The mega-merger of Kroger and Albertsons forms a huge national competitor almost the size of Walmart, but in Dallas-Fort Worth it means Kroger will buy Albertsons, Tom Thumb and Market Street in one fell swoop.
That means a lot of local stores could be sold or closed at a time when the North Texas market is facing Texas’ big, strong and popular new competitor in town, HEB.
Kroger said Friday it will pay $ 24.6 billion to buy Albertsons, combining 710,000 employees who work at 4,996 stores in 48 states, 66 distribution centers, 52 manufacturing plants, 3,972 pharmacies and 2,015 fuel centers.
Kroger and Albertsons combined sales totaled $ 209.8 billion in their most recent fiscal years, an amount just shy of Walmart’s $ 218.9 billion in grocery sales in the US, not including Walmart-owned Sam’s Club.
The companies expect the merger to be completed in 2024 and anticipate having to persuade federal regulators that the deal could move forward with as many as 375 stores being sold.
If the Federal Trade Commission requires more than 650 divestitures, Kroger can walk away from the deal, according to the agreement.
Many believe Kroger’s 100- to 375-store divestiture number is too small after looking at the overlap in markets such as Dallas-Fort Worth, Denver and Seattle.
“I think they’re estimating low. In Denver, nearly every store is in conflict, and in Dallas, almost every Tom Thumb is within a mile of a Kroger, ”said Tim Baker, executive vice president at Dallas-based retail real estate firm Weitzman.
All Tom Thumb, Albertsons and Market Street locations will be scrutinized against Kroger’s footprint. Together, the four brands operate 195 stores in Dallas-Fort Worth: Kroger 95, Tom Thumb 60, Albertsons 31 and Market Street nine.
Their combined market share in D-FW would surpass Walmart, giving the merged company 28% of the region’s grocery business. Walmart has been No. 1 in D-FW for several years, with a 25% market share from its supercenters and 2.7% from its Neighborhood Markets, according to Chain Drug Review. Sam’s Club, which is also owned by Walmart, has a 7.24% local market share.
Baker, whose real estate management background includes executive roles at Walmart, Albertsons, Tom Thumb and Giant Eagle, said Kroger will have to find a buyer that could keep the stores open, the jobs in place and keep prices from rising in an inflationary environment.
Grocery prices in September were up 13% from a year ago, with goods such as flour, cookies, turkey and canned fruits and vegetables all rising by the most ever, Labor Department data Thursday showed.
A few years ago, when Albertsons bought Safeway, local neighborhoods were disrupted with store closings after locations were sold to a weaker operator. That merger forced Albertsons to divest 168 stores across the US, including 12 in D-FW. A couple of those stores are still closed and two even ended up back with Albertsons.
It can take years to work through the fallout of forced sales intended to keep a market competitive.
Mockingbird Lane and Abrams Road in East Dallas has a Tom Thumb on the northwest corner. The Albertsons on the southeast corner was sold and later closed by a smaller operator, Minyard Sun Fresh Market, which didn’t have the scale to compete.
The building sat empty for more than three years and then became a local gymnastics center. The intersection is just now getting a second grocery store again to compete with Tom Thumb. Sprouts Farmers Market will open soon on the northeast corner in space vacated when Stein Mart went out of business in 2020.
HEB could be a buyer of store locations for its four brands – HEB, Central Market, Mi Tienda and Joe V’s Smart Shop. But it has purchased acres of property in North Texas for its own expansion. The San Antonio-based grocer, which opened a wildly successful store in Frisco just down the street from a Kroger, declined to comment.
“It’s the irony of all ironies that HEB decides to make the big play and build on the real estate it owned for years and gets a big thumbs up all the way around and then this happens,” said Bob Young, executive managing director at Weitzman .
HEB snapped up a handful of stores when Minyard Fresh Market went out of business two years after buying the 12 stores from Albertsons. One of those was the most successful Albertsons store in the D-FW market, in Uptown on McKinney Avenue. HEB is planning to open a Central Market there.
Kroger CEO Rodney McMullen said the two companies can take the best of both, such as putting Kroger’s Murray’s Cheese shops in some Albertsons stores.
McMullen said the retailer will invest $ 500 million to lower Albertsons prices and $ 1.3 billion to improve the acquired stores. He pointed to private-label products, such as Kroger’s Simple Truth, Home Chef and Private Collection and Albertsons’ Signature Select and O Organics, as a way to lower prices.
McMullen also noted the merged companies will have the ability to strike better deals with national brands as it buys for all its regional chains at once.
Not all view that as being beneficial.
Greg Ferrara, president of the National Grocers Association, said the merger of the two largest traditional supermarket chains “should raise serious questions about a single supermarket giant gaining unprecedented dominance over the nation’s food supply chain.”
The merger would put small competitors at “an unfair disadvantage” and concentrate buying power over grocery suppliers, he said.
“Consumer goods companies are watching this very closely,” said Bobby Gibbs, principal in the Dallas office of management consulting firm Oliver Wyman.
The point of a merger is to create more scale and cost savings, Gibbs said, but that can end up alienating shoppers if one store name goes away along with their private brands on the shelf.
“They’re going to have to be careful about how they build their private brand strategy,” Gibbs said. “Sometimes when mergers don’t go well, the CEOs say the consumer wasn’t willing to move to the surviving brand.”
One example: When Safeway bought Tom Thumb, it upset loyal shoppers when it replaced Boar’s Head deli meats and cheeses with its own Primo Taglio brand.
Kroger quickly snapped up Boar’s Head, a brand that had been exclusive in D-FW to Tom Thumb, and shoppers switched stores to keep buying their favorite smoked turkey and Virginia ham.
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