Albertsons introduces new market concept
Albertsons announced Tuesday that it will merge with Rite Aid, marking yet another expansion of the rebounding Boise-based grocery chain.
Q: Why are these companies merging?
A: It’s largely a health-care play. Albertsons’ pharmacy customers spend far more money per store visit than its nonpharmacy customers. Rite Aid, meanwhile, has struggled with declining sales and with competition from the larger CVS and Walgreens chains. Rite Aid already sold part of itself to Walgreens. Now Albertsons will get the rest.
“We have always put our customers first, and our combination with Rite Aid will enable us to even better serve the valuable pharmacy customer by providing a fully integrated one-stop-shop for our customers’ food, health, and wellness needs,” said Albertsons Chairman Bob Miller in a statement.
The acquisition will triple the number of prescriptions currently filled by Albertsons. Albertsons fills 102 million prescriptions annually, while Rite Aid processes 221 million. The merged company will have 4,345 pharmacies and will operate 319 health clinics.
Miller will chair the company. He already knows Rite Aid well: He was its chairman from 1999 to 2007 and remained a director until 2011. Rite Aid’s current chairman and CEO, John Standley, will become CEO.
“The combined platform positions Rite Aid to capitalize on our pharmacy expertise and expand and enhance our pharmacy footprint,” Standley said.
What is involved in the merger?
Albertsons will double the number of stores it operates throughout the United States.
Albertsons will acquire 2,569 Rite Aid stores in 19 states, not including the 2,186 stores that Rite Aid agreed last summer to sell to Walgreens for $5.2 billion. The combined company would have nearly 4,900 stores in 38 states and the District of Columbia.
The merger is subject to antitrust approval. It’s possible Albertsons could be required to divest some Rite Aid stores before the merger takes effect.
Will Albertsons stay in Boise?
Yes. In a statement, the two companies said they would operate two headquarters: in Boise, where Albertsons is based, and Camp Hill, Pennsylvania, where Rite Aid operates.
Miller told the Statesman that Albertsons already has three corporate offices — the others are in Pleasanton, California, and Phoenix — and Camp Hill will be the fourth.
“The executive team will be headquartered in Boise, just like they are today,” he said. “Nothing really changes.”
Miller, who is 73, said he has no plans to step down. “I’m going to stick around as long as they need me and I can be helpful,” he said.
There’s a Rite Aid kitty-cornered from the Albertsons at 16th and State streets, the site of Joe Albertson’s original store. Will that Rite Aid survive?
Yes. “They’re both extremely good stores,” Miller told the Statesman. “I would not expect that store to close.”
No other store closures are projected either, Miller said, but Albertsons will continue its practice of evaluating underperforming stores, which sometimes leads to closures.
But won’t an Albertsons and a Rite Aid so close together duplicate each other?
Yes, in part. They’ll both have Rite Aid pharmacies, and Rite Aid stores will pick up some Albertsons items.
Albertsons’ organic foods and natural products, such as its Open Nature line of foods without preservatives or artificial flavors, go well with pharmacy items, Miller said: “We have lots of things that will work in Rite Aid stores.”
Most of Albertsons’ 1,776 in-store pharmacies will be rebranded as Rite Aid. The company will continue to operate standalone Rite Aid Stores.
“The big thing is more convenience for our customers,” Miller said. “One pharmacy system. You can shop at either one. We think it will be good for everybody.”
Who will own the merged company?
Albertsons has been privately held since 2006, when the old Albertsons Inc. broke up.
A consortium led by Cerberus Capital Management of New York created Albertsons LLC in Boise to own and operate some Albertsons-brand stores, mostly in the South and Southwest. All the rest of Albertsons Inc.’s supermarkets were sold to Minnesota-based SuperValu, which held them for seven years until selling them (the surviving ones, anyway) to the Cerberus consortium in 2013. That same consortium retained ownership when Albertsons bought the larger Safeway chain in 2015 and owns it today.
A few months after the Safeway takeover in 2015, Albertsons said it intended to become a public company again, as Albertsons Inc. was. That means the shares Cerberus and its investment partners now own may be sold to the public.
Albertsons plans to go public the day the merger closes. Miller said that likely will be late this summer. Shares will trade on the New York Stock Exchange.
Will this merger make Albertsons bigger than other iconic Idaho companies like Micron and Simplot?
It already is. Albertsons has $61 billion in annual revenues, compared with Micron’s $20 billion and Simplot’s $7 billion. When Albertsons goes public, Micron will no longer be Idaho’s largest publicly traded company. (Simplot is family owned.)
Micron will still hold the title of the Treasure Valley’s largest for-profit employer, since it has about 6,800 local employees. Albertsons has just under 4,700 employees in Idaho.
Do investors like this deal?
It’s hard to say. Shares of Rite Aid closed at $2.20 Tuesday, up just seven cents since Monday’s close. A year ago, they were trading at nearly $6.
Because Albertsons is privately held, it has no public stock price to track. The company has been reporting profits on its operations but losing hundreds of millions of dollars per year since 2014 because of debt from its big takeovers.
But one of Cerberus’ partners is Kimco Realty Corp., a real estate investment-trust business that is publicly traded and owns about 10 percent of Albertsons. Its shares closed up just 5 cents at $15.25.
“As significant shareholders, we are very optimistic about the future of the combined company,” said Lenard Tessler, senior managing director at Cerberus, who will serve as lead director on the merged company’s nine-member board.
Current Rite Aid stockholders, who must still approve the deal, can choose to exchange 10 shares of Rite Aid stock for one share of Albertsons common stock plus $1.83 in cash or 1.079 shares of Albertsons stock.
The deal will give Rite Aid shareholders ownership of between 28 percent and 29.6 percent of the combined company at the moment before public trading begins. Albertsons shareholders will have the rest —70.4 percent to 72 percent.
Are more Albertsons changes on the way?
The goods and services Albertsons sells are evolving.
Last fall, Albertsons acquired meal kit company Plated and plans to sell the kits in its stores.
It announced Monday that the store’s customers in the Treasure Valley can have groceries delivered in as few as two hours through the company’s new partnership with Instacart. Instacart will deliver groceries to customers from more than 17 stores in Boise, Meridian, Eagle and Kuna.
The company also plans to expand its own delivery service, which can usually provide next-day service.
Customers can also place orders online and pick up their items at their local store.
In December, the company opened an Albertsons Express convenience store and gas station near its grocery store at Parkcenter Boulevard and Apple Street. The SuperValu portion of Albertsons sold off 300 fuel centers. The reunified Albertsons acquired nearly 400 gas stations with its purchases of Safeway and Homedale-based Paul’s Markets.
This summer, Albertsons will open a new brand of store, Market Street Idaho, geared toward foodies. The first store, off Broadway Avenue at West Beacon Street and South Grant Avenue, will feature expanded offerings of fresh fruits, vegetables, meats and fish. It will have a food-service area, a beer taproom and space for seating and cooking demonstrations.
A second Market Street Idaho store will open in a former Shopko at West Fairview Avenue and Eagle Road later in the year.
How about more mergers or acquisitions?
Said Miller: “We continue to look at things that will make our company stronger.”