The revelation last week of the grocery stores that would be sold in a proposed merger between Kroger and Albertsons has raised almost as many questions as it has answers.
On the one hand, Washingtonians finally know which of the 124 locations in the state Kroger, owner of QFC and Fred Meyer, and Albertsons, owner of Safeway and Haggen, offered to “divest” to New Hampshire-based C&S Wholesale Grocers in order to win regulators’ approval for the controversial $25 billion merger.
On the other hand, consumers and workers still have very little visibility on the local impacts of an agreement that would give almost half of the bigger The Seattle area has about 160 Kroger and Albertsons stores, whose major retail operations include the interestingly named Piggly Wiggly chain.
It would likely be the biggest change ever to the Seattle-area grocery landscape, which has already seen plenty of disruption, most recently the struggles of PCC Community Markets.
Buyers and workers still don’t know if they will find their The neighborhood Kroger or Albertsons store on the list of 617 nationwide — up from 579 on Tuesday — means they must prepare for big changes or expect things to continue as usual.
What would a loyal QFC customer think, for example, if all but one QFC (the University Village store in Seattle) went to C&S, which also buys the QFC brand, or “banner”?
Will these stores remain as QFCs, or “are we going to become Piggly Wiggly people?” joked a QFC employee bound for C&S in Seattle’s Wallingford neighborhood last week, who declined to give his name to protect his job.
And what will happen to the stores that aren’t sold to C&S? Should Fred Meyer fans feel relieved that none of those stores are part of this big deal? Should Safeway customers and employees be reassured or concerned that two-thirds of the Everett, Seattle, Bellevue and Tacoma stores will remain with Kroger-Albertson?
Does this mean Kroger-Albertsons plans to modernize these stores with, for example, better technology and enhanced security?
That would be welcome in places like the Othello Safeway in Seattle’s Rainier Valley, which has long struggled with crime and maintenance, said Sarah Valenta, a Rainier Valley resident who oversees community and business development at HomeSight, a nonprofit focused on housing and small businesses.
If keeping its stores means Kroger-Albertsons plans to “invest in our community, that’s encouraging,” she said. As things stand at the Othello Safeway, “honestly, sometimes you feel like you’re in a post-apocalyptic time period when you walk in there,” Valenta added.
Such uncertainty about the grocery landscape after the merger is hardly surprising.
Few Seattle-area shoppers are likely familiar with C&S, which is primarily a wholesaler with a relatively small retail operation of about 160 locations, primarily in the Midwest, Northeast and Southeast.
The divestiture plan has been criticized as inadequate by federal and state regulators, who question whether C&S has the ability to compete with a combined Kroger-Albertsons company — despite repeated assurances from all three companies.
Then there remains the enigma of the divestments themselves: why do some locations disappear and others remain? And what does this combination tell us about the prospects of each location?
The composition of the divested stores reflects a complicated deal between Kroger, Albertsons and C&S Wholesale, as well as federal and state regulators who must approve the merger and could still oppose the deal overall, business experts say.
Not only are sellers and buyers trying to get the best possible locations at the best price, they are also trying to build a pool of locations that they hope regulators will see as preserving competition in markets where Kroger and Albertsons currently 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,” Harford said of the laborious, site-by-site negotiations needed to assemble a divestiture package that “satisfies the regulators and is something that C&S is willing to pay for.”
One way to understand the list of divestitures is to consider how they fall into four categories, said Kevin Boeh, a mergers and acquisitions expert at the Foster School.
First, there is the group of stores that companies were forced to sell to satisfy regulators’ concerns about a loss of competition — for example, a Safeway that is “adjacent, in the same mall or just down the street from a Fred Meyer,” Boeh said.
A second group, Boeh said, contains locations that Kroger and Albertsons might have sought to sell — 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 to a Target grocery store, a Trader Joe’s or a Walmart,” Boeh said.
A third group contains locations that C&S might have found particularly attractive, such as stores in upscale neighborhoods with little nearby competition, such as the QFC on Novelty Hill in Redmond.
Boeh speculates that these are “high-priced locations (where) maybe the QFC label doesn’t work… or maybe the Safeway label doesn’t work,” and C&S thinks it might be profitable to upgrade the location to something closer to a “Met Market, Whole Foods, Sprouts type…”
A fourth group, Boeh said, involves locations not on the list — the stores that, for one reason or another, Kroger and Albertsons believe will work best under their new combined structure.
Boeh cites the Cle Elum Safeway, which has little local competition and massive volume coming off Interstate 90, as an example of the stores Kroger and Albertsons should keep: “incredible stores where we just have control of the market.” Same for the QFC in University Village.
However, while it is possible to decipher the reasons for the divestment plan, it is much more difficult to predict whether this plan can work as a retail operation.
Some consumers worry that C&S will struggle to operate its new stores in a market so tough that Kroger and Albertsons said becoming much larger through a merger was the only path to survival.
Even with the divested stores, C&S will have perhaps one-sixth the retail footprint of a combined Kroger-Albertsons.
“If (Albertsons) and Kroger are saying they’re not big enough to compete, how is it that C&S Wholesale, a small company with little experience in grocery retail, can compete?” asked 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 of the divested stores, like those of the locations not listed, will depend in part on the strategies and capabilities of their respective owners after the merger.
Harford, for example, believes that C&S, with its extensive wholesale operations, probably already has the scale to negotiate competitively with food manufacturers.
However, he and Boeh believe that the fate of individual stores also depends on external factors beyond management’s control.
These include increasing competition from players such as Amazon and Walmart and new preferences among some consumers for, for example, home delivery rather than in-person shopping.
But they also include store-specific factors, such as road access and neighborhood demographics, that were likely already helping, or hurting, sales before a merger was even proposed.
As Harford says, “If you still go there and it looks like a ghost town, that’s not a good sign.”