Kroger, Albertsons $1.9B sale to C&S tackles merger issues, creates big new grocer

The Kroger Co. and Albertsons Cos. have found a potential antitrust remedy for their pending $24.6 billion merger and, in the process, opened the door for another large supermarket retailer in C&S Wholesale Grocers.

On Friday, Cincinnati-based Kroger and Boise, Idaho-based Albertsons said they plan to sell 413 stores, eight distribution centers and two offices in 17 states and the District of Columbia to C&S, the nation’s largest privately held grocery distributor. The $1.9 billion cash transaction—expected to close in early 2024, upon the completion of Kroger’s acquisition of Albertsons—also includes the sale of five Albertsons private brands (Debi Lilly Design, Primo Taglio, Open Nature, ReadyMeals and Waterfront Bistro) to C&S.

Among the store banners being acquired by C&S are Kroger’s QFC in the Pacific Northwest, upscale Mariano’s brand in Illinois and Albertsons’ Carrs stores in Alaska. The Keene, New Hampshire-based wholesaler also will receive exclusive licensing rights to the Albertsons brand in Arizona, California, Colorado and Wyoming.

The agreement, too, could require C&S to buy another 237 stores “in certain geographies” based on Kroger and Albertsons securing Federal Trade Commission and other regulatory clearance for their mega-merger. The companies didn’t disclose where these additional stores are located but said C&S would pay Kroger an “additional cash consideration based upon an agreed-upon formula” if the distributor is called on to make the purchase for the Kroger-Albertsons merger deal to be approved.

Related:Kroger unveils Albertsons merger divestiture deal with C&S in Q2 report

Plans call for C&S to operate the 413 stores under an affiliate dubbed 1918 Winter Street Partners (named after the year and place of the wholesaler’s founding). The stores, to be divested by Kroger after it finalizes the Albertsons acquisition, are located in the following states:

• Washington: 104 Albertsons Cos. and Kroger stores
• California: 66 Albertsons Cos. and Kroger stores
• Colorado: 52 Albertsons Cos. stores
• Oregon: 49 Albertsons Cos. and Kroger stores
• Texas and Louisiana: 28 Albertsons Cos. stores
• Arizona: 24 Albertsons Cos. stores
• Nevada: 15 Albertsons Cos. stores
• Illinois: 14 Kroger stores
• Alaska: 14 Albertsons Cos. stores
• Idaho: 13 Albertsons Cos. stores
• New Mexico: 12 Albertsons Cos. stores
• Montana, Utah and Wyoming: 12 Albertsons Cos. stores
• Maryland, Virginia and D.C.: 10 Harris Teeter stores

Any stores retained by Kroger that share banners with locations being divested to C&S will be rebannered to other Kroger Co. or Albertsons Cos. retail brands after the Kroger-Albertsons merger closes, Kroger reported. Likewise, in the four Western states where C&S will hold the license to the Albertsons banner, Kroger will rebanner the retained stores post-merger, as well as keep the Albertsons banner in the remaining states.

Related:Would C&S provide a Kroger-Albertsons merger solution?

The Kroger-Albertsons merger, currently under regulatory review, would combine the nation's two largest supermarket retailers. / Photos: Shutterstock

Addressing antitrust requirements

In announcing their merger pact last October, Kroger and Albertsons projected that they would need to divest 100 to 375 stores for their transaction to gain approval from federal and state regulators. The merger deal also had set a 650-store cap on divestitures, at which point they could re-evaluate the agreement. For the divestitures, stores would be sold directly to other operators and/or through a new spinoff company dubbed SpinCo. With the sale to C&S, the SpinCo option would no longer be needed.

According to Kroger Chairman and CEO Rodney McMullen, the agreement with C&S hits those targets and achieves other aims, namely finding a buyer that’s a financially sound, experienced grocery operator and is committed to a unionized workforce at the assets sold. He had recently spelled out those goals in an interview with Winsight Grocery Business.

Related:C&S reportedly may buy stores from merger partners Kroger-Albertsons

“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,” McMullen said in a statement on Friday. “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.

“Importantly in our agreement, C&S commits to honoring all collective bargaining agreements, which include industry-leading benefits, retaining frontline associates and further investing for growth,” he noted.

Back in late April, McMullen and Albertsons CEO Vivek Sankaran cited some public “myths” about the merger in a Cincinnati Enquirer op-ed article. They included “My store will close,” “I am going to lose my job and my union will be hurt” and “My groceries are going to be more expensive.” By and large, the two CEOs reiterated in the op-ed what they’ve said publicly since the deal emerged: No store closings or job cuts are upcoming, and the combined company plans to use its scale to lower prices, not raise them.

The divestiture agreement with a big, veteran grocery operator like C&S helps ensure those conditions will be met, according to Sankaran.

“I have long respected C&S and its leadership team,” he said Friday in remarks on the deal. “I am thrilled that C&S’ outstanding capabilities and financial strength will ensure these divestiture stores can continue to grow and serve their communities as they do today. Most importantly, they have made a clear commitment to continuing to invest in and care for associates, including by honoring all collective bargaining agreements currently in place. I echo Rodney’s [McMullen] confidence in the bright future ahead for the associates joining the C&S team.”

Specifically, Kroger and Albertsons said the C&S deal meets the following divestiture objectives set out in their merger plan:

• Extending a competitor to new geographies through the sale of stores to a well-capitalized buyer led by seasoned operators with a strong balance sheet and a sound business plan.
• Making sure that no stores will close as a result of the merger.
• Upholding all current collective bargaining agreements—including health and pension benefits and “bargained-for” wages—and ensuring frontline associates remain employed.
• Ensuring that the associates’ new employer is committed to invest in them and stores for the long term.

And regarding the asset buyer, Kroger said the divestiture plan “supports C&S’ ability to operate divested stores effectively and efficiently,” including through the following:

• Strong teams with deep industry expertise and the ability to operate at scale and drive growth and operational advancements.
• A “cohesive set” of stores in each geography, supported by two regional headquarters plus retail banners and private labels “with strong consumer recognition,” laying a foundation for growth.
• A “robust operational infrastructure,” including distribution centers and offices to support the immediate and long-term success of the divested business.

“C&S will offer exciting opportunities for associates to advance their careers, from frontline associates and store leaders to merchants and other professionals. We are confident the associates joining the C&S family will have an amazing opportunity to continue to build a thriving career in the food industry in one of the largest private companies in our country,” McMullen added. “C&S’ strong operational focus and financial resources, along with a comprehensive operational infrastructure included as part of the divestiture agreement, will position it to successfully operate and continue to grow these iconic brands for years to come.”

The biggest privately held U.S. grocery distributor, C&S also operates 160 supermarkets under the Grand Union and Piggly Wiggly banners, with the latter also licensed to hundreds of stores around the country. / Photo courtesy of C&S Wholesale Grocers

C&S poised to become major retail grocery player

News of a potential Kroger-Albertsons divestiture deal with C&S had surfaced in the middle of this week. The fact that Kroger was able to meet much—if not all—of its divestiture plan objectives with C&S may have surprised some industry observers, though few likely would dispute C&S’ capabilities. The wholesaler generates some $30 billion in annual revenue and supplies more than 7,500 independent supermarkets, chain stores, military bases and institutions, offering more than 100,000 products. On its website, C&S lists 33 distribution centers/warehouses in 15 states coast to coast.

C&S also has made its retail ambitions known amid a leadership transition, with Chief Operating Officer Eric Winn slated to succeed the retiring Bob Palmer as CEO on Oct. 2.

Currently, C&S operates 160 stores, mostly under the Piggly Wiggly banner in the Midwest and Carolinas but also including 11 stores under the Grand Union banner in upstate New York and Vermont. Overall, C&S licenses the Piggly Wiggly banner to approximately 500 independently owned and operated supermarkets in 17 states via its Piggly Wiggly LLC subsidiary.

Thus, the Kroger-Albertsons divestitures, if approved, would give C&S a grocery retail network of about 1,073 stores, which under the companies’ agreement could grow to 1,310 locations if regulators call for more divested stores.

“This is another exciting opportunity for C&S to expand into the retail market, which is an important component of our long-term growth. We have a strong foundation of retail experience with our Piggly Wiggly franchise and corporate-owned stores in the Midwest and Carolinas and the reopening of our iconic Grand Union, totaling more than 160 retail locations—all of which demonstrate C&S’ ability to deliver solid retail performance,” Winn said in a statement on Friday. “This will also further enhance C&S’ ability to serve our customers, as we will be in a unique position as a leading wholesale supplier and retailer to help grow their business and continue our legacy of braggingly happy customers.”

Prior to being named COO at C&S in late 2021, Winn served as president of commercial. In that role, he led the commercial organization in support of independent and chain customers and oversaw C&S’ expansion in the retail market. That included a November 2021 deal to acquire 12 Tops Friendly Markets supermarkets in New York and Vermont and convert them to Grand Union grocery stores. One of the upstate New York locations was converted to Piggly Wiggly, the state’s first under that banner.

In July 2021, C&S unveiled an agreement to acquire Sheboygan, Wisconsin-based Piggly Wiggly Midwest, which added 11 Piggly Wiggly corporate-run stores. And the day after announcing that deal, C&S said it was hiring former Stop & Shop president Mark McGowan as senior vice president of retail, a newly created position. At the time, Palmer said McGowan—now president of retail at C&S—would lead the company’s growth into the retail and franchise space, which he described as “an active part of C&S’ growth strategy.”

“C&S is invested in the communities where we live and work. Our retail locations are a critical resource not only for necessities but also as an integral part of the local area they serve,” McGowan commented Friday. “We look forward to welcoming our new employees into the C&S family of companies and leveraging C&S’ strong heritage of selection, value and customer service to continue our mission of keeping our communities fed.”

C&S noted that it has “extensive experience with the merger process” as a previous FTC-approved divestiture buyer in earlier grocery transactions and sports a “strong track record” of transitioning union employees and their collective bargaining agreements.

“C&S will continue to recognize the union workforce and maintain all collective bargaining agreements and is committed to retaining frontline employees and further investing for growth,” the company stated.

Among the five Albertsons private brands being sold to C&S is Open Nature, a line of better-for-you foods and environmentally friendly nonfood products. / Photo courtesy of Albertsons

The private-label question

Kroger’s plan to sell Albertsons’ Debi Lilly Design, Primo Taglio, Open Nature, ReadyMeals and Waterfront Bistro brands to C&S partially addresses a key issue with the Kroger-Albertsons merger: what to do with their overlapping “Our Brands” (Kroger) and “Own Brands” (Albertsons) private-label portfolios.

If the merger transaction is cleared by regulators, the combined company would field a private-label roster of more than 30 brands encompassing some 34,000 products, excluding the brand sale to C&S.

That still might leave Kroger with some tough decisions to make, including any brand duplication and the need to identify labels to keep and discontinue—potentially including power brands—to realize efficiencies from the merger. For example, Kroger offers Simple Truth and Home Chef in the better-for-you and meal solutions brand segments, while Albertsons offers O Organics and ReadyMeals. The divestiture of Open Nature and ReadyMeals would appear to address overlap in the better-for-you and meals brand categories.

Kroger’s Our Brands lineup represents an approximately $28 billion annual business, which executives have said would make Kroger the ninth-largest U.S. CPG company. Overall, the portfolio spans nearly 20 brands—including the new, fast-growing Smart Way value-focused label—and offers more than 14,000 items. Four labels are billion-dollar brands, including Simple Truth, Private Selection, Home Chef and Kroger—the latter being the largest by far with sales of $15 billion.

Albertsons’ Own Brands portfolio currently includes about a dozen brands and more than 14,000 items, and it generated sales of over $16.5 billion in fiscal 2022. The grocer’s Signature Select, Signature Cafe, O Organics and Lucerne labels are among its billion-dollar own brands, a club that Open Nature was projected to join by the end of 2022.