Kroger and Albertsons have a new deal in place to divest more stores to C&S Wholesale Grocers as part of their proposed merger.
In order to complete the $24.6 billion merger, the two companies are looking to offload an additional 166 stores to C&S.
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The backstory: The initial proposal had Kroger selling 413 stores to C&S as part of a divestiture plan.
- C&S would have paid $1.9 billion for the stores.
- But the Federal Trade Commission and close to a dozen states – including California – filed a lawsuit to block the deal, arguing that the merger would lead to higher prices and job losses.
The big picture: In order to ease concerns from regulators, Kroger and Albertsons are now offering to sell 579 stores to C&S for a total of $2.9 billion.
- C&S would also have access to Albertsons Signature and O Organics private label brands.
- C&S has committed to not close down any of the stores that it acquires.
State of play: If the divestiture plan goes through, C&S – a privately-owned company that does over $20 billion in sales – would become the 12th largest grocer in the nation in terms of stores and eight in total retail and wholesale.
- Kroger and Albertsons, combined, would become the fifth largest grocer with roughly 4,400 stores and second in sales at $160 billion.
- Even with $160 billion in sales, Kroger and other traditional supermarket grocers have lost significant market share to Walmart over the past couple of decades.
- Supermarket grocers held nearly 80 percent of the market 20 year ago, but now they have a market share of under 40 percent.
- Walmart held a $24 billion lead over Kroger 20 years ago. It’s currently at $200 billion, and with $321 billion in sales, Walmart would have over double the sales that a merged Kroger and Albertsons would have.
What they’re saying: “C&S is an excellent divestiture partner,” said Scott Moses, the head of grocery, pharmacy and restaurants for financial advisor Solomon Partners. “They’re one of the largest, strongest, most accomplished grocery companies in the United States. It’s a $20 billion family business with a long track record of success.”
- Along with echoing Kroger by committing to no store closures or frontline job losses, Moses expects C&S to have long-term licensing agreements in place to retain the grocery brands that it purchases in the divestiture.
- “There have been previous divestiture buyers that literally changed the name on the door in a market where basically no one had ever heard of them before to some new banner that customers didn’t know, and it did not go well,” Moses said. “So the intention here is to correct that mistake and make sure that customers won’t even know the difference. There should be complete continuity, loyalty to those banners, and they should continue to perform very well as strong competitors in these markets.”
