1. Channel: Grocery

In Washington State, Intensive Scrutiny Of Kroger-Albertsons Deal

The Seattle Times has a piece about the proposed $24.6 billion acquisition of Albertsons by Kroger, and the companies’ saying that they will sell 413 stores, including 104 in Washington State, to C&S Wholesale Grocers in order to get Federal Trade Commission (FTC) approvals.

While Kroger has pledged that it will not close any stores once the deal goes through, “the no-closure language almost certainly doesn’t bar C&S from closing or selling stores in the future … Some merger critics go further. Seven local chapters of the United Food & Commercial Workers, representing more than 100,000 Kroger and Albertsons employees, argue that the sale may be structured in a way that actually encourages C&S to sell certain locations as real estate, instead of trying to run them as grocery stores.”

The Times writes that “such criticisms are likely to mount as the regulators and others scrutinize the proposed sale. Merging companies are typically required to sell, or divest, locations that are close to one another in order to maintain competition in those markets.

“That scrutiny will be especially intense in Washington, which has a large concentration of Kroger and Albertsons stores and the biggest number of stores that could be sold.”

However, the Times also reports that “Burt Flickinger, a grocery industry veteran who is working with Kroger on the merger, argues that C&S is highly motivated to keep every location it can get. 

“First, C&S is eager to expand its retail operation, which is currently only around 160 stores, to achieve scale-related savings, Flickinger said during an interview Thursday arranged by Kroger.

“Such efficiencies will be key in a highly competitive grocery industry dominated by Walmart, Kroger-Albertsons and Costco.

“Second, C&S can make more money as a grocery retailer than it can solely as a wholesaler, which is the bulk of its current business, Flickinger said.  ‘Selling wholesale groceries is a penny profit on every dollar after tax, where corporate retail can be one-and-a-half- to two cents profit after tax,’ Flickinger said. ‘So it’s more profitable for C&S to keep and expand its corporate store operations,’ he said.”

KC’s View:

If Burt Flickinger and Scott Moses think that this is a deal that makes sense, I’m inclined to believe them – but that may just be because they both know how to tell the story in a way that seems credible.

And, as I’ve said here before, I tend to think that C&S’s bandwidth for retailing and capacity for implementation is being underestimated by some.

That said, we’re still at the beginning of the story, with many chapters yet to be written, some of them by the FTC and some of them by lawyers.  And the denouement will be written by shoppers, who will have the final say on whether this is a deal that serves them best.

The post In Washington State, Intensive Scrutiny Of Kroger-Albertsons Deal appeared first on MNB.

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