The good news for Kroger and Albertsons is that they have a firm District Court date (August 26) to have their merger case heard in open court. The potential bad news is that the hearing will be held in Portland, OR, one of the most liberal cities in America, and Oregon is one of the eight states (plus Washington, DC) to join the FTC which sued to block the deal.
Clearly, the FTC in its suit sought the narrowest of paths to quash the $24.6 billion merger attempt. You can argue that such a deal would or would not lower prices, may or may not increase the combined entities’ buying power significantly, or would or would not be beneficial to consumers (including if the divested stores remain open for a period of beyond two years and provide a positive customer shopping experience).
What can’t be argued and should be taken as a public benefit is the fact the Kroger (the lead player in this) would invest $1.5 billion into the Albertsons stores that would be retained. And Kroger’s commitment to invest an additional $1 billion to continue raising wages and benefits to its associates if and when a deal might close should be considered a major positive by the FTC.
Since 2018, the Cincinnati-based merchant has spent $1.2 billion on its current employees.
Also puzzling to virtually everybody in the industry is the FTC’s continued reliance on an early 90s policy that doesn’t include alternative retailers that sell food (e.g., Walmart, Amazon, Costco, Target, Dollar General) as part of the competitive landscape. If this case does go to trial, I’m certain this will be one of the first and most important points attorneys for Kroger and Albertsons will proffer.
And then there’s C&S Wholesale Grocers. The Keene, NH-based distributor to thousands of independent retailers nationally was essentially mocked by the FTC as a legitimate retail player in the equation. Yes, you can make the argument that C&S corporate retail ownership is thin (23 stores), but it does have extensive experience with corporate retail and undoubtedly will be getting assistance from Kroger and Albertsons if the deal is approved. Conversely, if C&S is forced from its role as a third-party solution (something that is being vigorously contested by Kroger and Albertsons) the two big retailers will be hard-pressed to find a replacement partner.
Since the FTC rejected the merger on February 26, our source network (from both chains) has loosened up considerably. Here’s what some of those contacts have told us:
The original list of 413 stores to be divested to C&S has been revised to include more profitable stores (mostly Albertsons units – only 24 stores on that list were units owned by Kroger). The physical number didn’t change, but the store locations did.
Moreover, the 237 “contingency” stores that C&S would acquire if necessary are almost certain to be included in the total divestiture amount. And, according to one of our sources, 650 stores might still not be enough to satisfy the FTC (Kroger can walk away from the deal if the number exceeds 650 supermarkets. However, it would have to pay Albertsons a $600 million breakup fee – although to this point Kroger has stood firmly with Albertsons to fight the FTC ruling).
I applaud both Kroger and Albertsons for continuing to battle on all fronts to gain approval for this potential historic merger. However, I just don’t see FTC chairwoman Lina Khan altering her anti-big business stance, despite some significant losses in previous court challenges brought by Microsoft, Meta and United Health Group (and I predict another loss in the Amazon suit which is ongoing).
The destiny of this case lies in a District Court in Portland beginning on August 26 (and then likely to an appellate court).
I’d still consider it a longshot, but it’s the best chance for Kroger and Albertsons to ultimately prevail. Then again, anything beyond Lina Khan’s direct purview should be considered an advantage.
‘Round The Trade
…in the sorry cases of Walgreens and Rite Aid, the nation’s second and third largest drug chains, we have some news to report. When Walgreens purchased the controlling stake (63 percent) in primary care provider VillageMD for $5.2 billion in October 2021, the Deerfield, IL-based drug merchant saw the purchase as a pathway to broaden its healthcare opportunities. Now less than three years later, Walgreens has already closed or will be shuttering 160 clinics (about half of the original total) and recently posted a $5.8 billion Q2 loss. That’s a large part of the company’s overall second quarter loss of $13.2 billion. That’s bad enough, but worse when you consider that Walgreens earned $197 million in profit during the corresponding period last year.
At even more bereft Rite Aid, bankruptcy court judge Michael Kaplan has allowed the Philadelphia-based firm to begin voting on a restructuring plan. Rite Aid’s proposal calls for a $2 billion debt reduction. If it’s not sold before bankruptcy proceedings end (expected on April 22), then I’m betting that a sale will still occur after the process officially culminates.
It’s not just challenging for many retailers in-store, their digital businesses have also struggled. That’s according to the latest online data released by the Brick Meets Click/Mercatus Grocery Shopping Survey for February. Total online grocery sales dipped 10 percent (to $7.9 billion) compared to last year with the biggest declines coming from the supermarket sector. And for a change, the only portal to show an increase from recent trends was delivery (usually pickup is the big gainer, while ship-to-home volume continues to decrease).
And in a somewhat related story, market research firm Circana (formerly called IRI and NPD), noted that private label dollar sales increased 6 percent (unit sales grew 0.9 percent) in 2023.
“Private brands are increasingly capturing market share from name brands, experiencing growth in both dollar sales and units,” said Mary Ellen Lynch, principal of center store solutions for the Chicago-based consumer behavior firm. She added the data reflects consumers utilizing a variety of methods to stretch their dollars.
Unilever has elected to sell its ice cream business which includes such popular brands as Ben & Jerry’s, Breyers and Good Humor. In corporate speak, Ian Meakins, chairman of the London-based packer, said the move, which represents about 13 percent of the global manufacturer’s annual sales (about $8.6 billion), would create a “simpler, more focused and higher performing Unilever.”
In an important story (and one that’s often overlooked because of its lack of glamour), Visa and Mastercard (along with many of the nation’s largest credit card issuing banks), have agreed to settle a decades-old legal dispute with thousands of merchants who claimed the imposition of “swipe fees” was illegal.
Visa and Mastercard have agreed to lower the fees to an average of about 2 percent which a federal judge still needs to approve. While it may be good news that the stalemated over these usurious fees may have been broken, there are still plenty of smaller merchants who believe the settlement is merely eyewash and does little to provide them with enough relief to matter. In my view, this is merely a first step in a longer term negotiating process between retailers and powerful financial institutions. Détente? Possibly. A long-term solution. Hardly.
Local Notes
Ahold Delhaize USA (ADUSA) said that the previously announced plan to fold its Retail Business Services (RBS) and Peapod Digital Lab units into its core ADUSA business was completed on March 31. The big retailer said the move was initiated to simply its U.S. business and make it easier to partner with its companies. The company’s retail brands (banners) are not affected.
I had a chance to visit the first Walmart/Wonder unit which opened in February in Quakertown, PA and left intrigued. The space is less than 1,000 square feet (typical of a Walmart-connected foodservice establishment) and the array of ethnic and specialty menus (about seven) which collectively feature about 100 items was impressive, especially when you consider that the items arrive from Wonder’s assembly plants not fully cooked.
From the self-ordering kiosks to the technology deployed inside a tiny kitchen area, the results were impressive. But not perhaps impressive enough to make a semi-rural location like Quakertown a winner. Based strictly on demographics, other Wonder units slated for Walmart stores in Ledgewood, NJ and Teterboro, NJ should fare better (the location of the fourth Wonder has not yet been revealed). Then again, Wonder’s offerings aren’t inexpensive and the formula for any entrepreneur to master the ghost kitchen concept has been elusive thus far. But when it comes to Mark Lore, master builder, who just raised another $700 in funding capital, I wouldn’t bet against the man.
Harris Teeter opened its newest store earlier this month in the Ballston section of Arlington, VA. The new unit actually replaces the first HT supermarket to open in the DC area in 1999. At that time, under the leadership of the great Fred Morganthall, the Matthews, NC-based regional chain (acquired by Kroger in 2014) developed an aggressive plan to build more than 35 stores in the Washington market after Giant Food was sold to Ahold…also debuting this month was another Grocery Outlet discount unit in Rehoboth Beach, DE…Trader Joe’s confirmed two new DC area locations (which were previously reported) in Leesburg, VA and West Springfield, VA. Both stores will open later this year.
Maola Local Dairies, owned by the Maryland & Virginia Milk Producers Cooperative, announced that it is expanding into the Delaware Valley market after its acquisition of the old HP Hood milk plant last month. The cooperative also operates other milk plants in Landover, MD (the old Giant Food facility); Laurel, MD; Newport News, VA: Strasburg, VA; and High Point, NC.
A tip of the hat to the Sleeper family, owners of Imperial Distributors, the large HBC and general merchandise distributor based in Worcester, MA. The company announced last month that patriarch and longtime CEO Mike Sleeper has transitioned into the executive chairman role and Naomi Sleeper has become president and chief growth officer. Joe Kirby, one of the best salesmen in the entire food business and a man possessed with a 30-pound brain, has been named CEO and will oversee day-today operations. The company was founded in 1939 by Mike’s father and Naomi’s grandfather, Frank Sleeper. The announcement is good news for all, especially the retailers who deal with Imperial. Talented and generous people always have an advantage.
We have a couple of obituaries to report this month including Peter Angelos, who until very recently was the owner of the Baltimore Orioles, passed away late last month at the age of 94. The feisty attorney who gained wealth and fame as the chief litigator in class action suits against big tobacco and asbestos manufacturers, was also a man of generosity, contributing to many charities and educational endeavors in Baltimore.
In 1993, he became the lead partner in acquiring the Baltimore Orioles for $173 million (the team was recently sold to businessman and Baltimore native David Rubinstein and a group of investors for $1.73 billion) and helped bring local pride to the team which had been owned by Baltimore native Jerry Hoffberger from 1955 to 1979. And for the first decade of his ownership, the Orioles returned to the high level of play they had demonstrated until the mid-1980s.
After a few failed free agent signings and a notable falling out with their manager (and former player) Davey Johnson, Angelos became a virtual shut-in – no longer speaking to the media and radically cutting his baseball budget. Although Peter Angelos became maligned by many O’s fans for his stinginess and stubbornness, I tend to think of him as someone who loved Baltimore and helped revive one of its greatest treasures.
M. Emmett Walsh has also left us. If you’ve never heard of the esteemed Mr. Walsh surely you’ve seen him. In my book, he was the pre-eminent “that guy” and appeared in 234 film and TV roles in a career that spanned 66 years. The late film critic Roger Ebert once called the pudgy Walsh, the “poet of sleaze” for his realistic portrayals of lowlifes and reprobates. Ebert also coined the “Stanton-Walsh Rule,” noting that any movie that featured Harry Dean Stanton (another great character actor) or Walsh can’t be altogether bad.
If you want to familiarize yourself with some of his best work, watch “Straight Time” (1978), which starred Dustin Hoffman as a sniveling ex-con loser and Walsh as his enabling parole officer. Great byplay between two excellent actors. Also, “Blood Simple” (1984), the first feature film directed by the Coen brothers, which featured Walsh as an unscrupulous private detective attempting to unravel a murder. His role made you feel very uncomfortable. Walsh was 88 when he died.