Vons and Albertsons shoppers will likely see some of their neighborhood stores disappear if a proposed merger between Safeway and Albertsons is approved, according to Phil Lempert, an analyst of consumer behavior and marketing trends. The merger would create a network of more than 2,400 supermarkets, 27 distribution centers and 20 manufacturing plants, doubling Safeway’s current footprint. Close rival Kroger operates 2,600 stores. Lembert is slated to speak at the National Chicken Council’s Marketing Seminar scheduled this summer in Georgia.
Cerberus Capital, the New York private equity firm that owns Albertsons, is pursuing a $9.4 billion deal that would merge Safeway, owner of Vons and Vons Pavilions stores, with Albertsons. The deal is subject to approval from shareholders and the Federal Trade Commission. And, the window during which Safeway could solicit a better offer, has closed, and the company said that no one else was interested in buying the grocery chain.
The FTC could decide within as little as a month whether Cerberus can merge the two chains and how many stores it needs to shed to meet federal antitrust rules. The merger was announced early last month, and pending approval, is expected to close in the fourth quarter of 2014.
Executives with Safeway, the nation’s second largest supermarket chain, and Albertsons, the fifth largest, have said they have no immediate plans for store closures and that the companies will continue to operate independently until the end of the year.
However, store closures are inevitable, according to Lempert. “It goes beyond antitrust. When an investment company buys another company, it’s not doing it to operate that company. It’s doing it to break off some assets and sell those assets to make money,” he said
Big grocery chains already do their own form of downsizing, Lempert said. In February, Albertsons closed 26 underperforming stores in eight states. “No store closures are expected as a result of the transaction,” Albertsons spokeswoman Lilia Rodriguez said. “In many cases involving sales to competitors, the FTC requires some stores to be sold to other grocers in order to maintain competition. And the FTC investigation will determine whether that will be necessary in this situation,” Rodriguez said. Albertsons says the transaction will enable both grocery chains to “better meet the demands of shoppers in a highly competitive marketplace, where they have more choices than ever,” according to Rodriguez.
Brand loyalty is not what it used to be as shoppers gravitate to a variety of retail outlets for both price and product preferences, according to Lembert. Trader Joe’s, Whole Foods Market, and 99 Cents Only Stores have siphoned off business from Vons, Albertsons, Ralphs and Stater Bros. Markets. And mega retailers Wal-Mart and Target have also made a big dent. “The bottom line is that consumers have more choices than ever before,” Lembert said.
Lempert says that kind of factor can play heavily into a store’s success — or lack of it. “People choose supermarkets for the wildest reasons,” Lempert said. “It might be because it’s on the way to work and easy to get in and out of, versus another market that is half a mile away and on the other side of the street.”
With the Safeway/Albertsons merger appears to be moving forward, the companies can now put into motion the buyout plans they first announced March 6, combining the century-old Safeway chain with Cerberus-owned Albertsons stores. Banners would include Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Albertsons, ACME, Jewel-Osco, Lucky, Shaw’s, Star Market, Super Saver, United Supermarkets, Market Street and Amigos.
“I think throughout the country what we’ll start to see happen is the rebirth of regional chains–more independent chains with 30 to 200 stores,” he said. “It will go back to the way our parents dealt with supermarkets, versus having a superchain.” Lempert said the large supermarket chains have lost significant market share to warehouse clubs, dollar stores, and other retail outlets.
“The 40,000- to 50,000-square-foot market is a dinosaur,” he said. “Trader Joe’s has the model that works. I think we’ll see a lot of new formats … like combinations of restaurants in gourmet food stores.”