Albertson's & Safeway to Merge

Albertson's store front

Albertson's & Safeway to Merge
| Published March 8, 2014 |

By R. Alan Clanton Thursday Review editor

The private equity firm Cerberus announced this week that it intends to foster a merger between grocery store chains Albertson’s and Safeway, each of whom have struggled in recent years to compete with the emergence of online food sales and the ever-expanding footprint of online retailer Amazon. Albertson’s and Safeway have each also taken serious hits from the superstore models offered by Wal-Mart and Target, and from membership-only operations like Costco.

To allay fears of serious problems and to avoid a stock devaluation, Cerberus said that it has no immediate plans to eliminate stores, though there may be a few reductions in management roles, as well as streamlining in other areas such as purchasing and distribution. Though neither Albertson’s nor Safeway expect any major problems with regulators, both chains may have to divest themselves of some stores to comply with Federal Trade Commission rules.

Spokespersons for Albertson’s and Safeway said that the merger was designed to be a proactive step toward remaining competitive with the larger chains, like By-Lo/Winn-Dixie and Kroger—which recently announced a buyout of Harris-Teeter. Cerberus—the private equity firm which already owns Albertson’s—framed the merger as a positive step in the face of recent falling sales.

Robert Edwards, Safeway’s current CEO, will become the chief executive in the newly merged grocery giant.

Recent innovations by online food sellers and a resurgence of interest in web-generated grocery delivery services have put a significant dent in the sales of many of the major grocery store chains. Further,—which now offers extremely competitive pricing on a variety of food products and grocery items—continues to challenge the traditional retail model by offering faster delivery processes, including, in some cases, same day delivery.

Safeway is already the number two grocery store chain in the U.S., and Albertson’s bid to combine with Safeway is designed to make the newly merged larger than the largest American grocer, Kroger. Kroger, also, has seen some drop in sales recently as a result of fierce competition with Target and Costco, and from customers who have begun making grocery purchases online.

The combined announcements from Cerberus, Albertson’s and Safeway stress that the newly formed giant will have powerful cost-saving tools and greater efficiency, and they point out that customers will benefit from the economies of scale—greater buying power, more efficient distribution and reduced overhead.

A few business analysts pointed out the striking similarities between the Albertson’s announcement and Brian Robert’s recent statements about the customer benefits of the proposed Comcast, Time Warner merger. There were immediate concerns from consumer advocacy groups that the merger would ultimately mean less competition and higher prices, as well as inevitable layoffs.

Albertson’s is headquartered in Boise, Idaho, and Safeway’s current corporate offices are located in Pleasanton, California. Safeway currently operates about 1300 stores nationwide, though most of these are on the west coast. Albertson’s owns 1075 stores. Combined with Cerberus’ other grocery operations, such as Shaw’s and StarMarket, the newly combined grocery giant would have over 2500 stores nationwide.

The merger would leave the Lakeland, Florida-based Publix as the third largest grocery store chain in the U.S.

Cerberus bought Albertson’s in 2006.

Related Thursday Review articles:

Target Faces Profit Loss; Thursday Review; February 26, 2014.

Kings of Content: Why Comcast is Inevitable; R. Alan Clanton; Thursday Review; February 28, 2014.