US supermarket shakeup
Years of pressure from Wal-Mart have driven wreaked havoc with the leading supermarket firms in the country. Winn-Dixie, a market leader in the south, declared bankruptcy earlier this year. The latest victim is Albertson's, currently the #3 chain by sales.
Albertson's is already planning to sell its pharmacy chain (over 600 stores) to CVS for up to $4 billion. But an investment group consisting of smaller grocery chain Supervalu Inc., equity group Cerberus Capital, and real-estate company Kimco Realty. They are reportedly offering $9.6 billion for the chain. This would be the second largest leveraged buyout in history (after the famous RJR-Nabisco deal), provided no other rival group bids more at the last minute.
Albertson's has 2,500 stores nationwide. But given the composition of the bidding group, many of the underperforming stores are desirable for their real estate value rather than their ongoing ability to compete in the cutthroat grocery market.
Supervalu is a leading national grocery distributor. It also has 1,440 grocery stores, mostly discount stores across the country. Its markets go under the names Shoppers Food Warehouse, Cub Foods, Shop 'n Save, Bigg's, Save-A-Lot, Farm Fresh, Scott's Foods, and Hornbacher's. The thinking is that it will take over some of Albertson's distribution centers and a few key (profitable) subchains in the Albertson's empire, possibly Jewel, Acme, and Shaw's.
A Wall Street Journal article ("Cerberus Group Nears Albertson's Deal", 12/16/05) ) points out that while the number of grocery stores in the US has fallen from around 110,000 in 1982 to around 41,000, the actual square footages of grocery space has increased as smaller markets close and Wal-Mart and other build massive supermarkets.
The article further speculates on the fate of the Albertson's stores:
Some analysts predict that pieces of the company will be broken off and that a significant number of its stores will be shuttered. Observers say that Supervalu probably isn't interested in running the entire operation but instead will take over one or more of Albertson's attractive divisions, most likely its Jewel stores in the Chicago area. Analysts also predict the buyers will jettison Albertson's roughly 470 stores in Texas, Florida, Colorado and Arizona, a weak group that has struggled to stay ahead of the competition.
Meanwhile, key competitors Kroger and Safeway are doing better than Albertson's, but are still being threatened by the Wal-Mart juggernaut. Wal-Mart still hasn't spread its supermarket operations consistently across the country but is steadily opening new, Supercenters and Sam's Clubs.
Followup (12/24/05): Alberston's board rejected the deal negotiated by its execs. It looks like those executives will "retire", and the company will have to sell itself off piecemeal.
