Albertsons-Kroger Merger Could Bring Opportunity In Grocery Real Estate

Though leadership said a proposed $24.6B merger of grocery titans Kroger and Albertsons would not lead to layoffs or store closures, the companies' plans to sidestep these outcomes could have an impact on grocery retail in the western U.S. and present an opportunity for challengers in the supermarket industry. 

In California, for example, Cincinnati-based Kroger and Boise, Idaho-based Albertsons operate a combined 1,000 stores through their various brands and have a total of eight distribution centers in the state, translating into an outsized footprint, according to CoStar Group. 

A merger would create a lot of overlap, and that overlap could give the appearance of an unfair amount of control over the market, part of the roadblock to getting the merger approved by the Federal Trade Commission, retail experts say. Kroger’s California presence is mainly through its Ralphs and Food 4 Less brands, while Albertsons’ stores in the state are largely its eponymous brand, Vons, Safeway and Pavilions.

Looking at how many stores each company operates within 3 miles of a store run by the other, Seattle, Phoenix, Dallas-Forth Worth and Chicago as well as Southern California cities like San Diego are other markets where data shows a high level of overlap between Kroger and Albertsons stores, according to GroceryDive. 

“There are many places, like in San Diego, where you have a Ralphs and a Vons anchoring centers at the same intersection,” San Diego-based Flocke & Avoyer Commercial Real Estate President Steve Avoyer told CoStar. “There are changes that are going to happen, whether it’s closings or selloffs, and they’re not going to be able to avoid that in all those places.”

Last week, Kroger and Albertsons said they would be willing to “divest” 100 to 375 locations by “spinning them off into a separate company called SpinCo that would be controlled by Albertsons shareholders,” GroceryDive reported. The two companies have also proposed selling the stores to competitors to get the merger approved. 

While that could be bad news for workers in these stores, it also presents a potential opportunity for competing grocery operators looking to expand. 

The grocery market has grown increasingly crowded over the last few years. Amazon-owned Whole Foods, discount grocers like Aldi and Grocery Outlet and ethnic grocers have all gained traction. Meanwhile, the trend of grocery delivery and pickup continued to gain popularity as Covid lockdowns eased, diversifying the ways these stores can reach customers.

“There’s a lot of demand out there from value-oriented and specialty grocers in these locations,” Retail Opportunity Investments CEO Stuart Tanz said, according to CoStar. “So, if Albertsons and Kroger divest off some of these locations, we view this as a potential opportunity.”