Jewel, Mariano’s could join forces in a possible mega-merger

Kroger, the country’s largest chain of traditional grocery stores, is said to be in talks to buy Albertsons, creating a supermarket giant with nearly 5,000 stores and more than $200 billion in annual revenue.

The potential supermarket mega-merger is also likely to attract regulatory scrutiny in markets such as Chicago, where rival chains Jewel and Mariano’s could find themselves in the same corporate basket.

Cincinnati-based Kroger has 2,750 supermarkets in 35 states, including more than 40 Mariano’s stores in the Chicago area. Albertsons, which is based in Boise, Idaho, has more than 2,200 supermarkets in 34 states, including 188 Jewel stores in the Chicago area.

Industry analysts say how many of these overlapping stores may have to be sold to other grocers, or closed, remains to be seen.

“The regulatory aspect of this is a very real issue,” said Zain Akbari, equity analyst covering the grocery industry for Chicago-based Morningstar. “In Chicago, Albertsons and Kroger maintain significant presences through Jewel and Mariano’s. And this story is being repeated in many other markets across the country. »

Neither Kroger nor Albertsons responded to requests for comment Thursday. Bloomberg reported Thursday morning that a deal could be reached this week, citing people familiar with the matter.

Kroger and Albertsons entered the competitive Chicago market primarily through acquisitions over the past decade. But low margins and the rise of Walmart and Amazon as major players — both with brick-and-mortar locations and the growing online segment — could be driving the urge to merge. for Kroger and Albertsons, Akbari said.

“Scale is really an advantage in the grocery landscape, especially in local markets,” Akbari said. “The grocery industry has very, very tight margins, and any savings you can get are beneficial simply because the industry is as competitive on price as it’s always been.”

Potential merger would bring together one of Chicago’s oldest grocery chains and its main challenger of the new millennium.

Founded in 1899 as Jewel Tea, a horse-drawn tea and coffee delivery service, Jewel has grown to become Chicago’s largest grocery chain, with 188 stores in the city and suburbs. In 2013, Jewel was sold to Cerberus Capital Management in a $3.3 billion acquisition that also included the now publicly traded grocery chain Albertsons.

Mariano’s was launched in 2010 by former Dominick executive Bob Mariano. The chain grew rapidly following the 2013 demise of Dominick’s, a venerable Chicago grocer, which was shuttered by its parent company, Safeway. In 2015, supermarket giant Kroger bought Mariano’s parent company, Milwaukee-based Roundy’s, for $800 million.

Last year, Mariano opened the first of its new, scaled-down fresh grocery stores, Dom’s Kitchen & Market, in Lincoln Park, and a second is slated to open in Old Town next month. Meanwhile, his namesake chain remains an important part of Chicago’s grocery landscape under Kroger.

Founded in 1883, Kroger exited the Chicago market in 1970, selling its stores to Dominick’s. But it found its way back with its 1998 acquisition of California-based Food 4 Less, a midsize discount chain. It now has 104 stores in Illinois under the Kroger, Mariano’s and Food 4 Less banners.

Kroger is expected to generate nearly $150 billion in revenue this fiscal year and has a market capitalization of nearly $33 billion, Akbari said. Albertsons is expected to generate $76 billion in revenue for 2022 and has a market capitalization of nearly $14 billion.

Albertsons stock price rose 11.5% on Thursday on merger speculation, while Kroger was up about 1%.

Akbari said Kroger sits “way above” other traditional grocers with analytics, private label offerings and digital capabilities. He said Albertsons are “a step backwards” on all fronts. For Kroger, the deal would expand its footprint, digital capabilities and help it leverage costs.

Albertsons’ backers, including Cerberus Capital, which remains the largest shareholder with a 28.5% stake, bought the grocery chain this year and are looking to cash in, Akbari said.

Kroger would potentially add thousands of brick-and-mortar grocery stores, but the primary focus of the merger could be the growing digital market.

The pandemic has fueled a major shift to online grocery shopping, with nationwide retailer sales growing 55.6% in 2020 and another 11.3% last year, topping $121 billion, according to research firm Insider Intelligence. Online grocery sales are expected to grow 15.8% in 2022 to around $140 billion.

By 2025, online sales are expected to reach around $212 billion, or nearly 14% of the $1.5 trillion U.S. retail grocery market, according to Insider Intelligence.

Walmart leveraged its massive retail footprint to become the biggest player in online grocery sales with nearly 28%, followed by Amazon, which has a 21% share in its Fresh and Whole stores. Foods, according to Insider Intelligence.

Kroger has about 10% and Albertsons less than 4% of the online grocery market, but Blake Droesch, an analyst covering retail and e-commerce at Insider Intelligence, said they can increase their share online through the merger.

“Kroger has been investing in digital for a long time, whereas Albertsons came quite late in the game,” Droesch said. “Kroger can continue to grow digitally by leveraging Albertsons locations as fulfillment centers to drive sales, while for Albertsons they are going to have access to this delivery infrastructure that they never had. “

Chicago buyers could see other changes if the merger is approved.

Kroger’s private label brands, including Private Selection, Kroger and Simple Truth, which proliferate at Mariano, would likely hit Jewel shelves after the merger, Akbari said.

Whether the stores would adopt a common name or continue to operate under separate banners remains to be seen. But even if regulators don’t require divestitures, Akbari expects there will be a downsizing of the Chicago portfolio — if Jewel and Mariano share the same owner.

“At the end of the day, regulators aside, there’s probably good reason to get rid of some stores in this area,” Akbari said. “Add Jewel to Mariano and you’re probably a little too dense.”

rchannick@chicagotribune.com

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