Last week’s reveal of the grocery stores that would be sold under a proposed Kroger-Albertsons merger has generated nearly as many questions as answers.
On the one hand, Washingtonians finally know which of the state’s 124 locations that Kroger, owner of QFC and Fred Meyer, and Albertsons, which owns Safeway and Haggen, have offered to “divest” to New Hampshire-based C&S Wholesale Grocers in order to win regulators’ approval for the contentious $25 billion merger.
On the other hand, shoppers and workers still have very little clarity about the local impacts of a deal that would hand nearly half of the greater Seattle area’s roughly 160 Kroger and Albertsons to a company whose main retail operations include the interestingly named Piggly Wiggly chain.
It arguably would be the biggest-ever change in a Seattle-area grocery landscape that has already seen plenty of disruption, most recently with the struggles of PCC Community Markets.
Shoppers and workers still don’t known whether finding their neighborhood Kroger or Albertsons store on the list of 617 nationwide — up from 579 on Tuesday — means they should brace for big changes or expect business as usual.
What’s a loyal QFC shopper to make, for example, of the fact that all but one QFC — the store in Seattle’s University Village — would go to C&S, which is also buying the QFC brand, or “banner”?
Will those stores remain like QFC, or “are we going to become Piggly Wiggly people?” joked a worker last week at the C&S-bound QFC in Seattle’s Wallingford neighborhood, who declined to give their name to protect their employment.
And what happens to the locations that aren’t sold to C&S? Should Fred Meyer fans feel relief that none of those stores are part of this grand bargain? Should Safeway shoppers and staff be comforted or concerned that two thirds of the stores in Everett, Seattle, Bellevue and Tacoma would stay with Kroger-Albertsons?
Does that mean Kroger-Albertsons plans to upgrade those stores with, say, better technology and improved security?
That would be welcome at locations such as the Othello Safeway, in Seattle’s Rainier Valley, which has long struggled with crime and upkeep, said Sarah Valenta, a Rainier Valley resident who oversees community and business development at HomeSight, a nonprofit focused on housing and small businesses.
If holding on to locations means Kroger-Albertsons plan “to invest in our community, that is encouraging,” she said. As it stands now at the Othello Safeway, “honestly, sometimes it feels like you’re in postapocalyptic times going in there,” Valenta added.
Such uncertainty about a postmerger grocery landscape is hardly surprising.
Few Seattle-area shoppers probably know much about C&S, which is primarily a wholesaler with relatively small retail operation of around 160 locations mainly in the Midwest, Northeast and Southeast.
The divestiture package has been criticized as inadequate by federal and state regulators, who question whether C&S has the capacity to compete with a combined Kroger-Albertsons — despite repeated assurances by all three companies.
And then there is the puzzle of the divestitures themselves: why are some locations going and others are staying? And what does the mix tell us about the prospects for each location?
According to business experts, the mix of divested stores reflects a complicated bargain among Kroger, Albertsons and C&S Wholesale, as well as the federal and state regulators who must approve the merger and could still oppose the entire deal.
Not only are the sellers and buyer trying to get the best possible locations for the best price, they’re trying to assemble a pool of locations that they hope regulators will see as preserving competition in the markets where Kroger and Albertsons now compete, said Jarrad Harford, chair of the finance and business economics department at the University of Washington’s Foster School.
“It’s a very difficult puzzle to solve,” said Harford, about the laborious location-by-location negotiations go into assembling a divestiture package that both “satisfies the regulators and is something that C&S is willing to pay for.”
One way to understand the divestiture list is to consider how they fall into four buckets, said Kevin Boeh, a mergers-and-acquisitions expert at the Foster School.
First is the bucket of stores the companies were forced to sell to satisfy regulators’ concerns about a loss of competition — for example, a Safeway that is “adjacent to, in the same shopping center or just down the street from a Fred Meyer,” said Boeh.
A second bucket, Boeh said, contains locations that Kroger and Albertsons might have been looking to offload — locations that, for example, were too close to a competing grocery retailer or a hybrid retailer, like Walmart, that also sells groceries.
Many of the Kroger and Albertsons locations on the divestiture list “are literally right next door to a Target Grocery, a Trader Joe’s or a Walmart Supercenter,” said Boeh.
A third bucket contains locations that C&S might have found especially attractive — for example, stores in upscale neighborhoods with little nearby competition, such as the QFC on Novelty Hill in Redmond.
Boeh speculates that these are “high-dollar locations [where] maybe the QFC label is not working … or maybe the Safeway label isn’t working,” and C&S thinks it could profitably upgrade the location to something more along the lines of a “Met Market, Whole Foods, Sprouts … type of thing.”
A fourth bucket, Boeh said, are the locations not on the list — stores that, for whatever reason, Kroger and Albertsons think will work best under their new combined structure.
Boeh points to the Cle Elum Safeway, which has little local competition and massive volume from Interstate 90, as an example of Kroger and Albertsons’ keepers — “incredible stores where we just have a lock on the market.” Ditto on the QFC in University Village.
Still, while it might be possible to decipher the whys of the divestiture package, it’s much harder to predict whether the package can work as a retail operation.
Some shoppers remain concerned that C&S may struggle to operate its new stores in a market so challenging that, according to Kroger and Albertsons, getting much larger via a merger was the only path to survival.
Even with the divested stores, C&S will have maybe a sixth of the retail footprint of a combined Kroger-Albertsons.
“If [Albertsons] and Kroger claim they are not big enough to compete, how is it that C&S Wholesale, a smaller company with little retail grocery experience, is expected to be competitive?” wondered Mark Sindelar, whose local QFC, on Novelty Hill Road in Redmond, is on the divestiture list.
Experts like Boeh and Harford agree that the future for divested stores, like those for locations that didn’t make the list, will depend in part on the strategies and capabilities of their respective postmerger owners.
Harford, for example, thinks C&S, with its extensive wholesale operations, probably already has the necessary scale to negotiate competitively with food manufacturers.
Still, he and Boeh think the fate of individual stores also comes down to external factors out of management’s control.
These include rising competition from players such as Amazon and Walmart and some consumers’ new preferences for, say, home delivery over in-person shopping.
But they also include factors particular to each store, such as road access and neighborhood demographics, that were probably already helping, or hurting, sales even before a merger was proposed.
As Harford puts it, “if you’re always going in there and it looks like a ghost town, this is not a good sign.”
