Kroger, Albertsons Plan to Sell These Nearly 600 Stores in $24.6 Billion Merger

Here's How the Grocery Giants Look to Address Wary Federal Regulators' Objections

According to Linda Moss at CoStar News, "Grocery giants Kroger and Albertsons Cos. have identified the nearly 600 stores they plan to divest to try to appease and finally win federal approval for their stalled $24.6 billion merger, the biggest deal of its kind in U.S. history.

Kroger, the nation's largest supermarket chain, and its fellow grocery juggernaut Albertsons jointly identified the exact locations of the stores that would be sold to C&S Wholesale Grocers to allay anti-competitive concerns raised by the Federal Trade Commission about their pending transaction. The list includes 579 stores throughout 18 states and Washington, D.C., as well six distribution centers and one plant, all slated to be bought by Keene, New Hampshire-based C&S.

Washington tops the list of states where stores will be divested, with 124, followed by Arizona, at 101, and Colorado, at 91. California and Oregon are nearly at a tie, at 63 and 62. Those are followed by Illinois, with 35; Texas, 28; Alaska, 18; Nevada, 16; Idaho, 10; New Mexico, nine; Wyoming, five; Maryland and Utah, four each; Virginia, three; Louisiana and Montana, two each; and Delaware and D.C., one each. Kroger didn't respond to an email from CoStar News seeking a comment.

The release of the names of the exact stores that would be sold comes just over a month before an Aug. 26 federal court hearing is scheduled in Oregon on the FTC's bid to quash the deal. Cincinnati-based Kroger said in October 2022 it planned to buy Albertsons, based in Boise, Idaho, as the companies seek a grander scale to compete with growing rivals in the grocery sector, including Walmart, Target, Costco, the dollar stores, Amazon and Whole Foods Market, among others. And they pledged that they wouldn't close any stores or lay off workers.

But the FTC has cast a wary eye on the transaction and in February sued to block it. The two grocery chains had already taking measures to assuage regulators, with plans for C&S to purchase roughly 400 of their stores for $1.9 billion. But the FTC blasted that plan, calling it an “inadequate divestiture offering.”

In response, in April Kroger and Albertsons said they would sell an additional 166 stores to C&S, bringing the total up to 579 locations and the price up to $2.9 billion. But they didn't release the locations until this week.

Kroger CEO Rodney McMullen wrote a memo to employees in the affected locations, according to Bloomberg News. He told them they will become employees of C&S, and that the new owner has pledged to transfer their pay and health plans and honor collective bargaining agreements, Bloomberg reported.

Nearly 400 of the stores on the list are part of the Safeway and Albertsons chains, with the remainder including Vons, Pavillions, Jewel-Osco, Harris Teeter, Marianos, QFC, Tom Thumb, Haggen, Lucky Store, Market Street, Randalls and Fry's Food Store locations.

The half-dozen distribution centers on the list include two in Arizona, two in Colorado and one in Washington. A dairy plant in Denver is also slated to be sold to C&S.

Albertsons plans to release its first-quarter earnings on July 23 without holding a conference call on the results."

The proposed $24.6 billion merger between Kroger and Albertsons, which includes the divestiture of nearly 600 stores, could have significant implications for property taxpayers, particularly in the areas where these stores are located. Here are several potential impacts:

1. Property Tax Revenues

Assessment Changes: When stores are sold to C&S Wholesale Grocers, the transaction could trigger a reassessment of the properties' values. If the properties are assessed at a higher value post-sale, it could increase property tax revenues for local governments. Conversely, if the value is assessed lower, it could reduce property tax revenues.

Economic Stability: The continued operation of these stores under new ownership is critical. If C&S Wholesale Grocers maintains or even improves the stores, it could sustain or potentially boost local economic stability, preserving or increasing property tax revenues. However, if stores underperform or close, it could negatively impact local economies and reduce property tax revenues.

2. Local Employment and Economic Activity

Job Security: Kroger and Albertsons have pledged that employees will become part of C&S, maintaining their pay and health plans. This job security is essential for sustaining local economic activity. If employees remain employed and continue spending in their communities, it supports local businesses and helps maintain property values, indirectly affecting property tax revenues.

Economic Multiplier Effect: Grocery stores often act as anchor tenants in shopping centers, driving foot traffic to nearby businesses. Continued operation under C&S could help sustain this economic activity, contributing to stable property values and, consequently, stable property tax revenues. Conversely, any decline in business could lead to a downturn in surrounding areas, impacting property values and property tax collections.

3. Regulatory Impacts

FTC Scrutiny and Legal Outcomes: The FTC's concerns and the outcome of the August 26 federal court hearing in Oregon could influence the merger's completion. If the merger faces additional hurdles or modifications, it could delay or alter the planned divestitures, impacting the timeline and certainty of any potential changes to property tax revenues.

4. Distribution Centers and Other Facilities

Industrial Property Values: The sale of distribution centers and a dairy plant to C&S could also impact property tax revenues. These facilities are substantial properties that contribute significantly to local tax bases. Their continued operation and any potential investment or improvement by C&S would be critical for maintaining or enhancing their value.

Conclusion

The Kroger and Albertsons merger, along with the divestiture of stores to C&S Wholesale Grocers, could have a range of effects on property tax revenues. Local governments in the affected areas will need to closely monitor the transition and its economic impacts to anticipate and manage any changes in property tax collections. The continued operation and success of these stores and facilities under new ownership will be key to sustaining or potentially increasing property tax revenues in the impacted communities.