Why a Kroger-Albertsons-Safeway merger could be “messy” in Seattle

As financial markets and food experts digest the prospect of a merger between Kroger and Albertsons, owner of Safeway, at least one expert is warning that such a deal could mean the sale of many grocery stores in and around Seattle.

On Friday, Kroger and Albertsons, two of America’s largest grocery chains, announced plans for a $20 billion merger that, in theory, would allow the combined companies to better compete with Walmart and Amazon.

But to gain federal approval, the two merger partners would have to sell hundreds of locations in areas where they overlap too much. A so-called divestment could upend the grocery store landscape in Seattle and across Washington, where Kroger, which owns QFC and Fred Meyer, and Albertsons collectively have nearly 350 locations.

Unlike the East Coast and the Midwest, where Kroger and Albertsons are in largely separate markets, the two retailers overlap in several western states, particularly California and Washington, said Arun Sundaram, market analyst at CFRA Research who follows the grocery store.

“The area is a little messy for them…so I think we’ll probably see more of these divestitures” in those states.

Washington has a strong presence of both chains. Albertsons has some 217 locations in Washington, nearly 10% of the national total, making the state second only to California, according to company filings in February.

Kroger has 117 QFC stores and Fred Meyer locations in Washington, about 4% of its total — trailing only California and Colorado among the chain’s operations in western states, according to the company’s 2021 factbook. Together, Kroger and Albertsons employ more than 710,000 workers and operate 4,996 stores nationwide, according to a statement from the companies.

Divestiture is a common strategy for merger partners who don’t want to violate antitrust laws that prevent a single company from controlling too large a share of a consumer market.

In 2015, Safeway and Albertsons had to spin off 168 stores to get Federal Trade Commission approval for their own merger.

In the case of the Kroger-Albertsons combination, it’s far from clear how many stores in Washington would need to be sold or what timeline the process would follow.

A Kroger spokesperson did not comment on potential store sales in Washington and referred to a company press release. A Safeway spokesperson did not respond Friday afternoon.

The companies say they expect the merger to be completed in early 2024, but acknowledge it will be subject to regulatory approvals.

Nationally, Kroger expects the divestiture could involve 100 to 375 locations, which would transition to a standalone entity called SpinCo and be led by Albertsons.

Sundaram believes SpinCo could be taken over by a competitor once the merger process is complete. But he wonders how those divested locations would be handled for the 18+ months needed to close the deal.

“Meanwhile, SpinCo companies are still operating under Albertsons – are they getting the same resources [as other locations]?” Sundaram said.

History has not always been kind to merger-related fallout.

As part of the Safeway-Albertsons merger, the companies agreed in early 2015 to sell 146 locations to Bellingham-based Haggen, who saw the purchase as key to ambitious expansion. But within a year, Haggen had filed for bankruptcy and ended up selling 29 of its “core” stores…to Albertsons.

Material from the archives and dispatches of The Seattle Times is included in this report.

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