The deal would make the combined chain the second largest in the U.S., with 2,400 total stores.
Cincinnati-based Kroger Co. has 2,600, but it could be Kroger Co. that benefits from this deal, especially in markets where Safeway and Albertsons overlap the most, said Pewaukee, Wis.-based retail analyst David Livingston.
“Competitors like Kroger and WinCo could not be happier,” he said. “Kroger will probably be the biggest winner in this whole deal. No one shopped Safeway or Albertsons because of price, quality or service, but more that they were an acceptable alternative for convenience shopping. Kroger will pick up that business from disgruntled customers with all the overlap.”
Safeway and Albertsons, particularly in California where they had the most overlap, were underperformers in their market, he said, typically 20% or more below market average in sales per square foot.
“I expect Safeway sales to decline about 15%, which is normal when a below average operator takes over another below average operator,” he said.
Store closures are inevitable where the companies overlap, particularly in California, Arizona, Dallas and other markets in the West.
“Cerberus has had a long time to develop their plan and should breeze through FTC hearings,” he said. “Just like the last big Cerberus acquisition of Albertsons, we saw stores sold or closed by the bushel.”