🛒 Kroger-Albertsons Merger: National Impact

[storewanderer]

Per krogeralbertsons.com, C&S is contractually obligated to purchase up to 650 stores. They have to buy anything Kroger shoves their way. They may not refuse. It was part of the original deal. If more than 650 need to go the merger is off per the deal (which makes sense as the cost per store would grow to the point it could exceed the cost to build an Albertsons size chain).

My understanding is C&S is the buyer for all divests even if the number of divests goes up.

And why wouldn't they take more? They are a great deal... more divests will be more valuable for C&S. It will give them more stores to spread overhead over. In a lot of markets these C&S Stores will be so few and far between that even 1-2 more stores may make things a lot easier for them in a given market from the perspective of leadership, buying, vendor relations, and various other factors. And putting together a better package for Bob's IGA or whatever when they decide they don't want to run the stores anymore.

My guess is the list of 650 stores is already disclosed to C&S under a non-compete and they know exactly what they are getting for sure and what else they might get.

The other thing we don't know is if C&S has already approached other parties to parcel stores off to. Sure they say they're going to operate everything but look when they took Fleming assets over how they acted like a halfway house for various warehouses just immediately spinning them to other wholesalers like AWG etc.

[pseudo3d]

Just my opinion, but judging from history, my opinion of this merger has changed 180 degrees. I think the merger should be allowed to go through with the amount of divestitures Kroger/Albertsons currently want. C&S may not fail as bad as the Haagan debacle, but it will fail. The simple answer is "demographics". The markets in the major urban areas are much more fragmented than even 10 years ago. For example, if this merger was never proposed think of how many Kroger and Albertsons stores would close in the next 5 years anyway and both chains know it. For some reference, when Vons bought the Safeway southern California division in the late 80s there were close to 400 stores. When Safeway bought it back there was I believe a little over 200 stores. Most, if not all, of the stores in the central valley of California were sold eventually to chains like Vallarta because Safeway/Vons didn't know how to market to that demographic. The same thing is happening in northern Orange County and Phoenix. Albertsons is so weak in Colorado and Houston they should just include all those stores in the "spinoff/sale". My point is that there are so many options for groceries and both chains are dinosaurs dying off already in some markets. If Kroger can merge and get some of the Albertsons gems like northern CA, and Hawaii (which makes more money than some divisions) I think they would be fine with it.

I am pretty sure Vons was at 325 stores when Safeway bought it in the 90's. Definitely well above 200 stores.

Even today Vons/Pavilions is still slightly above 200 stores.

Albertsons has probably held on to or accepted too poor of performance in certain markets a little too long and Denver and Houston are clearly two of those markets. I think there are some in the East/Northeast too.

Remember, the Houston and Denver markets were inherited from Safeway, so the idea of running less-than-stellar stores is not entirely their idea...though in the pre-LLC days they had a lot of marginal stores.

And those 200+ stores that they aren't divesting to C&S (yet) are probably still marginally profitable stores they'd rather keep. The Randalls stores in Houston in particular aren't unionized (which no doubt saved them back in the early 2010s), and I imagine if push came to shove with the unions again, Kroger would probably close the unionized Kroger stores in favor of a nearby non-union Randalls.

[veteran+]

I sure hope this causes C&S to disappear from the scheme as well. Nothing that C&S could do with these stores will be beneficial for consumers or employees. It is like sending a live body to the morgue.

Quote of the year candidate here.

I do not believe that any deal involving the divestiture of even one store to C&S will be approved by the government authorities. The fact is that in most markets there is a real, legitimate competitor that is likely drooling over the opportunity to get their hands on some of these stores at a bargain price (potentially as low as $1 which we have seen in the past mergers that were more "transparent" due to the government leading the divestiture process). Kroger and Albertsons cooked up C&S because they were looking for another Haggen type sucker to foist off their problem and unwanted stores to in conjunction with whatever actual overlaps they were forced to sell. Kroger and Albertsons want every one of these stores to close, and the closure to occur in the hands of someone else. Expect the government to take control of the process and end this self divestiture program because Kroger, Albertsons and C&S blew it.

Now you're going to see someone take a risk in Oregon, Washington and Colorado primarily and jump into a market they're not currently a part of. Weren't there rumors of Hy-Vee wanting into Colorado? The Albertsons/Safeway units aren't desirable but they have the money to invest to expand, remodel, rebuild etc. We know Raley's and Save Mart have their problems but either one could take on the PNW and have a better shot at success than C&S especially considering they're going to get these stores for almost nothing. Raleys could strengthen their Arizona business and potentially upgrade aged Bashas units with Albertsons and Safeway buildings, and get into Las Vegas where Albertsons operations felt very tired and uninspired on my last couple of visits. Stater can grow in SoCal and maybe pick up another distribution center to more efficiently handle growth in Los Angeles and San Diego areas they've generally avoided. And if the government running a divestiture program can't find a buyer they like for Washington, Colorado, etc. then they'll go to the judge and say "we need you to order No Deal and end this. Č

The fact is Kroger and Albertsons didn't want real competition to have a crack at buying these stores. They wanted a loser to buy them, and the government is going to say no to any "loser" divestiture proposal. Now they're going to have to consider what reality will look like with strengthened competitors potentially owning stores they wanted to keep if they still want to go on with this merger.

I wish you had a direct line of influence with the FTC!!!

[ClownLoach]

Per krogeralbertsons.com, C&S is contractually obligated to purchase up to 650 stores. They have to buy anything Kroger shoves their way. They may not refuse. It was part of the original deal. If more than 650 need to go the merger is off per the deal (which makes sense as the cost per store would grow to the point it could exceed the cost to build an Albertsons size chain).

My understanding is C&S is the buyer for all divests even if the number of divests goes up.

And why wouldn't they take more? They are a great deal... more divests will be more valuable for C&S. It will give them more stores to spread overhead over. In a lot of markets these C&S Stores will be so few and far between that even 1-2 more stores may make things a lot easier for them in a given market from the perspective of leadership, buying, vendor relations, and various other factors. And putting together a better package for Bob's IGA or whatever when they decide they don't want to run the stores anymore.

My guess is the list of 650 stores is already disclosed to C&S under a non-compete and they know exactly what they are getting for sure and what else they might get.

The other thing we don't know is if C&S has already approached other parties to parcel stores off to. Sure they say they're going to operate everything but look when they took Fleming assets over how they acted like a halfway house for various warehouses just immediately spinning them to other wholesalers like AWG etc.

I'm sure they would take more at pennies on the dollar, but then what's left for Kroger to actually take over and how much are they paying? I really do think the 650 stores is a hard cap because they are paying so much for Albertsons that even if you reduce the sale price by a few million per divest they're still going to be paying something like 97% of the original offer for less than 70% of the initially expected store count increase. They gave C&S too good of a deal here and it's pretty obvious they wanted them to be the buyer since they pose zero credible threat to their business. It doesn't take a rocket scientist to figure out that's a terrible deal for everyone except C&S who will just sell whatever they can to Bob and Phil's IGA and BBQ, then liquidate the rest in a fake LLC that was basically a ship dragged out to sea then set on fire. Ironically, if they were to raise the cap and open up a larger, government requested divestiture list to competition I believe they would see some stores sell for far more than C&S is paying, softening the blow of going over 650. I also wonder if they had already chosen C&S before they even announced the deal.

Every indication seems to be that C&S is the government sticking point as they don't consider them to be a credible buyer that will serve the purpose of divestiture actions, to maintain competitive markets. The fact that Kroger and Albertsons blew it by trying to self divest to these guys indicates that they will be forced to deal with the government directly on divestitures which is clearly not what they wanted.

Personally I'm not sure that a government ordered process will be substantially better. They make terrible decisions based on zip codes and archaic measures that lead to stupidity like stores across the street from each other being approved while other areas have stores a dozen miles apart where one must divest. Much of central coast California is now underserved and prices have gone up substantially not directly from the actions of Safeway and Albertsons merging, but rather the over-divestiture of stores to Haggen which never returned to full service supermarket operations. In many cases I would have rather seen no divestiture at all versus the choices they made. But if they are more focused on the quality and commitment of the buyer than there isn't as much to lose. If your neighborhood only has a Ralphs and a Vons, and now the Vons is going to become Stater Bros you really can't say you've lost anything. But if the Vons becomes a C&S operation that's going to become a Fred's Flea Market and Foodstuffs IGA then you have in fact lost a lot of choice. At this point if I had to choose between what is likely an ideally designed divestiture list going to C&S, or a less ideal government made list that is all going to legitimate competitors like Stater in SoCal then I'd choose the government list.

[ClownLoach]

I sure hope this causes C&S to disappear from the scheme as well. Nothing that C&S could do with these stores will be beneficial for consumers or employees. It is like sending a live body to the morgue.

Quote of the year candidate here.

I do not believe that any deal involving the divestiture of even one store to C&S will be approved by the government authorities. The fact is that in most markets there is a real, legitimate competitor that is likely drooling over the opportunity to get their hands on some of these stores at a bargain price (potentially as low as $1 which we have seen in the past mergers that were more "transparent" due to the government leading the divestiture process). Kroger and Albertsons cooked up C&S because they were looking for another Haggen type sucker to foist off their problem and unwanted stores to in conjunction with whatever actual overlaps they were forced to sell. Kroger and Albertsons want every one of these stores to close, and the closure to occur in the hands of someone else. Expect the government to take control of the process and end this self divestiture program because Kroger, Albertsons and C&S blew it.

Now you're going to see someone take a risk in Oregon, Washington and Colorado primarily and jump into a market they're not currently a part of. Weren't there rumors of Hy-Vee wanting into Colorado? The Albertsons/Safeway units aren't desirable but they have the money to invest to expand, remodel, rebuild etc. We know Raley's and Save Mart have their problems but either one could take on the PNW and have a better shot at success than C&S especially considering they're going to get these stores for almost nothing. Raleys could strengthen their Arizona business and potentially upgrade aged Bashas units with Albertsons and Safeway buildings, and get into Las Vegas where Albertsons operations felt very tired and uninspired on my last couple of visits. Stater can grow in SoCal and maybe pick up another distribution center to more efficiently handle growth in Los Angeles and San Diego areas they've generally avoided. And if the government running a divestiture program can't find a buyer they like for Washington, Colorado, etc. then they'll go to the judge and say "we need you to order No Deal and end this. Č

The fact is Kroger and Albertsons didn't want real competition to have a crack at buying these stores. They wanted a loser to buy them, and the government is going to say no to any "loser" divestiture proposal. Now they're going to have to consider what reality will look like with strengthened competitors potentially owning stores they wanted to keep if they still want to go on with this merger.

I wish you had a direct line of influence with the FTC!!!

I'm really just reading the news and interpreting. C&s has become the sticking point. The law says the government can't refuse divestiture as a remedy for the merger. But the government can reject a divestiture to an obvious faker like C&S. So they're clearly going to have to make a decision: merge and let the government be more involved in the decision process which will assuredly seek real competitors to buy divests, or give up on the merger.

[storewanderer]

I'm sure they would take more at pennies on the dollar, but then what's left for Kroger to actually take over and how much are they paying? I really do think the 650 stores is a hard cap because they are paying so much for Albertsons that even if you reduce the sale price by a few million per divest they're still going to be paying something like 97% of the original offer for less than 70% of the initially expected store count increase. They gave C&S too good of a deal here and it's pretty obvious they wanted them to be the buyer since they pose zero credible threat to their business. It doesn't take a rocket scientist to figure out that's a terrible deal for everyone except C&S who will just sell whatever they can to Bob and Phil's IGA and BBQ, then liquidate the rest in a fake LLC that was basically a ship dragged out to sea then set on fire. Ironically, if they were to raise the cap and open up a larger, government requested divestiture list to competition I believe they would see some stores sell for far more than C&S is paying, softening the blow of going over 650. I also wonder if they had already chosen C&S before they even announced the deal.

Every indication seems to be that C&S is the government sticking point as they don't consider them to be a credible buyer that will serve the purpose of divestiture actions, to maintain competitive markets. The fact that Kroger and Albertsons blew it by trying to self divest to these guys indicates that they will be forced to deal with the government directly on divestitures which is clearly not what they wanted.

Personally I'm not sure that a government ordered process will be substantially better. They make terrible decisions based on zip codes and archaic measures that lead to stupidity like stores across the street from each other being approved while other areas have stores a dozen miles apart where one must divest. Much of central coast California is now underserved and prices have gone up substantially not directly from the actions of Safeway and Albertsons merging, but rather the over-divestiture of stores to Haggen which never returned to full service supermarket operations. In many cases I would have rather seen no divestiture at all versus the choices they made. But if they are more focused on the quality and commitment of the buyer than there isn't as much to lose. If your neighborhood only has a Ralphs and a Vons, and now the Vons is going to become Stater Bros you really can't say you've lost anything. But if the Vons becomes a C&S operation that's going to become a Fred's Flea Market and Foodstuffs IGA then you have in fact lost a lot of choice. At this point if I had to choose between what is likely an ideally designed divestiture list going to C&S, or a less ideal government made list that is all going to legitimate competitors like Stater in SoCal then I'd choose the government list.

The thing is if C&S isn't a sticking point then some other buyer may be.

Let's say we have we will call them buyer A. Buyer A previously took divests over in another merger and a large chunk of those divests failed, the other smaller chunk was doing okay but "too far away" from the rest of the chain were sold back to the same chain who divested the stores to them (albeit under different ownership at this point). Now this chain to make matters more interesting has just done layoffs at their corporate office and has been closing stores the past few years in markets where NOBODY else is closing stores though a number of those closures were exits from a failing "price impact" format. This buyer also seems to be dealing with another merger undertaken that is not really integrated much yet and said merger has a lot of stores that do not appear to be doing well and need remodeling. This buyer also has closed half of its pharmacies, sold its gas stations off to a third party some years ago, and the management seems to have a lot of people without grocery experience. How does THAT buyer look to the FTC?

Then we have another buyer we will call them buyer B. Buyer B has closed all of its pharmacies, sold its fuel operations off to a third party years ago, and also had some store closure activity last year in markets where other parties were not closing stores. While this buyer has highly experienced management many of whom were previously involved with the stores that are going to be divested, and has demonstrated a tract record of operating price impact and conventional format stores, they have had a lot of closures over the years. Again how will this buyer look to the FTC?

Next we have another buyer we will call them buyer C. They are a grocery wholesaler too but have a tract record of fairly successful corporate operated stores. They also have a tract record of acquiring Albertsons Stores in that past that did not go overly well but they made a number of adjustments/banner changes/shifted some to independents so more than half are still open. They have taken divested stores on before and have a success rate that seems to be somewhere above 50% after arranging for some of their independent customers/smaller chain to take over the divested stores. This buyer fully supports pharmacy, fuel, and has a digital coupon program for the independent stores it supplies.

Where I am going is I can see why C&S was selected. They think C&S is like a clean slate buyer and a single buyer so they are not dealing with all these far flung other parties. When dealing with multiple parties if something happens to one party (like "this is taking too long, we are out") then it could derail the whole thing. By having a single buyer there is a lot less to worry about (once you convince everyone that single buyer is acceptable.. which may not be possible in this case). I do not know the financial information of buyers A, B, and C above but my read on the situation is C&S financially in its current form has strong financial statements.

I think almost any buyer is going to potentially be compared to Haggen. Stater is an exception and I don't know what anyone could say about Stater other than that it doesn't do pharmacy. But I can't think of any other "perfect" buyer who is as "perfect" as Stater is.

[HCal]

Stater is probably not interested in expanding to new markets, and is not an acceptable buyer for most SoCal stores because that would reduce competition. Raley's might have been interested if they weren't preoccupied with Bashas. Save Mart I thought would have been a candidate, not sure what happened to them. I'm sure they talked.

Haggen was a disaster because it was just too small. You can't grow from 18 stores to 164 stores overnight and expect to be successful. That's a growth of over 800%. The issue with C&S is not size, it's the fact that they are a wholesaler rather than a retailer. Their track record as a retailer is abysmal.

[storewanderer]

Stater is probably not interested in expanding to new markets, and is not an acceptable buyer for most SoCal stores because that would reduce competition. Raley's might have been interested if they weren't preoccupied with Bashas. Save Mart I thought would have been a candidate, not sure what happened to them. I'm sure they talked.

Haggen was a disaster because it was just too small. You can't grow from 18 stores to 164 stores overnight and expect to be successful. That's a growth of over 800%. The issue with C&S is not size, it's the fact that they are a wholesaler rather than a retailer. Their track record as a retailer is abysmal.

There are certain SoCal markets where I'd like to see Stater expand its reach. San Diego, Central Coast, and Bakersfield all strike me as logical moves for Stater but they didn't take advantage much during the Haggen transaction and I'm not sure they will during this transaction. Plus what are we talking in the above markets? A couple stores on central coast, maybe a couple stores in Bakersfield, maybe 10 stores around San Diego... Plus we don't know what is for sale this time around either. I don't think 30k square foot Ralphs or 50k square foot F4L Stores would be appropriate purchases for Stater.

Further expansion of Stater into additional territories like Las Vegas or Arizona I'm not even sure they'd be successful there. Many of the Las Vegas Stores are giant Lucky Savon combo size units (but some don't have a pharmacy...) which seem too big for them. Depending what was to get divested in AZ, it may or may not work out for them. I don't think Stater would accept Bashas level performance and I hate to say it but there are a number of things notably bakery/deli and even pricing that I think Bashas actually does better than Stater... I am also not sure Stater could successfully implement its work culture/ethic in the Las Vegas or Arizona Stores.

[ClownLoach]

Stater is probably not interested in expanding to new markets, and is not an acceptable buyer for most SoCal stores because that would reduce competition.

No, a closed, boarded up store subleased to a random fitness center that is under contract to remove and destroy or render permanently inoperable all food related facilities like refrigeration, electrical, plumbing, grease traps, etc to prevent any future use as a supermarket unless the building is demolished and rebuilt is a loss of competition. As we know, Kroger and Albertsons have been pushing for such requirements for any store they close as part of the leases and other operating agreements. There's zero reason to believe that preexisting rights of first refusal by low end businesses like Planet Fitness and EOS Fitness would be nullified by the store being transferred from say Vons to C&S who subsequently closes it, then Planet Fitness swoops in and executes their contractual obligations to make sure it never can be a supermarket again. And when they don't work out they close and now it becomes what, another Ross? A Dollar Tree? It doesn't ever revert back to groceries. That's why the stores have to stay open which means they need operators who know how to keep them open first and foremost.

Read between the lines. The concern is that C&S is not going to keep the stores open and that is disqualifying them despite the fact that they are financially secure. The state AG's and Feds want these stores to be open for business and operating in a competitive manner so they stay open. The court filings talk about what a viable and competitive store is, and there's no way you can say Stater doesn't qualify. And Stater slots in well all across SoCal. Ralphs has basically abandoned San Bernardino county where they are dominant so no issue. Stater is absent from LA for the most part and operates many stores in the 30K range, although they prefer to be in a 45K they could definitely handle a former Ralphs or Vons as they have many smaller ones

Realistically every divest in every market may wind up going to a strong operator expanding into new territory, but that is far less risky than anything going to a loser like C&S who is not able or willing to be a serious competitor. And although they might not want to grow, most operators are smart enough to know that when they're offered a massive expansion opportunity for pennies the sky is the limit. Stater might not want LA County, but if they got a couple dozen viable Ralphs and Vons for a million or less a piece plus another warehouse to service them thrown into the deal they really have nothing to lose and everything to gain. That is probably why Save Mart was gearing up only to learn that Kroger had found a new sucker in C&S to take over and kill their rejects.

The entire issue is that the government authorities don't want to see hundreds of closed grocery stores, and there's a credible concern that's what C&S will deliver. This is why I expect they will state they'll negotiate to approve if they can control the process of divestiture and they can find suitable operators for every market. If they cannot find suitable operators that will keep all stores open then they'll block the deal. That's the way it sounds like it is going to go, and they're not going to buy the argument that a Costco, a Kroger and a Walmart are the same thing.

Since Kroger decides to open Pandora's box and challenge the FTC definition of a grocery store, they're now facing a even stricter definition that the store is convenient, clean, affordable, full service, rewards loyalty of the customer, prices and operates in a competitive manner to attract and retain customers etc. They're not just accepting "a place that sells food." They are more concerned about the competitive behavior because that is what keeps prices down and doors open. Their stated concerns in the lawsuit are that C&S in most cases will be too small and insignificant to provide pricing pressure, and that they lack the experience of creating best in class practices to attract new customers and retain existing ones through loyalty and other measures. Yes, all the Wall Street buzzwords are being used in the lawsuit as weapons against Kroger and Albertsons, and I personally couldn't be happier as they state C&S lacks skill and experience in all of those "buzzword" behaviors that "make a grocery store competitive."

[HCal]

Stater is probably not interested in expanding to new markets, and is not an acceptable buyer for most SoCal stores because that would reduce competition.

No, a closed, boarded up store subleased to a random fitness center that is under contract to remove and destroy or render permanently inoperable all food related facilities like refrigeration, electrical, plumbing, grease traps, etc to prevent any future use as a supermarket unless the building is demolished and rebuilt is a loss of competition. As we know, Kroger and Albertsons have been pushing for such requirements for any store they close as part of the leases and other operating agreements. There's zero reason to believe that preexisting rights of first refusal by low end businesses like Planet Fitness and EOS Fitness would be nullified by the store being transferred from say Vons to C&S who subsequently closes it, then Planet Fitness swoops in and executes their contractual obligations to make sure it never can be a supermarket again. And when they don't work out they close and now it becomes what, another Ross? A Dollar Tree? It doesn't ever revert back to groceries. That's why the stores have to stay open which means they need operators who know how to keep them open first and foremost.

Read between the lines. The concern is that C&S is not going to keep the stores open and that is disqualifying them despite the fact that they are financially secure. The state AG's and Feds want these stores to be open for business and operating in a competitive manner so they stay open. The court filings talk about what a viable and competitive store is, and there's no way you can say Stater doesn't qualify. And Stater slots in well all across SoCal. Ralphs has basically abandoned San Bernardino county where they are dominant so no issue. Stater is absent from LA for the most part and operates many stores in the 30K range, although they prefer to be in a 45K they could definitely handle a former Ralphs or Vons as they have many smaller ones

Realistically every divest in every market may wind up going to a strong operator expanding into new territory, but that is far less risky than anything going to a loser like C&S who is not able or willing to be a serious competitor. And although they might not want to grow, most operators are smart enough to know that when they're offered a massive expansion opportunity for pennies the sky is the limit. Stater might not want LA County, but if they got a couple dozen viable Ralphs and Vons for a million or less a piece plus another warehouse to service them thrown into the deal they really have nothing to lose and everything to gain. That is probably why Save Mart was gearing up only to learn that Kroger had found a new sucker in C&S to take over and kill their rejects.

The entire issue is that the government authorities don't want to see hundreds of closed grocery stores, and there's a credible concern that's what C&S will deliver. This is why I expect they will state they'll negotiate to approve if they can control the process of divestiture and they can find suitable operators for every market. If they cannot find suitable operators that will keep all stores open then they'll block the deal. That's the way it sounds like it is going to go, and they're not going to buy the argument that a Costco, a Kroger and a Walmart are the same thing.

Since Kroger decides to open Pandora's box and challenge the FTC definition of a grocery store, they're now facing a even stricter definition that the store is convenient, clean, affordable, full service, rewards loyalty of the customer, prices and operates in a competitive manner to attract and retain customers etc. They're not just accepting "a place that sells food." They are more concerned about the competitive behavior because that is what keeps prices down and doors open. Their stated concerns in the lawsuit are that C&S in most cases will be too small and insignificant to provide pricing pressure, and that they lack the experience of creating best in class practices to attract new customers and retain existing ones through loyalty and other measures. Yes, all the Wall Street buzzwords are being used in the lawsuit as weapons against Kroger and Albertsons, and I personally couldn't be happier as they state C&S lacks skill and experience in all of those "buzzword" behaviors that "make a grocery store competitive."

Obviously keeping the store open as Stater is preferable to closing it down entirely, but the question shouldn't be between those two options. Neither of those options is sufficient for maintaining competition. The divests need to go to a company that is capable of operating them long-term AND new to the market. If Kroger cannot find a suitable such company, the merger should be rejected.