“Today’s announcement changes nothing. The merger is not a done deal, far from it. We remain focused on stopping the proposed mega-merger for the same reasons we have stated since it was first announced over 20 months ago – because we know it would harm workers, it would harm shoppers, it would harm suppliers and communities, and it is illegal. The merger proposal was rejected in January and February by the Attorneys General from the states of Colorado and Washington and the Federal Trade Commission. We applaud their actions. They have been in possession of this proposed divestiture list, made public today by the companies, for months and that did not change their opposition to the proposed merger.”
That’s the UFCW’s response to the release of the list of stores that Kroger and Albertsons plan to sell to C&S.
Despite providing more public transparency by releasing that list, the two big retailers biggest problem may not be the FTC, but their own store level union associates who work for the chains as clerks and meatcutters.
On paper, the union’s position seems counterintuitive. After all, Rodney McMullen and Vivek Sankaran, CEOs of Kroger and Albertsons respectively, have pledged that no front-line workers would be displaced if a deal is consummated (and approved) and C&S has echoed their promises.
So why all the hostility? Here’s your one-word answer: Trust.
After talking to more than half a dozen union executives over the past year, it’s clear that most of organized labor has little faith in the parties holding to that pledge on a long-term basis. And much of that lack of trust stems from the Albertsons deal with bankrupt Haggen in 2016 which ended with some overlapping stores being closed
“While the labor retention deal sounds good on paper, we’ve been burned in the past with similar promises,” one UFCW executive explained, also pointing to the Albertsons acquisition of Haggen stores nearly a decade ago. “The majority of both companies’ stores are organized and based on the trust factor, or lack of it, we’re not willing to potentially weaken our membership down the road.”
Some might argue that’s foolish logic, but there’s some truth in their line of thinking. On a broader basis, one might also question the viability of Albertsons in a few years if the merger attempt is ultimately rejected.
Based on how the Boise, ID chain is currently being run, do you think it could survive 3-5 more years as a vanilla traditional supermarket chain given the current operating and economic environment?
While sales and earnings remain okay, a closer examination of Albertsons would indicate that the patient’s long-term health is questionable. The company’s stores seem like they’re racing through the 90s, associate morale is far from robust, and under chief executive Sankaran (and Albertsons’ institutional investors) the retailer has been on a “sell me” campaign that’s lasted nearly as long as Bob Dylan’s “Never Ending” tour. After being rejected by Ahold Delhaize in 2022, Albertsons will have a hard time finding a buyer if the Kroger merger attempt fails.
But it’s not just the unions that could help nix the deal when the case goes to court late next month in Portland, OR (a location that clearly favors the government). There are eight state attorneys general that have filed suits to block the potential deal and there are also a handful of consumer groups that oppose the merger.
And then there’s the C&S piece to consider. As a wholesaler, the Keene, NH-based firm has a history of success that encompasses more than a century. Chairman Rick Cohen virtually pioneered the third-party distribution model and remains one of the smartest executives in the history of the food business.
But operating within a four-wall space is a drastically different business than warehousing and logistics (ask Amazon). C&S certainly knows that, too, having acquired, operated, closed and sold hundreds of stores in the past 30 years. With a portfolio of only 23 corporately-owned stores (mostly smallish Piggly Wiggly units), it would only be logical for the FTC (and industry insiders) to question whether the privately-held firm can successfully operate 579 stores in 18 states and Washington, DC.
In fact, it would be logical to wonder if any larger operator could handle the level of skill needed to run a network that large and diffused. Let’s not also forget that C&S is not potentially acquiring a large group of stores that in any way resembles Wegmans or H-E-B – that’s obvious not only by personal inspection but by Kroger’s pledge to spend $1.3 billion to improve the stores it retains and another $1 billion to lower prices (a much-needed component to make Albertsons’ store network more competitive).
In the end, I believe the deal should be approved, partly because I believe Kroger can make the landscape more competitive. The FTC’s position has been generally wrong from the outset, particularly not accounting for the impact that Walmart, Costco, Amazon and other alternate channel competitors have on food retailing.
Clearly, the deal has flaws but the thought of it being rejected would really place Albertsons’ future relevance and/or survival in jeopardy.
Even after the court proceedings end in September, the loser will most certainly appeal the ruling, which could drag this $24.6 billion soap opera into its third year. In that case, there will be collateral damage to everyone involved.
‘Round The Trade
Let the summer discount jamborees begin. On July 16 and 17, Amazon will again be holding its annual “Prime Days” event which last year resulted in the sales of 375 million items worldwide and added an estimated $12.9 billion in sales for the two-day sale. This will be the 10th “Prime Days” event that “Godzilla” has hosted, and not surprisingly other competitors are offering similar short-term promotional campaigns. Two that I found interesting were Kroger, which is offering two weeks (July 10-23) of “Boost Bonus Days” to its Kroger Plus members. In addition to savings on products, Kroger is offering a number of free private label products to its members as well as offering a 50 percent discount on a new annual membership and a similar discount for current members who extend their membership for 2025. However, I found Walmart’s event strategy to be the most interesting and potentially the most impactful. The “Behemoth,” which ran its Walmart+ Week promotion last month and is continuing it this month in its stores, is also offering a potential sales driver by offering Walmart+ memberships for $49 annually through July 18. That represents a 50 percent discount from its regular price and makes a powerful, competitive statement against Amazon whose annual “Prime” membership is $139. In recent years, Walmart has made huge strides against Amazon’s online-driven dominance and, while it still trails Amazon by a wide margin in the digital realm, the power of its 4,700 U.S. brick-and-mortar stores and aggressive promotions like this are almost certain to narrow that gap over the next few years…and speaking about Walmart, the Bentonville, AR-based merchant has agreed to a $1.64 million settlement with the state of New Jersey after being accused of illegal pricing practices at its 64 Garden State locations. The state’s Department of Weights and Measures accused Walmart of using deception to make it difficult for shoppers to make price comparisons with other retailers. While not admitting any wrongdoing, Walmart said it would improve associate training.
More Jersey stuff: Amazon Fresh (AF) opened its first new Mid-Atlantic store in more than two years in Eatontown (Monmouth County), and while there has been modest improvement over the original model, it’s now clear to me that the braintrust in Seattle remains fairly clueless about operating physical food stores. While the SKU count has been expanded and the product assortment is better, the store is still not a comfortable place to shop. Pricing, merchandising, store operations and customer service at the 35,000 square foot unit all remain mediocre at best and generally subpar as a shopping experience. If that’s the best “Godzilla’s” got, why bother? We’ll reportedly see more of the mew version of AF coming to the B-W market in Arlington, VA; Annapolis, MD; Gaithersburg, MD, Glen Burnie, MD and Silver Spring, MD.
More legal news: the recently authorized FTC ban on non-compete contracts is in serious jeopardy after a District Court judge in Texas ruled against the agency earlier this month. Judge Ada E. Brown said that the FTC’s ban “lacks substantive rulemaking authority” on the matter. She granted a preliminary injunction which effectively negates the August 30 start date. This will be a long, drawn-out battle that could end up before the U.S. Supreme Court in a few years.
And another potential deal that’s been rejected is the proposed $30 billion settlement that would have capped Visa and Mastercard fees to merchants for credit and debit purchases and would have prevented both credit card firms from increasing swipe fees until 2030. However, U.S. District Court Judge Margo Brodie in the Eastern District of New York, in an 88-page opinion, called the estimated annual savings to merchants of $6 billion “a paltry amount” compared to the estimated $100 billion in fees they paid to Visa and Mastercard in 2023. “Without evidence of Visa’s and Mastercard’s profitability, the court cannot say with certainty that defendants can withstand a greater judgment; however, the evidence strongly suggests that they could withstand a substantially greater judgment,” Brodie wrote. In reality, that means we will see either an appeal of Brodie’s ruling or a renegotiation between the two parties. No worries though, this case has been ricocheting around the courts since 2005. Another decade won’t make any difference…will it?
According to the Financial Times and Nielsen IQ, manufacturers are returning to pre-COVID promotional levels in light of decreasing price hikes. According to the data, 28.6 percent of all grocery products are now sold on promotions. Three years ago, that number was 25.1 percent. According to the report, major CPG companies such as General Mills (increasing coupon spending by 20 percent) and Mondelez (reducing some prices) are at the forefront of this changing dynamic…Wegmans and Teamsters Local 118 have agreed on a new seven-year contract affecting warehouse associates and truck drivers at the retailer’s Rochester DC. Key components of the new agreement, which covers 900 Teamsters, include a comprehensive health care package, protection from being forced to come in on days off and enhancements made to seniority, overtime guarantees, scheduling, and paid time off. The workers also secured wage increases of 27 percent over the lifetime of the agreement, including pay rates that will reach $40 per hour for warehouse staff and $200,000 annually for drivers.
Local Notes
A tip of the hat to the folks at Giant Food for once again sponsoring the annual BBQ Battle in DC late last month. Despite the extreme heat, the work of many Giant staffers who spent the weekend tirelessly volunteering their services at the 32nd annual celebration of a popular event which attracts tens of thousands of people should be duly noted and appreciated.
Aldi is set to open two more B-W area stores this month. On July 18, the German discounter will cut the ribbon on a new unit in Cockeysville, MD and a week later will open its third Gaithersburg, MD store on S. Frederick Avenue.
Some changes at Costco and Sam’s Club worth mentioning. At Costco, the nation’s largest club store operator will increase its membership fees for the first time in seven years. Basic membership rates will move from $60 to $65 annually and executive members will now pay $130 annually, a $10 increase. Costco is also raising the maximum reward amount from $1,000 annually to $1,250. Last year, Costco’s membership revenue was $4.7 billion, an 8 percent increase from 2022. That’s upfront cash, which gives Costco a lot of flexibility in its pricing strategy. (Impressive as that is, it’s not even close to the $40 billion upfront haul that Amazon rakes in from its “Prime” subscribers.) At Sam’s Club, its upper tier club members will no longer be eligible for free shipping on orders under $50 after August 18. The Bentonville, AR unit of Walmart will begin charging those “Plus” members, who pay a $110 a year subscription fee, $8 to ship orders.
Afew more thoughts on the collateral costs of the Kroger-Albertsons proposed merger. The state of Washington said it expects to pay nearly twice as much ($6 million) as originally projected for the outside counsel which is assisting the state’s attorney general in its lawsuit against both chains. I’m certain taxpayers in the Evergreen State are overjoyed about having to foot that bill. At Albertsons, Tim Moriarty, who was hired a year ago to serve as the retailer’s general counsel, was paid $4.7 million (stock and cash) last year. (I wonder what the company’s outside counsel costs were above that). According to an SEC filing, Moriarity was one of several senior executives to be handsomely compensated last year. Chief executive Vivek Sankaran received $15.1 million; president and CFO Sharon McCollam, another recent outside hire, “earned” $6.6 million, and Susan Morris, who could end up at C&S if the merger is approved, received $6.5 million in total compensation. Given the state of Albertsons, maybe the board should have considered using some of those generous financial awards into lower everyday prices.
We have several obits to report this month including actor Donald Sutherland, who left us at 88. Born in Canada, Sutherland was a chameleon of sorts – he could seemingly play any role with smoothness and subtlety. Comedically, he was great as the original Hawkeye Pierce in Robert Altman’s “M*A*S*H” (1970) and eight years later added to the fraternity humor in “Animal House,” playing hippie college professor Dave Jennings. Sutherland could also skillfully handle dramatic roles as in excellent movies like “Ordinary People” (1980) and “Eye of the Needle” (1981). One of Sutherland’s first roles came in one of my favorite movies as a teenager – “The Dirty Dozen” (1967) in which he plays military misfit Vernon L. Pinkley. His impersonation of a general will make you laugh out loud. All told, Sutherland appeared in 199 film and TV roles in a memorable career that spanned 62 years.
Two unsung entertainers who primarily made their bones in comedy but also possessed other talents have also passed on. Martin Mull, 80, whose biting satire and sarcasm made him a popular entertainer in the 1970s, died last month in Los Angeles. Mull was also was a fine musician and artist (he graduated from the Rhode Island School of Design). His entertainment career actually began as a musician (with a heavy comedic slant) and included the very funny album – “Days of Wine and Neuroses” (1975). That led to him being cast as Garth Gimble, a domestic abuser in Norman Lear’s satiric take on soap operas “Mary Hartman, Mary Hartman” (1976). In a spinoff of that show – “Fernwood 2-Night” (1977), he took the lead as Garth’s twin brother Barth Gimble, a manic-depressive talk show host. During his 48-year show business career, Mull appeared in 146 movies and TV shows including “Mr. Mom” (1983) and “Clue” (1985). My favorite Mull role was as Harvey Holroyd in “Serial,” the 1980 satire of new age consciousness in Marin County, CA in which Mull plays a confused middle-aged man trying to make sense of the hippie, free-love culture that surrounds him. The movie’s a bit dated now but is still very funny.
And Richard “Kinky” Friedman, 79, has also died. Musician, comedian, crime novelist and wannabe politician are all roles that would fit the “Kinkster,” a lifelong Texan and a true American original. Friedman made his initial mark in the early 1970s with a string of humorous hits – “They Don’t Make Jews Like Jesus Anymore” and “Sold American” – with his eclectic band, The Texas Jewboys. His musical career included being part of Bob Dylan’s Rolling Thunder Review in 1976 and an appearance on “Saturday Night Live” also that year. After his musical career wound down, Friedman ventured into fiction writing, specializing in crime thrillers. His 1986 novel, “Greenwich Killing Time” is an excellent book by any measure. Still not ready to settle down, the “Kinkster” entered politics, running against Rick Perry for governor of Texas (Friedman lost) in 2004. His campaign mirrored his previous careers – issues-oriented with a heavy dose of sarcasm as witnessed by two bumper stickers that could be seen in the Lone Star State – “My Governor is a Jewish Cowboy” and “How Hard Could It Be?” I’ve seen Kinky in concert several times in the last 45 years, most recently five years ago. Playing his hit songs, telling funny, often profane jokes and reading from his books, he always provided an enjoyable evening of entertainment. Kinky, you’ll be missed…
