When tabulating the costs (both emotional and financial) of the Kroger-Albertsons journey into the black hole of merger madness, here’s more than just a tidbit of information to consume: both chains have spent a mere $864 million on merger-related expenses through Q1 of 2024, about 3.5 percent of the value of the entire $24.6 billion deal.
That’s according to Dan Monk, investigative team reporter for Cincinnati TV station WCPO, who researched to attorneys’ fees from SEC filings for each company. If you’re a shareholder of either public-traded retailer you have a right to be concerned. But the spending spree is far from over because still to come is a hearing in U.S. District Court in Portland, OR later this month and future court cases in Colorado and Washington state. And then there are potential appeals of those judgments should Kroger and Albertsons lose their cases.
More legal costs will also be incurred if/when the FTC mandates that the number of stores sold to C&S increases from 579 to 650 (Kroger’s maximum before they can walk away from the deal) to perhaps as high as 700.
With so much financial and emotional capital already spent, it would seem foolish for Kroger to now push the “walk away” button now, even though the deal remains risky to many trade observers.
I agree with the feelings of both chains that the merger should be approved primarily because the FTC is using flawed logic by not including alternate channel retailers such as Walmart, Costco and Amazon.com in defining a more objective view of the retail landscape. However, my opinion is immaterial and the FTC’s presence remains powerful even if judges and juries will ultimately decide the outcome of this deal.
What also promises to be damaging (and costly) to the two large retailers is the level of distrust and disapproval emanating from virtually every labor union whose employees would be impacted by a potential merger.
“It’s a tremendous waste of money,” said Mark Federici, president of Landover, MD-based UFCW Local 400 which represents nearly 9,000 Kroger associates in Virginia, West Virginia, Ohio and Kentucky (approximately100 stores) as well as about 9,000 Safeway (Albertsons) employees in Maryland, Virginia and Washington, DC. “Wouldn’t that money have been better spent on their clerks and meatcutters who for many years have provided the foundation for Kroger and Albertsons’ success? Instead, the lawyers are healthily rewarded by trying to eliminate their competition.”
And in summarizing the entire Kroger-Albertsons merger attempt, Federici added:
“The notion that the proposed Kroger-Albertsons merger would somehow be good for union members is a joke. In Virginia and elsewhere, Kroger has consistently tried to shirk its responsibilities under our collective bargaining agreements and tried to operate non-union everywhere it thought it could get away with it.”
At presstime, Local 400 and Kroger are currently bargaining for a potential new contract that would cover 22 Richmond-Tidewater supermarkets and approximately 2,500 store level associates which expires on August 3. Currently, Kroger also operates seven Marketplace combo stores which are non-union. Local 400 is attempting to organize those stores and make them part of the new labor agreement. At presstime, a few days before the contract was due to expire, bargaining was reportedly at a standstill.
On a more macro level, the two chains and the FTC will directly square off for the first time face-to-face in about three weeks.. For Kroger and Albertsons, convincing a judge (and potentially a jury) to remain objective in a left-leaning city like Portland makes the leap even higher.
And with higher hurdles come higher legal fees. Don’t be surprised if the final legal costs approach $1.5 billion. If you’re a shareholder, is this the investment value you hoped for?
‘Round The Trade
It was a record-setting “Prime Day(s)” for Amazon, which reportedly raked in $14.2 billion during the 48-hour event which was held on July 16 and 17. That’s an 11 percent increase over last year’s revenue.
While Albertsons’ recently released Q1 financials were mixed – comp store sales increased 1.4 percent; earnings dipped from $417.2 to $240.7 million vs. the corresponding period last year – I still have serious concerns about whether the Boise, ID-based retailer can survive if its merger attempt with Kroger fails. As noted before, morale at store level seems indifferent, capital investment at store level is well below that of the competition and some of Albertsons’ c-suite executives seem more interested in their payouts should the merger be approved,
We recently reported that the recently authorized FTC ban on non-compete contracts was in serious jeopardy after Texas District Court Judge Ada E. Brown ruled against that the FTC decision “lacks substantive rulemaking authority” on the matter. Two weeks later, while adjudicating a case that also challenged the ban, Pennsylvania District Court Judge Kelley Brisbon Hodge declined to block the original FTC decision. The only thing that seems clear at this point is that the FTC’s September 4 implementation date won’t happen. This is a ruling that will likely take years to resolve, most likely at the U.S. Supreme Court.
“We’re in a new era of retail defined by profoundly personal shopping experiences. Each shopper defines how, where and when they obtain goods, and context is key. The ‘why’ behind the purchase. Retailers must predict shoppers’ needs, reduce decision-making and enable highly personal experiences. Future retail success depends on how well we anticipate and meet these evolving expectations.”
Those are words of Suresh Kumar, Walmart’s chief technology and development officer and they appear in the first annual state of adaptive retail report issued by the world’s largest retailer. To gain more data about consumer’s shopping habits, the “Behemoth” commissioned survey research firm Morning Consult to conduct a poll of more than 2,200 U.S. shoppers with the goal being to gain a comprehensive understanding of adaptive retail today and a glimpse into the future of retail. The survey brought to light four key trends, each one pointing toward one overarching insight: retailers that can proactively predict individual customer needs, offer personalized suggestions and deliver at exactly the right moment are the ones that will succeed. Adaptability, immediate accessibility and custom “do it for me” experiences will no longer be longer luxuries; they are absolute necessities.
“Advancements in technologies like augmented reality and artificial intelligence are transforming how consumers engage with retailers,” said Richard Kowalski Sr. director of business intelligence at the Consumer Technology Association, who reviewed the report before publication. “The latest research from Walmart and Morning Consult shows that consumers have high expectations for how technology will improve their shopping experiences in the future. Retailers that use technology to provide consumers with more personalized shopping journeys that seamlessly integrate into their lifestyles are the ones who will win in this adaptive retail era.” While this year’s report provides a variety of insights, Walmart noted that this study is a snapshot of adaptive retail as it stands today, capturing a single point in time. “Customer preferences are ever changing, which is what makes this innovative approach to retail more powerful. As consumers evolve, so must our strategies,” the report noted. The strength of adaptive retail lies in its ability to shape itself to these fluctuations, ensuring it remains relevant and effective in meeting customer expectations.
Local Notes
July means lotsa industry golf outings and two of the best remain Weis Markets’ and Ahold Delhaize USA’s Family Foundation events. At Weis, CEO Jonathan Weis, COO Kurt Schertle and many team associates provide a great vibe for the annual event, which is held on six golf courses near the company’s headquarters in Sunbury, PA. Most importantly, the outing receives great support from the regional chain’s vendors, translating this year into a record $1.5 million in charitable giving.
At ADUSA, the golf tournament encompasses 12 Central PA courses and is one of the industry’s largest charitable outings. A tip of the hat to Deb Hill, longtime manager of the annual fundraising event, for once again doing a masterful job of planning and organizing. I have been fortunate enough to attend more than 20 recognition dinners honoring the chain’s key vendor sponsors (held the night before the golf tourney) and I found this year’s dinner especially notable. That’s primarily because I got to spend some time with Gordon Reid, current president of Stop & Shop and former president of Giant Food. We talked a bit about ADUSA’s recent decision to close 32 Stoppie stores in New England and Metro NY and as always the Scottish executive was forthright and realistic. Reid reinforced that the company must improve its price/value proposition and concentrate on areas where its stores maintain a dominant share of market and are profitable. The problems at the Quincy, MA-based brand began long before Reid assumed the helm in 2019 and providing measurable improvements will take time. But that’s what makes Gordon Reid so special – he never fears a challenge and his brutally honest approach towards problem solving is admired by both his associates and his peers,
The Fresh Market (TFM), mostly quiet in the Mid-Atlantic since large Chilean retailer Cencosud acquired a controlling interest in the Greensboro, NC-based specialty foods merchant in May 2022, will be adding two new stores in Northern Virginia in the next three years. TFM will reportedly occupy 27,000 square feet of the ground floor of a new building planned in Reston (Reston Station development). Also on the docket is a 29,000 square footer in the new 10-acre West Falls mixed-use development in Falls, Church,
We have two obits to report, both from the entertainment field. Passing on last month was blues musician John Mayall. While he was a solid blues singer and excellent harmonica player, who also was a very competent as a keyboardist and rhythm guitarist, Mayall was best known as a curator of other British blues players (notably guitarists) who played in several iterations of his longtime band – The Bluesbreakers which he formed in 1966. Among those whom he helped cultivate and encourage were Eric Clapton, Peter Green (the original axman in Fleetwood Mac) and Mick Taylor, arguably the most skilled of all the Rolling Stones lead players. Other legendary musicians who were part of the Bluesbreakers included drummer Mick Fleetwood and bassist John McVie, the two founders of Fleetwood Mac, and another great bass player – Jack Bruce – who co-founded Cream with Clapton and Hall of Fame drummer Ginger Baker. Mayall, 90, continued to perform until 2022. Somewhat unsung, but not underrated by his peers, John Mayall deserves a lot of credit as a foundation builder in the realm of the British Invasion.
Also sadly Bob Newhart, 94, has left us. The acerbic “everyman,” who began his business career as an accountant in Chicago, had a comedy career that could rival anybody’s when comparing length and diversity. Starting with Grammy winning debut album in 1960 – “The Button-Down Mind of Bob Newhart” – to his last appearance on the hit TV show “Young Sheldon” in 2020 – Newhart also won an Emmy, appeared in 13 films including “Elf” (2003) and starred in two of the most iconic and beloved television series of all time – “The Bob Newhart Show” (1972-1978) and “Newhart” (1982-1990). No comedian had better pace and delivery than Newhart. Interviewed for CBS’ “Sunday Morning” in 2021, the understated comic described his place on earth in typical Newhartian fashion: “I have this theory that when it’s all over and you go up to what I’ve been led to believe is heaven, and there’s a God who says, ‘What did you do?’ And I say, “I made people laugh” – ‘OK, get in that real short line over there.’ ”
