Cerberus Capital Management LP, which controls the Albertsons grocery chain, purchased Safeway, the second-largest U.S. grocery chain, in a deal valued at approximately $9.2 billion. The transaction is expected to close in Q4 of 2014, but there is a 21-day period in which Safeway can consider other bids.
The proposed acquisition will create a company that will operate 2,400 stores, 27 distribution centers, 20 manufacturing plants and employ more than 250,000 people. The move infuses the merged organizations with increased buying power and scale as supermarkets continue to lose ground to non-traditional food retailers.
The supermarket industry faces fierce competition from retailers such as Wal-Mart, which sells the most groceries in the U.S., as well as Amazon, drug store chains and big box retailers such as Target that are expanding their grocery offerings.
Heating Up The Competition
The combined company also will become a greater rival to Kroger — which currently operates more than 2,600 stores and will still be the No. 1 grocery chain in the U.S. To date, there are no store closings or layoffs planned as a result of the potential merger, according to a statement from Albertsons. Safeway, Kroger and Kroger have some overlapping markets, particularly on the West Coast.
As a result of this deal and other grocery industry activity, many industry experts expect Kroger to become even more aggressive on the acquisition front. Kroger recently purchased Harris Teeter.
Loyalty can be a strong competitive differentiator for grocery chains. While Albertsons dropped it loyalty program in 2013, Safeway brings a strong loyalty program to the table. “Safeway has a superior loyalty program and much stronger presence in the California market, but whether that technology and program expands to the Cerberus [Albertsons] side remains to be seen,” said Greg Buzek, Founder and President of IHL Group, in an interview with Retail TouchPoints.
Regarding other aspects of the proposed merger, look for back-office consolidation, Buzek added. Most of the time in mergers like this the consolidation is in the back office, logistics, supply chain, and administration side. “That’s where there can be great gains through consolidation,” he explained. “Because the stores are so capita- intensive from a technology perspective, the changes here are slower and less dramatic, particularly when we are talking about grocers.”
Expect to a rise in the use of cloud technologies, analytics, and mobile enablement of store managers in particular, Buzek explained. “Also expect increased emphasis on fresh item management as that is one of the few areas for grocers to continually improve margins.”
New Company Structure
Bob Miller, CEO of Albertsons, will become executive chairman of the combined company, and Robert Edwards, current President and CEO of Safeway, will continue in the same role with the larger retailer.
"Working together will enable us to create cost savings that translate into price reductions for our customers,” noted Miller in a statement. “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.”
The combined banners will include Albertsons, Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Acme, Jewel-Osco, Lucky, Shaw's, Star Market, Super Saver, United Supermarkets, Market Street and Amigos. Most of the brands operate as traditional supermarkets, with the Pavillions and Market Street banners offering a more upscale shopping experience.