Albertsons and Rite Aid announce merger; new company to have $83 billion in sales

Albertsons and Rite Aid announced yesterday that the companies plan to merge into a new publicly traded entity with an estimated $83 billion in annual sales. It is expected that the deal will close during the second half of the calendar year.

Here are some of the details of the planned merger:

• Albertsons' private food label products will be sold in Rite Aid stores, and most Albertsons pharmacies will be rebranded as Rite Aid.
• The new company will operate about 4,900 locations, 4,350 pharmacy counters and 320 clinics across 38 states and Washington D.C. It will service more than 40 million customers per week.
• The name of the company has not been determined, but it will have dual headquarters - Albertsons' current home in Boise, ID, and Rite Aid's current home in Camp Hill, PA.
• Rite Aid's John Standley will become CEO of the combined company, and Albertsons' Bob Miller will serve as Chairman.
• The company says it is too soon to determine if any overlapping stores will close. In the Greater Philadelphia market, both Albertsons (Acme Markets) and Rite Aid have a strong presence.
• According to Burt Flickinger III, managing director at the Strategic Research Group, "(Rite Aid) will get Albertsons distribution power and they both have good distribution centers. It is a strategic triumph for Albertsons, and whereas Kroger is selling off assets like convenience stores, Albertsons is profitably growing and making strategic acquisitions."
• In exchange for every 10 shares of Rite Aid common stock, Rite Aid shareholders will have the right to elect to receive either one share of Albertsons Companies stock plus $1.83 in cash, or 1.079 shares of Albertsons Companies stock. Depending on the result of the election, Rite Aid shareholders will own a 28% - 30% stake in the combined company.
• Walgreens and Rite Aid planned to merge last year, but the deal encountered resistance from the FTC and fell apart. Shortly thereafter, Walgreens agreed to acquire 1,932 Rite Aid stores and select distribution centers. According to Bloomberg, the newly formed company will have fewer pharmacy counters than Rite Aid did before it agreed to sell the stores to Walgreens. 

Kroger to sell its 784 convenience stores

Kroger announced last week that it reached an agreement to sell its convenience store business for $2.15 billion to EG Group, a petroleum and convenience store retailer based in Great Britain. The deal includes 784 stores across 18 states.

The EG Group plans to continue operating the stores under their current banners (Turkey Hill, Kwik Shop, Quick Stop, Tom Thumb and Loaf 'N Jug), and plans to establish its North American headquarters in Cincinnati, where Kroger is based.

Burt Flickinger III, managing director at Strategic Resource Group, doesn't support the sale.

"For Kroger to sell more than 700 convenience stores when they had the opportunity to get to 1,700 stores, it is really regrettable that the company succumbed to this activist pressure because the c-stores were performing so well across all banners."

Flickinger believes that Kroger will miss out on the opportunity to further grow the business by installing Amazon lockers in the c-stores, as Marathon Speedway currently does.

Wakefern introduces Price Rite Marketplace

The Wakefern Food Corp cooperative launched a rebranding of the Price Rite banner and unveiled its first fully rebranded store under the new Price Rite Marketplace name in Secane, PA last month. According to a story in Supermarket News, the store is brighter and includes new signage, a whitewashed wood backdrop, and various new offerings.

Wakefern said it plans to roll out the look to all 65 of its Price Rite locations in the next year.

The new offerings at Price Rite Marketplace include a "Sweet Spot Dessert" case, expanded private label offerings, a "Meals to Go" section, and the addition of Certified Angus Beef and Perdue's No Antibiotics Ever Chicken.

"Price Rite has become the strongest traditionally sized extreme-value retailer in the Eastern U.S.," according to Burt Flickinger, managing partner at Strategic Resource Group. "In relatively small amounts of space, they have some of the highest sales per square foot and sales per store of any of the extreme-value stores."

Price Rite stores typically have from 22,500 - 35,000 square feet of selling space, according to Flickinger. 

Sprouts Farmer's Market coming to Philly, South Jersey

Sprouts Farmers Market, an organic and natural foods grocer with 268 stores in 15 states, is reportedly planning on a new store in Philadelphia, PA and Moorestown, NJ. Both stores would represent the first in each state.

The Philadelphia store is planned for Lincoln Square at Broad Street and Washington Avenue in South Philadelphia, a mixed-use development that Kimco is involved in. The Moorestown store would inhabit part of the space in the Moorestown Mall that Macy's recently vacated.

Sprouts expansion to the northeast comes at a time when sales of organic food has been soaring in the U.S. Until recently, Whole Foods has owned most of the organic market in Greater Philadelphia. However, Mom's Organic Market and bFresh have recently entered the market, and several traditional and discount grocery stores - like Aldi and ShopRite - have been increasing their organic and natural foods offerings. Newcomer Lidl is expected to offer a significant variety of organics, as well.

What this all leads to is "a price war of unprecedented proportions," according to Burt Flickinger III, managing director at Strategic Resource Group.

Nationally, Sprouts had reported that they have 63 sites approved for new stores and 43 signed leases "for the coming years."

As reported previously, Albertsons (Acme) is exploring an acquisition of the Sprouts chain.

Albertsons - Price Chopper deal called off

According to a Supermarket News report in late January, Albertsons has dropped its pursuit of Price Chopper, which is headquartered in upstate New York. It had been reported in late 2016 that Albertsons was in "advanced talks" to purchase the supermarket chain for about $1 billion.

It is likely that Price Chopper will continue to seek avenues for new investment, but a strategic acquisition is now unlikely, according to a Supermarket News source.

Strategic Resource Group's Burt Flickinger anticipates that the 135-store chain would seek alternative means of financing such as sale-leasebacks or a family investment in partnership with private equity.