business news in context, analysis with attitude

Regarding the proposed Kroger-Albertsons deal, one MNB reader wrote:

My immediate reaction to the announced sale of stores to C&S was that, outside the Pac NW, the stores being divested in other geographies do not provide enough scale in their markets to become viable competitors to the merged Kroger/Albertsons stores. The small number of stores scattered across CA, NV, AZ, NM and CO feels like they are creating 2-3 new Haggen’s across these markets, not standing up viable competitors. 

To provide the necessary scale for C&S to be successful in these markets the store counts need to be significantly increased. I think the FTC is keenly aware of this and it will remain a point of contention that will probably need to be resolved, most likely in court. 

MNB reader Mark Heckman chimed in:

Many of the big wholesalers in past years got out of retailing as it brings complexities that were incompatible with their core strengths.   I am doubtful that C&S is up to the task, nor will the new Kroger-Albertsons Company be able to lower prices given their new debt load.   But the deal will ultimately happen and let’s see how it evolves. 

MNB reader Al Furst wrote in about the Seeking Alpha story that we referenced:

I also had much reservation about the Haggen acquisition having any chance to succeed. I also agree that any acquirer of the pending Kroger/Albertsons divestitures will be challenged taking on such a vast portfolio and dealing with the intense competition in the sector. However, this article characterizing C&S as a 160-store operator, instead of a $20 billion plus grocery wholesaler with decades of experience, including some retail, is way off base. I’m not sure the FTC’s job is to guarantee success, but I would give C&S 10x the odds of success over SpinCo.

Frankly, I don’t think there are adequate retail grocery partners out there who could satisfy Kroger or the FTC’s needs regarding divestitures. Size, experience, existing nation-wide presence, union-friendly…I did not see many other options. All that said, I’m guessing another 100-150 stores are added to the deal and the FTC will reluctantly go with it.

That would be my bet.