carlsbad I think is really just inside Encinitas. That appears to be a solid store for Stater and was remodeled a few years ago to their newer interior. Just a few blocks North there was a nice Albertsons that went to Haggen and then Gelsons; across the street from that was a disastrous old Vons which closed well in advance of its replacement opening at La Costa Town Square. The Vons looked like something from the 70s that had never been updated. So another example where Stater stuck around and all the competition left so they could now remodel and take on more business.

I just don't think they have enough momentum overall in San Diego County to grow much further. They don't have enough of a store base and rents down there have exploded (before interest rate hikes San Diego had become the #1 fastest growing housing market in CA despite the general exodus from the state - many people were settling for staying in California but moving to either San Diego or Riverside County especially Temecula Valley and Menifee). Because of the high rents the only stores they might want to pick up would be older divestitures which have lower rents locked in. But as terms run out new leases are probably double or triple for the same old buildings which is probably what happened in Escondido. They are running out of space and developers would happily remove shopping centers to build crappy apartments. Heck San Diego has suddenly fallen for the disastrous programs that have led to mass homelessness in Portland and Seattle - you can now tear down that shopping center, no rezoning process to make it residential, and no parking requirements at all. No idea where these developers think people are going to shop... Not to mention the fact that they are putting more polluting cars on the road as people have to drive further to shop - or even worse get deliveries from Amazon or others. They just want a fast buck on their way out of town to go destroy somewhere else.

That small Oceanside Store was a former Super Saver and the decor package Stater installed was from 1999. Yes that was Stater's 1999 era decor package. This just shows you how far Stater has come. Basically as Super Saver it was a stripped down former Lucky- all service departments covered up (but not demolished) by tall refrigeration, floor removed and converted to cement, kept the typical drop ceiling and lighting. That store appears to do okay but not great. Keep in mind this type of a store (and that San Marcos thing) are rather typical Stater Stores- small size, not much in the way of service departments, small fresh departments in general. Stater knows how to run these types of stores in a profitable manner and have the merchandise mix/pricing/service levels to keep customers coming in, despite that they have been actively working to upgrade their store fleet and get rid of these types of stores over time.

Ladera Ranch was a weird Pavilions, that layout was very strange. I have not seen that layout done the way they did it there before. That "wall" area with bakery and deli behind it but both on the far side wall was strange. A somewhat common and similar Safeway layout used on some of Safeway's flagship type stores of the early 00's and into the 10's puts up a wall over on that side and the way it is set up is deli is on the side of the wall that is shared with the main store and bakery is along the perimeter wall (then usually liquor is over there too, or in the case of Colorado a Natural Foods Department was there), in Colorado and also has been used a few times in NorCal and also on a very nice store in the far north part of Scottsdale. That is the Genuardi's layout. The difference in the actual Genuardi's layout is the door you enter through on that side dumps you into that bakery/deli area so you see it. Ladera Ranch Pavilions as I recall you walked in and basically had to do a hard look to the right and then walk at an angle back toward the front wall to get over to the opening to get into that bakery/deli section. In other words it would be very easy in Ladera Ranch to, basically, not even know that little section existed.

I still think the lack of momentum Stater has is due to the wrong store locations. I also think they passed on some units that came available from Haggen as many of the available stores were too large for the typical Stater format. Look at the dump Vons they took in Pasadena, for example; 40k square foot old store but they took it and did a heavy remodel and they have done pretty well with it, better than Vons ever did.

I am also trying to picture what other areas of San Diego Stater could do well in. I do think there is room for them in some other parts of San Diego, but I am not entirely sure which parts. I feel like the format you describe them running in Ladera Ranch could potentially work in the Del Mar area and up in those parts and some of those Vons are not oversized and just the right size for Stater......

The other thing to keep in mind is how things will shake out with this Kroger merger. If the formats Vons/Albertsons go away entirely in San Diego, there is room for Stater to step in and run their program in some of those locations. I don't think it will work in all of the locations. I wouldn't put a Stater in National City, El Cajon, or downtown San Diego for instance. Might be a spot or two in La Mesa that would work. The other issue is that store size issue; Stater clearly does not do well with a 65k square foot store. A 50k square foot store is about as far as they seem to be good with having.

[ClownLoach]

I saw the Oceanside remodel project underway; that store probably has benefited from losing two Ralphs stores just to the South on Oceanside Blvd. I think Frazier Farms killed both stores off, one became a Big Lots. It looks like the entire center is being facelifted and that's probably why Stater could justify redoing the whole store as sales grew. If that was a 90's interior I'm really surprised; it felt absolutely ancient and was clearly neglected badly by Stater prior to the remodel/expansion. Noticed that they are not using their "new" design package in this remodel either which I thought was odd. I would imagine that they were going to close this store but then lucked out when Ralphs basically abandoned the area at the same time Oceanside in general started to take off. They also somehow survived the Winco opening which came after Ralphs left, but that is further South. Everything off Highway 76 serves compartmentalized neighborhoods because of how difficult it is to navigate the highway (its basically a freeway without any of the amenities of a freeway - no on/off ramps and still has traffic lights - so every shopping center has entrances down small side streets. PITA to get in/out of everything which could mean that Winco doesn't really service the locals around this Stater).

The former Pavilions is Ladera Ranch in South OC. That was a store that went to Haggen probably because of the fully remodeled "Jewel" format Albertsons a few blocks south. It was the real oddball format Pavilions that I had not seen used anywhere else where there was a wall on the right side that created a hallway with bakery, service meat and deli hidden from the store and freezers butted up against it. Terrible setup and being a wide/shallow 60,000 Sq ft store made it exhausting to shop. If I remember correctly packaged meat was back left wall despite service being on the right wall. Really funky. Gelsons took it over from Haggen, did a very basic remodel with just new wall paint and did make an attempt to operate it at their level. The OC Register had an article where Gelsons claimed that they were shocked to find zero actual cooking equipment; basically because it was a dumbed down Pavilions every food item was thaw and serve etc. But Gelson's was also building a new store down the street in Rancho Mission Viejo. Gelsons didn't do any serious volume in the former Pavilions again probably because of the horrid layout, I don't remember if they tried to wall off floor space to downsize like they did in Carlsbad or not. When Rancho opened they "relocated" there. No clue what Gelsons was thinking unless they got the site for a dollar or something like that. Stater gutted the Pavilions to the bare walls and started from scratch which could not have been cheap considering the move of all refrigeration, building a new meat cutting room, moving dairy etc. Fixed the funky layout and it is a perfect prototype for them - but it is also upgraded like a Pavilions in meat and produce. I suspect they mothballed about 10K or more of floor space on the left side, maybe gave themselves a super size stockroom because the floor is definitely smaller which in this case dramatically improves the experience due to the width of the building. They are the only Stater I know of with Prime dry aged beef and premium seafood. I think they are giving the Albertsons down the street a run for their money and are finally getting business to come back up the hill to Ladera. They are far busier than the Pavilions ever was.

The store you're calling Carlsbad I think is really just inside Encinitas. That appears to be a solid store for Stater and was remodeled a few years ago to their newer interior. Just a few blocks North there was a nice Albertsons that went to Haggen and then Gelsons; across the street from that was a disastrous old Vons which closed well in advance of its replacement opening at La Costa Town Square. The Vons looked like something from the 70s that had never been updated. So another example where Stater stuck around and all the competition left so they could now remodel and take on more business.

I just don't think they have enough momentum overall in San Diego County to grow much further. They don't have enough of a store base and rents down there have exploded (before interest rate hikes San Diego had become the #1 fastest growing housing market in CA despite the general exodus from the state - many people were settling for staying in California but moving to either San Diego or Riverside County especially Temecula Valley and Menifee). Because of the high rents the only stores they might want to pick up would be older divestitures which have lower rents locked in. But as terms run out new leases are probably double or triple for the same old buildings which is probably what happened in Escondido. They are running out of space and developers would happily remove shopping centers to build crappy apartments. Heck San Diego has suddenly fallen for the disastrous programs that have led to mass homelessness in Portland and Seattle - you can now tear down that shopping center, no rezoning process to make it residential, and no parking requirements at all. No idea where these developers think people are going to shop... Not to mention the fact that they are putting more polluting cars on the road as people have to drive further to shop - or even worse get deliveries from Amazon or others. They just want a fast buck on their way out of town to go destroy somewhere else.

That small Oceanside Store was a former Super Saver and the decor package Stater installed was from 1999. Yes that was Stater's 1999 era decor package. This just shows you how far Stater has come. Basically as Super Saver it was a stripped down former Lucky- all service departments covered up (but not demolished) by tall refrigeration, floor removed and converted to cement, kept the typical drop ceiling and lighting. That store appears to do okay but not great. Keep in mind this type of a store (and that San Marcos thing) are rather typical Stater Stores- small size, not much in the way of service departments, small fresh departments in general. Stater knows how to run these types of stores in a profitable manner and have the merchandise mix/pricing/service levels to keep customers coming in, despite that they have been actively working to upgrade their store fleet and get rid of these types of stores over time.

Ladera Ranch was a weird Pavilions, that layout was very strange. I have not seen that layout done the way they did it there before. That "wall" area with bakery and deli behind it but both on the far side wall was strange. A somewhat common and similar Safeway layout used on some of Safeway's flagship type stores of the early 00's and into the 10's puts up a wall over on that side and the way it is set up is deli is on the side of the wall that is shared with the main store and bakery is along the perimeter wall (then usually liquor is over there too, or in the case of Colorado a Natural Foods Department was there), in Colorado and also has been used a few times in NorCal and also on a very nice store in the far north part of Scottsdale. That is the Genuardi's layout. The difference in the actual Genuardi's layout is the door you enter through on that side dumps you into that bakery/deli area so you see it. Ladera Ranch Pavilions as I recall you walked in and basically had to do a hard look to the right and then walk at an angle back toward the front wall to get over to the opening to get into that bakery/deli section. In other words it would be very easy in Ladera Ranch to, basically, not even know that little section existed.

I still think the lack of momentum Stater has is due to the wrong store locations. I also think they passed on some units that came available from Haggen as many of the available stores were too large for the typical Stater format. Look at the dump Vons they took in Pasadena, for example; 40k square foot old store but they took it and did a heavy remodel and they have done pretty well with it, better than Vons ever did.

I am also trying to picture what other areas of San Diego Stater could do well in. I do think there is room for them in some other parts of San Diego, but I am not entirely sure which parts. I feel like the format you describe them running in Ladera Ranch could potentially work in the Del Mar area and up in those parts and some of those Vons are not oversized and just the right size for Stater......

The other thing to keep in mind is how things will shake out with this Kroger merger. If the formats Vons/Albertsons go away entirely in San Diego, there is room for Stater to step in and run their program in some of those locations. I don't think it will work in all of the locations. I wouldn't put a Stater in National City, El Cajon, or downtown San Diego for instance. Might be a spot or two in La Mesa that would work. The other issue is that store size issue; Stater clearly does not do well with a 65k square foot store. A 50k square foot store is about as far as they seem to be good with having.

Stater has said previously that they only want 45K boxes because they want to have a consistent prototype format on all newly opened stores - maybe there is some wiggle room up to 50 if the lease works. Again in Ladera I really think they walled off some space to bring the sales floor down to prototype.

The real problem in San Diego is that rents there are absolutely silly stupid high now. So I don't think anyone - Stater, Kroger, or Albertsons - would want to open any store now that isn't going to be a super "AAA Volume". That market is going to really be a nightmare to carve up because they are very unlikely to find buyers unless they do some exotic transactions. All the leaseback sale transactions Albertsons did are going to bite them in the butt in San Diego, LA, Portland, Seattle, and the Bay unless they have a lot of term available at a good rate. If they are at low rates now but move closer to market rate later they are screwed. I firmly believe that lease issues will be discussed behind closed doors in hearings as a justification for the merger. If Albertsons has really good long term leases in the leaseback transactions - it is possible that many of the non owned Kroger stores are at risk of skyrocketing rent in future leases once term is up. I have wondered for some time if this is why so many Ralphs that otherwise seemed to perform decently have closed. It is entirely possible that Kroger needs many of these Albertsons owned sites that are under fresh, long term leases to replace Ralphs/QFC/etc. stores that will have to close over the next decade or so if their rent will be skyrocketing.

[storewanderer]

All the leaseback sale transactions Albertsons did are going to bite them in the butt in San Diego, LA, Portland, Seattle, and the Bay unless they have a lot of term available at a good rate. If they are at low rates now but move closer to market rate later they are screwed. I firmly believe that lease issues will be discussed behind closed doors in hearings as a justification for the merger. If Albertsons has really good long term leases in the leaseback transactions - it is possible that many of the non owned Kroger stores are at risk of skyrocketing rent in future leases once term is up.

You have just identified another of the ticking time bombs of Albertsons and why the company needs to be sold NOW: those sale-leasebacks.

Do you have a good read on what percentage of Ralphs are in Ralphs owned buildings?

Up here in Reno area, all 6 Smiths locations are in buildings owned by Smiths and it is my understanding almost all Smiths are owned buildings. It was also my understanding most of the Fred Meyer buildings are owned by the company as well. Also when Kroger owned the Quik Stop units, most of those were on owned real estate as well, that was the only way most of those old dive stores were viable.

So if San Diego is too expensive, you are right, Stater isn't going to touch it. They are smarter than to get involved in a situation like that (unless they just KNOW the location will end up high volume for them). But Stater is a very ideal buyer. If Stater, with a tract record of success operating divested Albertsons Stores, and historically strong union relations over the years, can be presented as a buyer for even a few stores, it will help get the unions to buy into this deal.

As for why Stater should "help" their competitor with this merger, this depends on how you look at the merger. Do you look at the merger as creating a powerhouse that will crush Stater? Or do you look at this merger as taking two debt heavy competitors and merging them together into an even more debt heavy giant mess that will be easy to take customers from?

[ClownLoach]

All the leaseback sale transactions Albertsons did are going to bite them in the butt in San Diego, LA, Portland, Seattle, and the Bay unless they have a lot of term available at a good rate. If they are at low rates now but move closer to market rate later they are screwed. I firmly believe that lease issues will be discussed behind closed doors in hearings as a justification for the merger. If Albertsons has really good long term leases in the leaseback transactions - it is possible that many of the non owned Kroger stores are at risk of skyrocketing rent in future leases once term is up.

You have just identified another of the ticking time bombs of Albertsons and why the company needs to be sold NOW: those sale-leasebacks.

Do you have a good read on what percentage of Ralphs are in Ralphs owned buildings?

Up here in Reno area, all 6 Smiths locations are in buildings owned by Smiths and it is my understanding almost all Smiths are owned buildings. It was also my understanding most of the Fred Meyer buildings are owned by the company as well. Also when Kroger owned the Quik Stop units, most of those were on owned real estate as well, that was the only way most of those old dive stores were viable.

So if San Diego is too expensive, you are right, Stater isn't going to touch it. They are smarter than to get involved in a situation like that (unless they just KNOW the location will end up high volume for them). But Stater is a very ideal buyer. If Stater, with a tract record of success operating divested Albertsons Stores, and historically strong union relations over the years, can be presented as a buyer for even a few stores, it will help get the unions to buy into this deal.

As for why Stater should "help" their competitor with this merger, this depends on how you look at the merger. Do you look at the merger as creating a powerhouse that will crush Stater? Or do you look at this merger as taking two debt heavy competitors and merging them together into an even more debt heavy giant mess that will be easy to take customers from?

My general impression is that the majority of late 90s and on opened Ralphs are leases. I do not believe that Ralphs owns very many stores outright younger than 30+ years. I have talked about a brewing war on retail real estate in general and you can see the pieces have been coming together since; the state overriding zoning and allowing retail to residential conversion without approval, the state eliminating any parking requirements of any kind if so much as a Dial-A-Ride ever goes down a street within half a mile, and developers petitioning Wall Street to push leasebacks. I am really starting to wonder if the merger is just as much about stores at risk of disappearing as anything else. It could be not as obvious as we think. If the Albertsons leasebacks were done before the recent real estate explosion then they might have good term at a good rate. Those stores could be locked in at a decent price to 2050 and beyond. Kroger might need more of these Albertsons stores to replace their own than we think especially in the West. I do not believe that they own much on the West Coast in newer buildings aside from most of the Fred Meyer buildings. The risk is then obvious, if they are out of term then they are at risk of being forced out even from top performing stores as the landlords can make far more money cashing out and building residential.

It could be the opposite as well, if Albertsons signed crappy leases that skyrocket at the next lease renewal (I call those Irvine Company style leases) then those buildings could be ticking time bombs.

The real interesting part of all of this is that what is a high performing, desirable store today might not be what they want to keep if there is good risk of losing that site entirely in the next decade or less. I would imagine that there is a good chance if they had to choose between keeping a mediocre old building that is owned vs a higher volume newer store with a time bomb lease they'd jettison the lease. Plus they would then have the option to control their own destiny, maybe do a leaseback redevelopment with a builder that has desirable terms that protect them long into the future.

As far as Stater goes I really don't think they need a lot of Real Estate to dilute their sales in existing markets, especially if they have to pay Kroger for it. I think many times in OC, parts of Riverside like Temecula Valley, and SD their customers drive past multiple Albertsons or Kroger stores already to shop with them. If I had to guess they might have interest in expanding where they don't currently have stores, and possibly where their network is very thin but they are experiencing success like Pasadena. But I just can't picture them taking off and picking up stores in Ventura or parts north, or much more into San Diego unless they're going to get a store that meets their desired prototype of rectangular ~45K with a good lease. I don't see them being willing to take "some bad with the good" either. I think they would cherry pick a few locations, many of which would probably be the ones Kroger would rather keep. What could be interesting is if more divestitures that desired are required by the FTC and they wind up getting some kind of weird deal with Stater where they take over more stores with performance guarantees/stop loss type deals where Kroger is maybe on the hook for half the rent or something like that so the store stays open to maintain competition. Kroger would probably get to write this off like they do with dead rent on closed stores where it's cheaper to pay vs sever the lease and they benefit from the merger going through.

I wonder how many of the Albertsons-Lucky divestiture locations were owned buildings? I am sure that some of those were owned buildings where the store and building itself went to Stater which could be why they keep some that seem like lower performers. Some of those old late 90s Albertsons buildings were surely owned. I doubt Stater does a sublease from them, the title to the store likely came with the store itself. With no rent it takes a lot less to keep a positive cash flow going. That could be what keeps a lot of those San Diego County sites going (both Vista stores and that Oceanside Vista Way site for sure must be owned).

[storewanderer]

My general impression is that the majority of late 90s and on opened Ralphs are leases. I do not believe that Ralphs owns very many stores outright younger than 30+ years. I have talked about a brewing war on retail real estate in general and you can see the pieces have been coming together since; the state overriding zoning and allowing retail to residential conversion without approval, the state eliminating any parking requirements of any kind if so much as a Dial-A-Ride ever goes down a street within half a mile, and developers petitioning Wall Street to push leasebacks. I am really starting to wonder if the merger is just as much about stores at risk of disappearing as anything else. It could be not as obvious as we think. If the Albertsons leasebacks were done before the recent real estate explosion then they might have good term at a good rate. Those stores could be locked in at a decent price to 2050 and beyond. Kroger might need more of these Albertsons stores to replace their own than we think especially in the West. I do not believe that they own much on the West Coast in newer buildings aside from most of the Fred Meyer buildings. The risk is then obvious, if they are out of term then they are at risk of being forced out even from top performing stores as the landlords can make far more money cashing out and building residential.

It could be the opposite as well, if Albertsons signed crappy leases that skyrocket at the next lease renewal (I call those Irvine Company style leases) then those buildings could be ticking time bombs.

The real interesting part of all of this is that what is a high performing, desirable store today might not be what they want to keep if there is good risk of losing that site entirely in the next decade or less. I would imagine that there is a good chance if they had to choose between keeping a mediocre old building that is owned vs a higher volume newer store with a time bomb lease they'd jettison the lease.

As far as Stater goes I really don't think they need a lot of Real Estate to dilute their sales in existing markets, especially if they have to pay Kroger for it. I think many times in OC, parts of Riverside like Temecula Valley, and SD their customers drive past multiple Albertsons or Kroger stores already to shop with them. If I had to guess they might have interest in expanding where they don't currently have stores, and possibly where their network is very thin but they are experiencing success like Pasadena. But I just can't picture them taking off and picking up stores in Ventura or parts north, or much more into San Diego unless they're going to get a store that meets their desired prototype of rectangular ~45K with a good lease. I don't see them being willing to take "some bad with the good" either. I think they would cherry pick a few locations. What could be interesting is if more divestitures that desired are required by the FTC and they wind up getting some kind of weird deal with Stater where they take over more stores with performance guarantees/stop loss type deals where Kroger is maybe on the hook for half the rent or something like that so the store stays open to maintain competition.

I wonder how many of the Albertsons-Lucky divestiture locations were owned buildings? I am sure that some of those were owned buildings where the store and building itself went to Stater which could be why they keep some that seem like lower performers. Some of those old late 90s Albertsons buildings were surely owned. I doubt Stater does a sublease from them. With no rent it takes a lot less to keep a positive cash flow going.

The majority if not all of the new Smiths Marketplace units are on fully owned property out in Utah. Also the 2 currently operating Smiths in Reno were both built by Kroger on owned land. Kroger was even talking a few years ago about buying leased stores and owning the property as they prefer to own the property as it allows them more flexibility to do things like expansions, adding pickup, adding fuel stations, etc. This may also explain why Ralphs is often so behind the Kroger curve on programs like fuel stations and pickup- it is difficult to add these things to leased stores that have limited space.

So that is yet another thing as to why does this Albertsons merger make any sense for them, they are buying a lot of properties that are sale-leaseback.

Also in the annual report 10-K SEC filing dated 4/26/2022 starting on page 35 of Albertsons for 2022 there is discussion of a real estate subsidiary they created in 2020 and I don't fully understand how the merger may impact that subsidiary.
According to the 2022 report: they own 39% of their operating stores and 51% of their other properties (distro etc.) based on the 2022 report. Going back to the 2018 report they reported owning 42% of their stores. So there has not been as much sale-leaseback activity in the past few years as I thought... it appears much of that was done before they IPOed.

Kroger's annual report says they lease about half of their stores. This is more than I thought.

The other issue with Stater is they don't do pharmacy. So for any of the divested stores where pharmacy is a significant component/valuable component, they are not an ideal buyer (but who is...). My suspicion is again Save Mart exited pharmacy for a reason more than what it appeared, and that will help them get a discount on buying divested stores. The pharmacy operation can be sold separately from the stores and reduce the purchase price of the stores, and Stater could realize that same benefit. That raises another issue though as you lose pharmacy competition in a given area if you sell to a Stater or Save Mart or ethnic operator or gourmet operator or Smart & Final who doesn't do pharmacy. And that is an issue the FTC should not ignore.

The ASC/Albertsons merger required owned real estate to be sold with the stores.

I'm not sure a performance guarantee/stop loss deal on the divested stores will work. I feel like if they give that to one buyer, they will have to give that to every buyer. That just isn't going to be practical for the 500-625 stores they are going to need to divest.

[ClownLoach]

Interesting update tonight on the Oceanside Stater Bros. that is undergoing the full "out to the bare walls and starting over again" remodel. This store was receiving the 2019 Stater Bros. decor (the one that looks eerily similar to Albertsons colorful lifestyle) and they had already completed the graphics and flooring in the new produce section back in December. All of the graphics and vinyl plank flooring has been removed. They are repainting and are going to be using the recently announced decor with all the wallpaper pictures of food (the one that looks right out of the 1980s. It also looks like they're getting the first concrete floor in a SB in the center store aisles. They are doing it right (because of the age of the building) and have installed a cool plastic self leveling concrete in center store. Feels like you're tap dancing down the aisles. But it has been placed with precision edges around the perimeter so I am assuming that the concrete is not going to be covered but polished and sealed instead. The perimeter will get a different vinyl plank. They have a bunch of pallets of the flooring sitting up front to acclimate (a required step) but it isn't nearly enough to do all aisles. I asked why the store wasn't done yet (it was due to grand reopen end of January) and the cashier said that SB decided to make changes and now it should be completed end of March.