Kroger plans to sell Safeway brand in Colorado to help secure merger with Albertsons

• By Bernadette Berdychowski Apr 22, 2024 Updated Apr 22, 2024

• from The Denver Gazette
  

Under pressure from government regulators, Kroger and Albertsons have decided to sell nearly 600 stores across the country, including the Safeway brand in Colorado, in an effort to get their proposed $24.6 billion merger through. 

Kroger said it will sell 579 stores across the country to New Hampshire-based C&S Wholesale Grocers — 116 more than originally planned, including 91 Albertsons-owned locations across Colorado.

That’s nearly all of the Albertsons stores in the state. The chain operates 105 stores under the Albertsons and Safeway banners.

Under the new agreement, Kroger said it would license the Safeway name to C&S in Colorado and Arizona only.

The Kroger and Albertsons deal has been facing mounting pressure from federal and state government officials who said they are worried the merger would hurt consumers already facing rising food costs. The two supermarket chains have insisted that the merger would lower prices, improve competition against mega retailers and continue offering unionized grocer jobs. 

It’s unclear if the new plan would satisfy regulators. In February, the U.S. Federal Trade Commission sued to block the $24.6 billion merger between the grocery giants, saying the lack of competition would lead to higher grocery prices and lower wages for workers.

The FTC also said the initial plan to divest 413 stores to C&S was “inadequate” and would give C&S a hodgepodge of unconnected stores and brands, leaving it ill-equipped to compete with a combined Kroger and Albertsons.

Kroger hopes dropping more stores would help bolster its position against the lawsuits attempting to block the merger. The sale to C&S Wholesalers, parent company of Piggly Wiggly and Grand Union Supermarkets, would also introduce a new grocery competitor to Colorado. 

"We have reached an agreement with C&S for an updated divestiture package that maintains Kroger's commitments to customers, associates and communities, addresses concerns raised by regulators, and will further ensure that C&S can successfully operate the divested stores as they are operated today," Kroger’s CEO Rodney McMullen said in a news release.

Colorado was one of several states that sued to block the merger. In February, Colorado Attorney General Phil Weiser argued the deal violated the state’s antitrust laws and alleged the grocers had an illegal “non-poach” and “non-solicitation” agreement when Colorado union workers went on strike in 2022 — which the grocers denied.

Kroger operates nearly 150 stores in the state under the King Soopers and City Market names.

“These fears are warranted because the market for grocery stores in Colorado is already very concentrated with too little competition,” Weiser said in February. “And the merger would make the problem worse.”

The attorney general said he is also skeptical of the original divesture plan to C&S, saying it is a "recipe for mischief." He said the state is worried the brand doesn't have the experience to operate in the state and the deal could repeat the failures of the Albertsons and Safeway merger in 2015, when the grocer divested its stores to Haggen only to buy them back later at a lower price following Haggen's bankruptcy.

The Federal Trade Commission quickly followed less than two weeks later and also sued to stop the deal. Eight states signed onto the federal lawsuit: Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming.

Kroger has insisted that customers will likely see higher food prices and store closures if the merger isn’t allowed to proceed.

“Albertsons Cos.’ merger with Kroger will ensure our neighborhood supermarkets can better compete with these mega retailers, all while benefitting our customers, associates, and communities,” Albertsons said in a statement in February. “We are disappointed that the FTC continues to use the same outdated view of the U.S. grocery industry it used 20 years ago.”

“This decision only strengthens larger, non-unionized retailers like Walmart, Costco and Amazon by allowing them to further increase their overwhelming and growing dominance of the grocery industry,” Kroger added.

Under the deal with C&S, the latter will also get the license to the Albertsons name in California and Wyoming. Kroger will retain the rights to the Albertsons and Safeway names in all other states.

The remaining Albertsons-owned stores in Colorado that C&S won't take over will be rebranded as Kroger stores, officials said.

The deal with C&S and Kroger is worth nearly $3 billion. 

Colorado has the third-largest impact of the divesture following Washington, where the grocer plans to sell 124 Albertsons and Kroger stores, and 101 Albertsons stores in Arizona. 

The union of grocery workers UFCW Local 7 — including the Colorado chapter — spoke out against the divesture in a statement, claiming it's an uphill battle for C&S to take over hundreds of stores and operate them efficiently. 

"They have no experience operating retail stores in these states, would still lack the IT, customer loyalty and manufacturing capabilities needed," the group said, adding C&S "would most likely end up monetizing the real estate under many of these stores.” 

In a news release, C&S CEO Eric Winn expressed confidence the deal will work.  

"We are confident this expanded divestiture package will provide the stores, supporting assets and expert operators needed to ensure these stores continue to successfully serve their communities for many generations to come," Winn said.