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Jewel, Mariano’s could join forces in possible megamerger

Kroger, the largest traditional grocery chain in the nation, is reportedly in talks to buy Albertsons, creating a supermarket behemoth with nearly 5,000 stores and more than $ 200 billion in annual revenue.

The potential supermarket megamerger is also likely to draw regulatory scrutiny in markets such as Chicago, where rival chains Jewel and Mariano’s could end up in the same corporate basket.

Cincinnati-based Kroger has 2,750 supermarkets in 35 states, including more than 40 Chicago-area Mariano’s stores. Albertsons, which is based in Boise, Idaho, has more than 2,200 supermarkets in 34 states, including 188 Jewel stores in the Chicago area.

How many of those overlapping stores might need to be sold to other grocers, or closed, remains to be seen, according to industry analysts.

“The regulatory side of this is a very real question,” said Zain Akbari, an equity analyst covering the grocery industry for Chicago-based Morningstar. “In Chicago, both Albertsons and Kroger maintain significant presences through both Jewel and Mariano’s. And that story is repeated in a lot of other markets throughout the country. “

Pickup associate Jordyn Jenkins collects grocery items Thursday, Aug. 18, 2022 at Mariano's Bucktown.

Neither Kroger nor Albertsons responded to requests for comment Thursday. Bloomberg reported Thursday morning a deal could be reached this week, citing people familiar with the matter.

Kroger and Albertsons mostly bought their way into the competitive Chicago market through acquisitions in the past decade. But thin margins and the rise of Walmart and Amazon as major players – both with bricks-and-mortar locations and the growing online segment – could be behind the urge to merge for Kroger and Albertsons, Akbari said.

“Scale is very much a benefit in the grocery landscape, particularly in local markets,” Akbari said. “The grocery industry features very, very tight margins, and any savings you’re able to get are beneficial just because the industry is as price competitive as it has always been.”

A potential merger would bring together one of the oldest Chicago grocery chains and its primary challenger during the new millennium.

Founded in 1899 as Jewel Tea, a horse-drawn delivery service selling tea and coffee, Jewel evolved into the largest Chicago grocery chain, with 188 stores in the city and suburbs. In 2013, Jewel was sold to Cerberus Capital Management as part of a $ 3.3 billion acquisition that also included the now publicly traded Albertsons grocery chain.

Mariano’s was launched in 2010 by former Dominick’s executive Bob Mariano. The chain grew quickly in the wake of the 2013 demise of Dominick’s, a venerable Chicago grocer, which was shuttered by its parent company, Safeway. In 2015, supermarket giant Kroger bought Mariano’s parent company, Milwaukee-based Roundy’s, for $ 800 million.

Last year, Mariano opened the first of his new downsized fresh grocery stores, Dom’s Kitchen & Market, in Lincoln Park, with a second slated to open in Old Town next month. Meanwhile, his namesake chain remains a major part of the Chicago grocery landscape under Kroger.

Founded in 1883, Kroger exited the Chicago market in 1970, selling its stores to Dominick’s. But it found its way back with its 1998 acquisition of California-based Food 4 Less, a midsize discount chain. It now has 104 stores in Illinois under the Kroger, Mariano’s and Food 4 Less banners.

Kroger is projected to generate nearly $ 150 billion in revenue this fiscal year and has a market cap of nearly $ 33 billion, Akbari said. Albertsons is projected to generate $ 76 billion in revenue for 2022, and has a market cap of nearly $ 14 billion.

Albertsons stock price rose 11.5% Thursday on the merger speculation, while Kroger was up about 1%.

Akbari said Kroger stands “well above” other traditional grocers with analytics, its private label offerings and digital capabilities. He said Albertsons is “a step behind” on all fronts. For Kroger, the deal would expand its footprint, digital capabilities and help it leverage costs.

The backers of Albertsons, including Cerberus Capital, which remains the largest shareholder with a 28.5% stake, have been shopping the grocery chain this year and looking to cash out, Akbari said.

Kroger would potentially add thousands of bricks-and mortar grocery stores, but the merger’s primary focus may be on the growing digital market.

The pandemic has fueled a major shift to online grocery shopping, with sales at retailers nationwide growing by 55.6% in 2020, and another 11.3% last year, topping $ 121 billion, according to research firm Insider Intelligence. Online grocery sales are projected to grow by 15.8% in 2022 to about $ 140 billion.

By 2025, online sales are projected to reach about $ 212 billion, or nearly 14% of the $ 1.5 trillion US retail grocery market, according to Insider Intelligence.

Walmart has leveraged its massive retail footprint to become the biggest player in online grocery sales at nearly 28%, followed by Amazon, which has a 21% share through its Fresh and Whole Foods stores, according to Insider Intelligence.

Kroger has about 10% and Albertsons less than 4% of the online grocery market, but Blake Droesch, an analyst covering retail and e-commerce at Insider Intelligence, said they can grow their online share through the merger.

“Kroger has long been investing in digital, whereas Albertsons has been pretty late to the game,” Droesch said. “Kroger can continue to grow digitally by leveraging the Albertsons locations as fulfillment centers to drive sales, whereas for Albertsons, they’re going to get access to this delivery infrastructure that they’ve never had.”

Chicago shoppers may see some other changes if the merger is approved.

Kroger’s private label brands, including Private Selection, Kroger and Simple Truth, which proliferate at Mariano’s, would be likely to hit the shelves at Jewel post-merger, Akbari said.

It remains to be seen if the stores would adopt a common name or continue to operate under separate banners. But even if regulators don’t require divestitures, Akbari expects there would be some downsizing of the Chicago portfolio – if Jewel and Mariano’s share the same owner.

“At the end of the day, regulators aside, there’s probably a decent case for getting rid of some of the stores in this area,” Akbari said. “Add Jewel to Mariano’s and you’re probably a little too dense.”

rchannick@chicagotribune.com

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