Grocery Update #16: Why C&S and Piggly Wiggly Can't Save The Kroger-Albertsons Merger

Also: Mars Eats Kellanova.

Discontents: 1. Kroger’s Dominance. 2. Kroger’s Retail Brutalism In Atlanta. 3. Why C&S Can’t Handle The Kroger Albertsons Divestiture. 4. Piggly Wiggly Food Apartheid. 5. M&M Pop-Tarts? Mars Eats Kellanova. 6. Tunes.

1. Kroger’s Dominance.

Kroger, is without a doubt, despite the claims of paid consultants writing trade rag op-eds to run interference for the Albertsons merger, a monopolistic operator.

Kroger is a market leader almost everywhere it has stores. Kroger has some of the most effective pricing strategy, most precise (and invasive) consumer insights and enterprise wide data of any grocer. They are the nation’s largest health food chain with among the largest private label assortments. They go toe to toe with Walmart, even if they are less than half the Walton family’s sales volume. They still have forced labor in their supply chains. They elbow independent grocers closer to bankruptcy. They are so big because they are smart, forward thinking and aggressive.

They know how to squeeze the pennies off of every dollar that customers spend. They raised shelf prices and made billions off of skimming the difference between cost hikes and retail prices. This may be called “price optimization” by the industry, but it is what created the food inflation crisis, supercharged by their market dominance. Sure, we should be concerned about their use of electronic shelf tags, as both as a labor savings strategy and potentially to implement surge pricing. But that is only the latest weapon in their pricing arsenal. And after 3 years of price hikes, they promised to lower prices by $1 billion after the merger. What are they waiting for? They have stores, like those described below, with rock bottom pricing, but they also compete in the middle market in many areas. There is no logical reason why they need to merge with their next largest competitor other than solidifying further market dominance, ensuring shareholders get ever bigger dividends and buybacks. Market power is pricing power. Investors get that, economists seem to be confused by the math and industry hacks live in denial.

In response to the pro-merger talking heads, here are the Kroger market share rundowns, alongside relevant Albertsons details. (Source data via Axios via Chain Store Age via an internet search for each metro area.)

• Atlanta: Kroger 26%, Publix 22.5%, Walmart 19%; see below for more.

• Raleigh Durham: Walmart 20%, Kroger/Harris Teeter 17%, Food Lion/Ahold 15%

• Cincinnati: Kroger 43%, Walmart 21%

• Columbus: Kroger 43%, Walmart 19%

• Chicago: Albertsons/Jewel-Osco 22.6%, Walmart 17%, Kroger 7%

• Seattle: Kroger (Fred Meyer/QFC) 32%, Safeway 17%

• Northern California: Safeway (Albertsons) 21%, Walmart 8%

• Southern California: Albertsons/Vons/Pavilions 19.8%, Kroger (Ralphs/Food4Less) 18.6%

• Salt Lake City: Smith’s/Kroger 27%, Walmart 21%

• Denver: Kroger/King Soopers 36%, Walmart 17%, Safeway 11%

• Arizona: Fry’s (Kroger) 28%, Walmart 17%, Safeway/Albertsons 14%

• DFW: Walmart 29%, Kroger 19%, Albertsons/Tom Thumb 12%

• Houston: HEB 24%, Kroger 24%, Walmart 20%, Randall’s (Albertsons) 2%

• Nashville: Kroger 33%, Walmart 24%

• Detroit: Kroger 33%, Meijer 16%, Walmart 13%

• Portland: 52% combined Kroger and Albertsons

2. Kroger’s Retail Brutalism in Atlanta.

Kroger knows grocery price warfare in this market. They are geared to fend off Aldi, Lidl and Walmart, all within a 10 minute drive. Big statements of value with eye catching signage, low prices, multiple facings, with full four foot sets of one or two low priced items, stretching along a whole aisle. Kroger store brand knock off Chips A’hoy (aka Chip Mates, lol), $2.99 and knock off Oreos for $2.49, for 25 oz. of cookies. 25 oz! Imagine what 25 oz. of your favorite organic or gluten free cookies would cost (anywhere except Costco).

Four packs of 15 oz. canned green beans and canned corn, $2.59, way lower than Aldi and Lidl. Simple Truth organic canned garbanzos, 4 pack, $4.79. Kroger Smartway Mayo, 15 oz., $2.19. Mustard and ketchup, 24 oz., 10/$10.00. Yes, 10 bottles of ketchup for $10. That is how much 2 bottles of the organic stuff will cost you at Whole Foods. A gallon of bright turquoise Hawaiian Punch, $2.49, teeing off with 10 packs of Capri Sun, 2/$6.00. 40 oz. of Kroger peanut butter, $4.49. So brutal.

The store is otherwise just a big ol’ Kroger. If you have been in other Kroger banners in the south, you know what I mean. It is why they are so successful, despite huge competition from Walmart, Publix, Food Lion, Aldi. Tall gondolas and long aisles, with old school overhanging shelves that have built in light fixtures. Yet, somehow the aisles are still dark. The overhead fluorescent lights are bright squares in a pale tiled ceiling, with category designation signage arching over the aisles like anemic art deco street signs. So banal, but it works.

It is an old school Kroger in another way, with a segregated natural/organic food section so that all the gluten free, paleo, keto, Atkins-adjacent health food oddballs can find everything they need within 3 small, overpriced aisles shoehorned in behind produce.

And the produce section is huge, overpriced, bright, freshly rotated, everything wrapped in cellophane or plastic mesh or resealable plastic Ziploc-style bags, like the 2 lb. bags of Simple Truth organic apples for 4.29. Because you should never be allowed to buy just 1 organic apple. Nothing local or bioregional of course, this is Big Food, with a big selection, big sets of bagged salad greens, conventional and organic, with red, yellow, green peppers, green cukes, skrink-wrapped cauliflower and rubber banded broccoli stalks. Big value stacks of avocados for 2/$3, hatch chilis for $1.49 and roma tomatoes for .99 a lb. Guac and salsa, y’all.

A “Local” endcap with bagged Georgia pecans, gallons of artesian water, bottles of local honey and small batch barbecue sauces, with a conspicuously non-local shipper of Oreos dangling off the side. Meat and poultry cases, big and fresh, packed and tightly sealed, fully stocked and rotated, claiming pure heritage, no hormones, no steroids, with occasional grass-fed, pasture-raised and organic options among the factory-farmed abundance. So much meat for all the meat freaks.

More big displays, this time neatly placed pallet drops of buy one get one free sodas, near Dixie cups, paper towels, toilet paper, plastic bottled water shrink-wrapped in plastic packaging stacked on pallets further shrink-wrapped in plastic, the plastic to water ratio probably 1:1 by weight.

Gallon milks at $2.79, neck and neck with Aldi and Lidl for best price in market for your stereotypical Key Value Item (KVI). If a politician doesn’t know the price of milk in their market, don’t vote for them. Milk is a grocery retail’s index fossil. Milk, for whatever reason, forms value perception. Want to compete on price? Give away milk as low as you can legally go. Want to sniff out price gaugers? See who is trying sell milk at full margin. Milk was made to be your loss leader, so don’t lose your customers over milk. Kroger knows.

Likewise, the DSD bread, neatly piled on long, bakery fresh smelling aisles stacked with the various local bread monopolies’ finest; Nature’s Own, Sara Lee, Sunbeam. Nearby in the “baked goods” section, kiosks of Little Debbie square off with rival Hostess (I was a Drake’s loyalist growing up).

You don’t own 10% of U.S. grocery sales by being the friendliest store in town.

Across the board, this is retail brutalism, big statements, wide facings, low prices, full assortments to stock your whole pantry. Why you would shop anywhere else is beyond comprehension, especially since the store is so damn big it takes you all morning to find the 37 items on your shopping list. This is how you dominate a market, build a fortress, your culinary Stalingrad, Gandalf on the bridge of Khazad-Dum exhorting the Balrog that shall not pass. Market share that Walmart, Aldi, Lidl even employee-owned Publix may never capture. Kroger, not demure. Just brutal.

3. Why C&S Can’t Handle 579 New Stores.

Based on varied conversations I have had with fellow industry operators, trade union officials and investment bankers, here are observations and questions about C&S and their role in the Kroger-Albertsons merger.

• C&S only operates 23 retail stores and the divestiture would be a 25X increase in retail footprint. C&S is a huge, $25+ billion a year wholesaler with thousands of retail accounts. Their sales are down 21% in the last 5 years. Adjusted for inflation, this is a 41% drop. Their credit is classified as “non-investment grade” or junk due to these declining sales, thin margins, high fixed costs and a fragile, concentrated customer base.

• C&S lost Ahold-Delhaize as a customer in 2017, which was @30% of their revenue. They will likely lose the Winn-Dixie account, or another $6-7 billion in revenues, due to Aldi acquiring 400 of those stores in 2023. Aldi has their own distribution network, since much of their product is store branded.

• The 579 stores in the Kroger Albertsons divestiture represent close to $20 billion in revenue. The stores are spread across multiple states and lack infrastructure, technology and critical mass for successful operations. C&S has a history of underinvesting in infrastructure (see my take below on Piggly Wiggly).

• They will lose dozens of Kroger and Albertsons private label brands, across thousands of skus, which represent over 20% of enterprise sales. How do they plan to make up for that, and how to do so quickly so that stores do not tank sales?

• They do not have expertise in running store pharmacies or dealing with the pharmacy benefit managers which have brought CVS, Walgreens and Rite Aid to the brink of extinction.

• They do not have expertise in local sourcing of produce in these new markets, which could represent @10% of store sales.

• C&S is not getting any new warehouses in California from Kroger or Albertson’s as part of the divestiture transaction. They have one small produce warehouse in Fresno, which is not large enough nor well located to supply the stores in Southern California. So, how is it that a wholesaler that is buying 579 grocery stores doesn’t have a regional warehouse to support these stores? What is the distribution plan? C&S may not want to own these stores long term. They will sell them off piecemeal after securing long term supply agreements. The loss in revenue, the geographic diversity of stores and the legacy of underinvesting in stores will handicap their ability to be successful.

Finally, 3 of the last big supermarket transactions ended in bankruptcy:

• Price Chopper/Tops (2021): Divestiture of 12 Grand Union stores to C&S

• Ahold Delhaize (2016): Divested 81 stores to 7 different buyers

• Safeway/Albertsons (2015): 146 stores divested to Haggen. Haggen filed for bankruptcy in 2016 and sold 29 stores back to Albertsons.

• Bi-Lo/Winn Dixie/Lone Star Funds (2007): two bankruptcies, 2010 and 2018.

4. Why Piggly Wiggly Can’t Save The Kroger-Albertsons Merger.

Across town in Atlanta is the lynchpin to Kroger’s merger strategy with Albertsons. C&S, who would take on 579 divested Kroger and Albertsons stores to appease regulators, owns 23 grocery stores, mostly Grand Unions. They also own the Piggly Wiggly brand. They franchise Piggly Wiggly to individual operators. As a franchisor, they are responsible for “supporting the operations of franchisees and to continuously develop and monitor the business systems, products and/or services that have made their business a success.” Restaurant franchises operate as virtual clones of each other. How often have you been in a McDonald’s or Subway that was dirty, with terrible food and service (even if the prices are a bit higher these days)? Maybe once or twice, but that is far from the norm, or you would not have gone back and they would not have thousands of profitable locations. Franchises are meant to uphold the brand, execute the playbook while enabling independent operators a path to the middle class.

But that is not always the case with franchised grocery stores.

I visited 3 Piggly Wiggly stores on the south side of Atlanta, in majority Black neighborhoods, working and middle class, one of them even down the street from Tyler Perry studios. My expectations were low. Yet I couldn’t not have been more disappointed.

The stores were easily the worst operated grocery stores I have ever been in.

Now that is saying a lot, for a few reasons. The first being that I grew up in The Bronx, which has its share of terrible bodegas and grocery stores that are poorly lit, smelly, overpriced and understocked. The second being that my mom used to take me to pretty sad dollar stores all the time. They don’t scare me nor do they impress me, but they are rarely topnotch operators. And third, I went to college in Binghamton, a metro area where I found a wonderful community and beautiful parks yet was also a post-industrial wasteland with a couple of really awful Giant grocery stores along Main Street. So to say that these Piggly Wiggly stores were this bad. Is. No. Small. Thing.

Here are some details. First, the smell. Rotten, sour, of old fixtures, mold, stale air, unwashed floors, unventilated dairy coolers, mildew on the produce racks. Just all wrong. With dented and warped shelving that looked like it hadn’t wiped down since the 1980s. Signage that likewise looked like it hadn’t been changed out since the 1980s. The stores were dark, not dangerous or claustrophobic like some dollar stores, just hollowed out.

There was bare shelving all over the stores. Maybe the truck was late? But I went to 3 stores on a mid-week, mid-day visit. Keep in mind these are franchises whose brand owner is a wholesaler, a $23 billion a year distributor. A wholesaler. Of Groceries. Whose job it is to keep stores in stock.

So yes, vast out of stocks across center store and dairy sections. I would estimate less than 60% in stock ratios. Whole sections of Lozier (or maybe Madix) gondolas were missing, with empty peg boards in place holding no products, like phantom category sets. Unstocked pallets of products in a couple aisles along with a handful of empty U-boats, with no staff nearby loading or unloading. Half empty endcaps, except for a couple of fully stocked Pepsi/Frito Lay endcaps, with potato chips and soda. The Frito DSD guy was still in the store working hard. I even overheard him consoling/encouraging one of the Piggly Wiggly staffers who was stocking out a half empty dairy case. Solidarity, brothers.

Open freezer bunkers with a hodge-podge of random frozen products. Many of the bunkers had ice condensation along the rims since they were uncovered, exposed to the humid air. Some of the bunkers were plugged into outlets in the ceiling, extension cords dangling into the aisles. This may have been the jankiest shit I have ever seen. Usually I am all for duct tape and bailing wire, but this was next level. Said bunkers were placed at random throughout each of the stores, occasionally empty or broken and out of temp, or with various frozen items piled willy nilly. Maybe they bought these coolers at auction? They looked like holdovers from the Reagan years.

A meat cutter was working hard in each of the stores. The meat looked fresh and rotated but the ambience made it feel otherwise. Sorry my friends, I know you are working your ass off, but I would not buy meat from any of these stores. The stores also had produce, but they felt more like an afterthought as opposed to a destination. The produce sections had a few items in the required categories, salads, apples, potatoes, onions, but nothing memorable. Just sad produce.

And no sale prices, but stickers affixed to random products with a “5 for $24.99” deal, because that is obviously a highly effective psychological price point here on the south side of the ATL? Otherwise, the prices were ok, not best in market, but middle of the road, indicating they can price how they need to because there probably aren’t strong competitors nearby, other than the ubiquitous dollar stores.

And signage, claiming high quality and low prices. Are you serious my dudes?

Food apartheid is a term that food justice activist and urban farmer Karen Washington came up with.

Not food deserts, because deserts are beautiful (I lived in Texas for 20 years). Instead, two separate and unequal food systems, segregated by class and race. In this case, food apartheid between these 3 Piggly Wiggly stores, 15 minutes apart, and only 20 minutes down the road from the brutalist Kroger. It was shocking.

These were all stores in working and middle class Black neighborhoods. But the folks near the Kroger had a best in class, full service grocery store just minutes away from other high quality, well priced competitors such as Lidl, Aldi and Walmart. Even an employee-owned Publix nearby too, although their prices were a tad high.

But the folks who lived near this Piggly Wiggly? Taken advantage of. Hoodwinked. Bamboozled, to paraphrase Malcom X. These stores were an insult to good taste. They were an offense to the community who depended on them. There were a handful of locals shopping in each of these stores when I walked through. No one looked happy to be there. It was just nearby, just there. Maybe a step up from the dollar store across the strip mall. At least with a semblance of produce. But hardly a pleasure. Separate and unequal.

The craziest thing is that the $26 billion Kroger merger hinges on these Piggly Wiggly stores.

These far flung franchise stores are being used as a justification, that C&S can operate grocery stores and can successfully take ownership of 579 or so massive Kroger, Albertsons units and their various banners.

Digression. A quick but topical story. In 2015, a vastly undercapitalized 18 store chain called Haggen acquired 100+ Safeway stores during the Albertsons deal. Haggen was a great operator, with clean, well-run stores. But they bit off waaaaay more than they could chew, and were hamstrung by the poorly financed, merchandised, located and operated Albertsons stores they bought. In less than a year they went bankrupt and Albertsons bought back a few dozen of the stores for pennies on the dollar, disrupting the lives and livelihoods of thousands of grocery workers and tens of thousands of shoppers and community members. It can happen again.

To think that Kroger is using these old, under-capitalized, mildew scented, smudge-stained, poorly operated Piggly Wiggly stores, via a financially troubled C&S (see below), as the hinge, the cornerstone, the lynchpin for the largest and most controversial grocery merger in history, is absurd, ridiculous, laughable and just bonkers.

Hannah Arendt wrote of the banality of evil. But there is also a banality in monopolization and corporatization.

There is a stunning, boring mediocrity in the idea that these massive, high volume Kroger stores, priced to kill, packed to the gills with their own private labels, supplied through their own warehouses, could -poof- just be handed over to possibly the worst grocer in the lower 48 states and that everything would just work out fine for the employees, the suppliers, the customers and community members.

A food apartheid system depends on this kind of banality, via the grocery trade rag op-eds, the high paid consultants, the lawyers, the talking heads, the bought and sold service providers and of course, the CEOs who insist that the only way forward is to make Big Food bigger,

that we have no choice but to have less choices,

that we need more Walmarts to compete with Walmart,

that the grocery industry is destined to become more consolidated, mediocre and boring.

We need a better way.

5. Mars Eats Kellanova: via Forbes

I wrote a critical deep dive into the Mars-Kellanova M&M’s meets Pop-Tarts Big Snack acquisition. Here is a link.

6. Tunes.

Presidents are temporary but Wu-Tang is Forever. Staten Island’s finest, with their classic take on historical materialism.

peace.