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Not surprisingly, lots of email about the proposed Kroger-Albertsons merger…

An MNB reader weighed in:

The pending merger of Kroger and Albertsons has a defined strategy for a spinoff of 100 - 375 stores into what is known as a SpinCo.  SpinCo’s exist for at least two major reasons:

1) To appease the regulatory authorities regarding unfair density and dominance in overlapping markets.  This is how the disastrous Albertsons-Haggen deal came about in 2014 when Albertsons was acquiring Safeway.  These SpinCo’s are generally starved for resources (capital, headcount and skills) and only exist to gain regulatory approval and generate whatever financial return possible by an eventual firesafe of the outlets.  Haggen and its PE investors regrettably took on an overwhelming acquisition that quickly collapsed affecting markets, service providers and consumers.

2) As a financial tool to divest of distressed assets.  Selection of the outlets to be divested to the SpinCo will weigh heavily toward the worst properties (both physically and financially).  Unfortunately, this tends to be in areas of lower income demographics and sometimes can create a food-desert should the result eventually be bankruptcy or outlet closures.  A few of these stores may eventually make their way into the mix of regional grocers…but, largely, the majority will just whither.

While I am not a fan of large, complex mergers (they seem to hurt everyone except the executives and seldom produce the promised results for shareholders), the West Coast, particularly sections of California and Washington, are over-stored and ripe for a clean-up.  This is an economic reality and of course is one of the reasons Albertsons was seeking “strategic alternatives” in the first place.  Lots of stores in these markets have excess capacity to service more customers (inefficiency), which in a low-margin business like grocery, is a business loser.

It will be interesting to see how this plays out, but I expect plenty of disruption and pain well beyond a potential 2024 deal close.

From another MNB reader:

Your email box must be exploding with the blockbuster news of Albertsons and Kroger. Nothing surprises me these days of goings on in the food industry. I find Rodney McMullen's comments about being able to lower prices to compete with Walmart quite amusing. Who is he kidding? Walmart’s retails are so much lower across the board today than Fred Meyer, Safeway, Ralph’s, Fry’s, Albertsons, etc. and other Kroger banners. The investment Kroger would have to make to reduce their retail pricing to match Walmart pricing is not going to happen. They can probably compete on private label pricing, but I do not see how they would be able to do so on many of the branded skus, unless Kroger management will radically change their promotional strategy on branded categories. In many instances Walmart everyday retails on branded items are cheaper than advertised prices at Kroger banner stores. Really good EDLP operators like Winco will continue to do well regardless.

MNB reader Rudy Dory wrote:

It’s the private equity company finally getting to cash in. In our town we have 5 Safeway Albertsons and a Fred Meyer.  I have always admired how Kroger can buy a company and not screw up the operation unlike some former Safeway or Albertsons mergers. I’ll bet Joe Albertsons is spinning like a propeller in his grave seeing the demise of his once great company.

I agree that Kroger has a better reputation for what happens when it buys companies than Safeway did … but I also know people in the Chicago market who have not been impressed by how it has handled the Mariano's acquisition.

One MNB reader wrote:

This is indeed shocking. But you neglected to comment on what the ripple effect this would have on the vendor and food broker community. Kroger has consolidated their KMA’s (divisions) into Cincinnati. New item introductions, promotions, marketing programs, etc. are all done in Cincinnati Very little people presence is found at the KMA level. The result is the loss of thousands of jobs if they follow this strategy of consolidation. Star Trek fans will understand – We are the Borg. Resistance is futile. You will be assimilated.

MNB reader Andy Casey wrote:

My guess is FTC will certainly oppose this vigorously. If it does go through, Amazon might be a big winner if they can pick up some stores being shed as duplicates. From the FTC’s perspective that could protect consumers by keeping another large competitor in major markets rather than closing stores or letting stores go to much smaller competitors who would struggle to absorb them. 

Still another MNB reader wrote:

Big overlap here in Colorado. Could be a opportunity for WinCoo expand their footprint.

Y'know, "SpinCo" rhymes with "WinCo."  Just sayin'.

And from yet another:

The FTC would not allow Walgreens and Rite Aid to merge, no way they will allow this without thousands of stores divested. In SoCal alone Albertsons/Vons/Ralphs would be a dominant presence, DFW would be Kroger/Tom Thumb/Randall/Albertsons.. Not sure the numbers but crazy market share. Plus neither is a “great” operator.  

From MNB reader Bob D’Amato:

Long term Star Market/Shaws employee here (over 48 years, now retired). Managed to survive acquisitions from Jewel, American Stores, Investcorp, Sainsbury/Shaw’s, Albertsons, Supervalu, Cerberus/Albertsons. I’m very interested to see how this will affect Shaw’s and Star Market retail, support, distribution and transportation now that they have become even smaller pieces of a very large company.

Another MNB reader wrote:

Any word yet on the line for SpinCo lasting longer than Haggen did?  Standing at the helm with arms firmly crossed to watch that thing hit an iceberg will be a nice, easy last stop for any executive approaching retirement.  Not so much for the front-line, suppliers, and landlords unfortunately.  And kudos to whomever came up with the name!

And from yet another:

Well, this is horrible. 

Thankfully, I’m just about done working in this industry. The consolidations make it almost impossible to be an independent retailer anymore. 

I hope America likes their food supply controlled by a few players who are lining their pockets. You know, like our healthcare system.