SOMETHING HAPPENED

David Merrefield

Speculation has been rife for months that Kroger Co. was to be involved in some big transaction, such as being acquired by Safeway.

Now, with last week's proposed buyout of Fred Meyer Inc. by Kroger, the shape of the big transaction becomes clear at last. And, while it has nothing directly to do with Safeway, it's quite a big deal for the companies involved, and the whole industry. Here's a quick look at a little of what the proposed acquisition would mean:

Kroger would retain bragging rights as the nation's largest food retailer. Previously, with the proposed merger of Albertson's and American Stores Co., it was thought that Kroger would no longer be the nation's largest food retailer. The Albertson's-American merger would produce a company of about $33.8 billion in sales. Kroger's sales, without Fred Meyer, are about $28.2 billion. The new Kroger would represent $43.2 billion in sales. It's still king Kroger.

Kroger would remain independent, perhaps specifically because of the Fred Meyer deal. Here's why: Suppose Safeway were really poised to acquire Kroger. That may have forced Kroger down the aisle with Fred Meyer to sidestep Safeway's embrace. So Kroger may have bulked up to avoid a buyout, and it wouldn't be the first time. Ten years ago, Kroger borrowed heavily, using funds to issue a special shareholder dividend. The purpose was to lard the company with disfiguring debt, making it uncomely to a couple of suitors then in attendance.

There is a Wal-Mart factor in this deal and a few others. Wal-Mart Stores' supercenters are growing at a rapid clip, threatening to swamp any company not able to compete on equal terms. That's especially true because Wal-Mart now has its own product acquisition and distribution abilities.

And, as national or nearly national players such as Wal-Mart and the newly combined conventional retailers emerge, it seems regional manufacturer deals are fading. As that happens, diverting will wane. And, in general, a more-consolidated retail industry will find ways to exact price concessions from some category vendors.

As for concentration, when current deals now in the pipeline are made final, the nation's five largest retailers would account for about $147 billion of retail food sales, including Wal-Mart's grocery sales. To judge that proportion, note that total grocery sales in the nation amounted to $425.7 billion last year and supermarket sales were $323.2 billion, according to Food Marketing Institute data.

The level of concentration now present, or which will soon be present, may be sufficient to tempt the nation's food retailers to cast an eye toward other means of growth.

One possibility is that supermarket retailers will diversify into other retailing channels, such as drug or mass. Such a move wouldn't be too great a leap. The other possibility is that American food retailers will enter retailing in other nations, either by expansion or by acquisition.

In any case, future retailing directions will be set in large measure by the equity markets in this nation and elsewhere.