The Philadelphia Inquirer has a piece in which it quotes analysts as saying that Albertsons, which last week said that it would engage in a "strategic review" as a way of maximizing shareholder value - a move broadly seen as a way for Cerberus Capital Management to sell off its one-third stake in the company - may in fact "be looking to unload some of its nearly two dozen grocery chains."
The story notes that "Albertsons, the second-largest grocer in the U.S. behind Kroger, put out feelers to possible suitors in its Feb. 28 announcement. The company said the review, aided by Goldman Sachs and Credit Suisse, would include mulling 'potential strategic or financial transactions' and entertaining 'inquiries,' typically outside offers of possible mergers or acquisitions."
Some context from the Inquirer piece:
"Though the review caught some industry observers by surprise, analysts from Morgan Stanley to Guggenheim speculated that parent company Albertsons could be worth more in pieces, providing a hefty payout for its larger investors. Albertsons operates about 2,300 supermarkets, 1,700 stand-alone pharmacies, 400 gas stations, and dozens of warehouses and food processing plants, spread among 34 states. Besides Acme, Albertsons’ major brands include Safeway, Jewel Osco, and Vons.
"Albertsons and other grocers have felt increasing pressure, not just from Walmart, whose in-store markets rank it with the largest supermarket operators, but also Amazon, whose same-day deliveries and purchase of Whole Foods have positioned it to sell more groceries. Grocery consultants say even the largest chains will have to spend more on marketing, inventory, automation and delivery services to protect market share."
- KC's View:
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First of all, let's stipulate that anything could happen here.
When I first heard the news, I wondered if it could lead to a breakup of a company that has taken a long time to assemble, which in many ways would be a shame because I think that Albertsons has the kind of leadership - like CEO Vivek Sankaran and Chris Rupp, the EVP/ Chief Customer and Digital Officer - that would allow it to make real strides going forward.
There may be some divisions more likely than others to be sold. Dr. John Stanton, professor of food marketing at St. Joseph’s University in Philadelphia, suggests to the Inquirer that Acme - which has about 161 stores in Connecticut, Delaware, Maryland, New Jersey, New York, and Pennsylvania - could be sold “as real estate." Let's keep in mind that Kroger, which does not have stores in the northeast, has said that it plans to enter the region with a pure-play e-grocery model; the availability of these stores could change the calculation.
It also seems likely that the Shaw's/Star Market division in New England could be vulnerable. (I know folks there who have suggested to me that their division is an unwanted stepchild anyway, and they might welcome being divested.)
Whatever happens, the one thing that is critical is for any of these stores/divisions to be appropriately resourced so that they can continue to compete. If the play here is to just make a financial killing on the sale of a division or divisions, and those businesses are going to be in a position where they are trying to survive with diminished budgets and less ambition, then in the end, it won't be good for the stores, the employees, or the communities they serve.
Like it or not, grocery retailing has become a higher-stakes game than ever, driven in that direction by disruptive approaches taken by the likes of Amazon, Walmart and Kroger. Albertsons has been moving in that direction as well, but "strategic reviews" designed to "maximize shareholder value" always worry me a bit.
