$9 Billion Deal Would Merge Safeway With Albertsons

We’ll bet a bottle of Honey Locust Farm House Elderberry Elixir against a Safeway Red Mango that Cerberus Capital Management’s offer to buy Safeway for more than $9 billion and merge it with Albertsons is not being toasted by locavores (even with regionally sourced cider). But it’s perhaps instructive to note that the CEOs of both chains were all over the word “local” in their statements announcing the deal.

“Safeway has been focused on better meeting shoppers' diverse needs through local, relevant assortment, an improved price/value proposition and a great shopping experience that has driven improved sales trends,” Safeway CEO Robert Edwards said.

“This transaction offers us the opportunity to better serve customers by adapting more quickly to evolving shopping preferences in diverse regions across the country," said Albertsons CEO Bob Miller. “Together, we will be able to respond to local needs more quickly and deliver outstanding products at the lowest possible price, more efficiently than ever before.”

Safeway is the second-largest grocer in the U.S. after Kroger; Albertsons is currently No. 5. No closings are anticipated, according to the news release. 

“With the purchase, Albertsons would operate more than 2,400 stores, compared with Kroger's 2,640,” reports Tiffany Hsu in the Los Angeles TImes. “Wall Street seemed cheered by the much-rumored acquisition, which many analysts saw as a necessary step in a cut-throat market increasingly crowded with competitors,” Hsu continues, but consumer advocates did not immediately buy into the benefits to customers that the CEOs cited.

“It's scary, as if Coke and Pepsi got together,” Jamie Court, president of Consumer Watchdog, tells Hsu. 

Bloomberg’s Leslie Patton reports that the combined company “will have between $55 billion and $60 billion in revenue, according to Scott Mushkin,” an analyst at Wolfe Research who wrote in a note Wednesday that the rumored deal would “create a dominant West Coast operation as well as meaningfully enhance the eastern portion of the company, known as New Albertsons.” 

Under the terms of the deal, Albertsons’ Miller will become the executive chairman of the new company and Safeway CEO Edwards “will retain that position for the combined grocery store businesses,” Michael J. de la Merced and William Alden report in The New York Times.

“The deal, which is expected to close in the fourth quarter of this year, includes a ‘go-shop’ period, during which California-based Safeway can actively solicit other offers,” the Financial Times’ Anjli Raval and Ed Hammond write.

“If successful, the bid will continue the consolidation that has changed the landscape for traditional supermarket operators amid greater competition from upscale chains such as Whole Foods Market, warehouse club operators like Costco and retail giant Walmart,” Raval and Hammond point out.

Writing in the San Jose Mercury News, Heather Somerville has a more skeptical take on the consolidation’s impact on store closings than management asserts, but says that the deal could “transform Safeway into a neighborhood grocer that more closely resembles Trader Joe's, according to analysts and industry watchers.”

And that’s the way the industry is trending, with Arizona’s Sprouts Farmers Market as another example.

“The supermarket was built on the principle of, if you're 8 years old to 80, we carry everything in the store for you,” Frank Dell, president and CEO of consulting group Dellmart & Co. tells Somerville. “I just don't see bigger as being better anymore.”

“When I go into a Trader Joe's, I never want to leave,” added Supermarket News editor Phil Lempert. “I want to work there. I want to wear the shirt and ring the bell.”

Many analysts expect Kroger to make its own bid for Safeway, as Forbes’ Maggie McGrath reports. Its executives “danced around ‘the elephant in the room’ in declining to discuss future merger and acquisition plans on its fourth-quarter conference call Thursday morning,” Michael Johnsen reports in Drug Store News

Kroger outbid Cerberus last year to acquire Harris Teeter in a deal that closed in January. Kroger posted strong fourth-quarter results yesterday — an adjusted 4.8% sales increase over the previous year, which had an extra week.

"We introduced 937 new products in fiscal 2013, including 100 Simple Truth items," said president and COO Michael Ellis during the call. The line is an umbrella designation for offerings that are organic, natural or “free from the 101 artificial preservatives and ingredients that our customers told us they didn’t want in their foods.” Ellis expects Simple Truth to reach billion-dollar brand status by the end this fiscal year.

There are, of course, members of the locavore movement who, like Jennifer Maiser, maintain “the great thing about eating local is that it's not an all-or-nothing venture. Any small step you take helps the environment, protects your family's health and supports small farmers in your area.”

One thing that’s clear is that the conglomorateovores are tapping into that embracing sentiment even as they grow larger.

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2 comments about "$9 Billion Deal Would Merge Safeway With Albertsons".
  1. Kern Lewis from GrowthFocus, Inc. , March 7, 2014 at 10:08 a.m.
    Safeway (prior to a bidding war) is valued at about half of what Facebook considers WhatsApp to be worth. "Things that make you go 'hmmmm...'"
  2. Paula Lynn from Who Else Unlimited , March 7, 2014 at 2:02 p.m.
    What is the biggest threat to small businesses ? To employment ? To supporting other conglomerates selling their products exclusively ? To the media biz ?