Grocery giant Albertsons Cos., with its $24.6 billion merger with Kroger derailed, said it can return to streamlining its sizable store fleet in a process that will include closing some stores.
Executives of the Boise, Idaho-based supermarket chain, which has roughly 2,300 stores, on Wednesday conducted their first earnings call since announcing the deal to be acquired by Kroger in October 2022. A federal judge blocked the sale last month over antitrust concerns, with Albertsons promptly suing Kroger for breach of contract. Kroger, headquartered in Cincinnati, denies the allegations and the matter is in litigation.
When it filed suit in December, Albertsons said it would be "identifying additional opportunities for value creation through the optimization of our substantial real estate footprint and other assets." On Wednesday, company officials also said they plan to cut $1.5 billion in costs in the next three years.
The Kroger-Albertsons deal would have been the biggest grocery store merger in U.S. history. Both companies maintained that they needed to be bigger and have scale to compete with juggernauts like Walmart, Amazon and Costco as well as new U.S. players like Aldi and Lidl, and specialty chains like Trader Joe's and Spouts Farmers Market. However, the courts agreed with the Federal Trade Commission's argument that companies like Walmart aren't direct competitors to Albertsons or Kroger and that the merger would hurt consumers.
Now that it's no longer working on the failed merger and will be proceeding on its own, Albertsons can take a closer look at its portfolio of stores, President and Chief Financial Officer Sharon McCollam told analysts on the fiscal third-quarter earnings call. So far in the 2024 fiscal year, Albertsons has completed 84 store remodels and has opened nine locations. More store rollouts as well as closings are to come, though, according to the CEO.
Rationalizing footprint
"We have opened several stores this year and we have had some exceptionally strong store openings and we have increased our data analytics capability in real estate," McCollam said. "And we are really being able to identify markets where we work well and can drive a great experience for our customers. So there are some opening opportunities in markets. I don't want to speak to which markets because it's very competitive, of course."
On the other hand, over the last several years during "the merger period," Albertsons in some ways was not able to rationalize its store footprint, according to McCollam. ''
"I'm talking about general hygiene of the real estate portfolio ... there could be more closures over the next couple of years than you've seen previously, just because of hygiene," she said.
That shouldn't be read as an "an indication of some problem," according to McCollam, adding that there will also be more store openings.
Albertsons declined to provide any additional details to CoStar News.
Interested bidders
As of Nov. 30 last year, Albertsons operated 2,273 stores across 34 states and Washington, D.C., including chains such as Albertsons, Safeway, Vons, Jewel-Osco, Shaw's, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci's Food Lovers Market. Albertsons is the No. 2 pure-play U.S. grocer behind Kroger.
As part of the proposed merger, Kroger and Albertsons planned to divest stores and had a variety of bidders, finally reaching a deal — now defunct — to sell 59 stores to C&S Wholesale for $2.9 billion.
Albertsons CEO Vivek Sankaran was asked if the company would try to strike a deal on its own with any of the more than 60 bidders that expressed interest in some of its stores.
"We are financially focused on operating our business," he said. "We've got so much opportunity in front of us that we see and we're excited about. And so that's where our focus is. What Sharon [McCollam] mentioned earlier about store closures are related to much more about the catching up to the normal course of business ... because we haven't been able to do the same pace over the last couple of years. But that's what we're focused on. We're not at this time having conversations with others."
Cost cutting
However, McCollam added a caveat to Sankaran's remarks.
"Our job is to create long-term value for our shareholders," she said. "And if that means that a strategic transaction comes to the doorstep, we, of course, will consider and look at those things. Vivek described it as we're more reactive than proactive at this point in time."
As for the $1.5 billion in cost cutting, that will be the result of increased productivity, new technology, automation, leveraging its consolidated scale and rebalancing its onshore and offshore activities, according to Sankaran.
In the third quarter Albertsons net sales and other revenue rose 1.2% to $18.77 billion compared with the prior-year period. The increase was driven by a 2% bump in identical sales, with strong growth in pharmacy sales being the primary driver, according to the company.