Is a 413-Store Divestiture Enough for the Kroger-Albertsons Merger?

Kroger and Albertsons have announced that they will sell 413 stores, eight distribution centers, two offices, and five private label brands to C&S Wholesale Grocers in order to get regulatory approval for their planned merger.

The deal would give C&S access to a retail footprint spanning 17 states, but it remains to be seen if this divestment will be enough to earn Kroger and Albertsons government approval — or whether memories of Albertsons’ disastrous sale of locations to Haggen during the grocery giant’s merger with Safeway will raise its own concerns.

While C&S is primarily a wholesale grocery supply and supply chain solutions company, with 7,500 independent grocery store customers, the brand does have retail experience as the owner of the Grand Union (11 locations) and Piggly Wiggly (504 locations) banners. Additionally, Kroger and Albertsons noted that C&S has been an FTC-approved divestiture buyer in prior grocery transactions.

"Following the announcement of our proposed merger with Albertsons Cos., we embarked on a robust and thoughtful process to identify a well-capitalized buyer who will operate as a fierce competitor and ensure divested stores and their associates will continue serving their communities in the ways they do today. C&S achieves all these objectives," said Kroger Chairman and CEO Rodney McMullen in a press release. "C&S is led by an experienced management team with an extensive background in food retail and distribution and has the financial strength to continue investing in associates and the business for the long run.”

The divestiture aims to ensure that no stores will close as a result of the merger, all frontline associates will remain employed, and all existing collective bargaining agreements will be honored. Additionally, the deal will enable C&S to enter new geographies to serve as a fresh competitor to the combined Kroger-Albertsons business.

However, Kroger and Albertsons are still facing scrutiny from both federal and state governments as well as other parties. In April, Reuters reported that 25 consumers filed lawsuits to block the merger, though lawyers for Kroger stated that competition law “does not turn every grocery store consumer in the country into a roving antitrust enforcer.”

The deal may also need to grapple with the aftermath of what happened when Albertsons sold a number of stores to Haggen in 2014, bringing Haggen from a minor chain with 18 stores and 16 pharmacies in two states to a regional player with 164 stores and 106 pharmacies across five states. In September 2015, Haggen sued Albertsons for $1 billion and claimed that the larger grocer misled it regarding vital data and used the timing of the store transitions to run ad campaigns and promotions that would steal away customers, leading to mass layoffs and store closures, according to The Seattle Times. Albertsons ultimately acquired the ailing Haggen in June 2016.

It is unlikely that the issue with Haggen will repeat for C&S, as it is a much bigger company that already operates under several banners and has a supply chain capable of delivering to thousands of stores. However, past experience may have an impact on regulators’ expectations and ultimate decisions. It remains to be seen if this divestiture will be enough to earn Kroger and Albertsons approval to become a nationwide grocery giant.