Nothing unsettles the average Seattleite quite like the thought of change at the local grocery store.
But change is almost certainly coming for many Seattle-area grocery stores if a proposed merger between the nation’s two largest supermarket chains — Kroger, which owns QFC and Fred Meyer, and Albertsons, which owns Safeway — goes forward.
The deal, announced Friday, is causing a major stir in and around Seattle, where more than half of all households do most of their shopping at one of those four chains.
Many will be wondering what a merger means for neighborhood shopping options. Some will be bracing for a repeat of the last mega-grocery merger, between Albertsons and Safeway in 2015, which was followed by bankruptcy, litigation, local closures and dismayed shoppers.
“My first thought was, ‘Oh, no, this is Safeway and Albertsons merging all over again,’ ” Seattle resident Jeff Silverman said. He says his old Albertsons, at Aurora Avenue North and Northeast 130th Street, shut down after the 2015 merger, and he fears the bigger Kroger-Albertsons tie-up could mean more closures. He worries that his neighborhood could become a “grocery desert.”
Wendy Fremmerlid, a longtime shopper at the Lake City Fred Meyer and Pinehurst Safeway, agrees. The merger “is a potential disaster for shoppers as well as workers in our area,” she said in an email last week.
Whether such dire forecasts prove correct depends heavily on a complicated process known as divestiture.
To get the $20 billion deal approved by federal regulators, Kroger and Albertsons must sell off hundreds of locations where the soon-to-be-former competitors have too much market overlap.
A divestiture list hasn’t been disclosed, but it likely includes many locations in Washington, and especially in and around Seattle, where Kroger and Albertsons have an unusually heavy presence and where the rivals’ stores are sometimes just minutes apart.
In nearly a dozen Seattle-area neighborhoods, an Albertsons-owned store is less than a mile from its Kroger-owned competitor.
And while there are often other grocery options available in those neighborhoods, some shoppers fear a merger could mean fewer of the traditional stores that offer a broad product assortment at mid-scale prices.
On Friday, a Kroger spokesperson had no comment about potential store sales in Washington and referred to a company news release. A Safeway spokesperson had not responded by Tuesday afternoon.
Many industry experts think a merger is the only way Kroger and Albertsons can compete in a grocery business dominated by Walmart and Amazon.
And, ideally, divestiture could benefit Seattle-area shoppers by shaking up a grocery landscape heavily tilted toward two big players, Kroger and Albertsons.
A merger offers an “opportunity for somebody to … enter this market and frankly, make it more competitive,” says Kevin Boeh, a mergers-and-acquisitions expert at the University of Washington Foster School of Business. “That could be a great outcome here.”
But such a positive outcome depends, paradoxically, on whether Kroger-Albertsons can find a buyer capable of running those divested locations in a Seattle market that Kroger-Albertsons will very much plan to keep dominating.
“Who’s going to buy the divested assets, and will they be a viable competitor?” asks Boeh’s colleague, Jarrad Harford, chair of the finance and business economics department at the Foster School. “The devil’s in the details.”
Most of those details won’t be known for months or even years — the deal may not be finalized until 2024 and the success of divested locations might not be apparent for years after that, experts say.
But the few details to emerge thus far paint a puzzling picture for Seattle-area shoppers.
To satisfy regulators, some analysts think Kroger-Albertsons will need to sell 350 to 450 locations, or 7%-10% of their retail footprint. Divested stores would be rolled into a stand-alone company, dubbed SpinCo, and run by Albertsons until a buyer could be found.
But in Washington, where Kroger and Albertsons collectively have nearly 350 locations — roughly 10% of all Albertsons locations and 4% of all Kroger locations — the merged organization might require proportionately more divestitures.
In the Greater Seattle area, Kroger and Albertsons each have around 80 locations, according to company data, and often appear to be the other’s biggest local competitor.
“We’re loaded up with QFCs and Safeways,” says UW’s Boeh. “To the extent that these two companies are now going to be the same … there will be many locations they’re going to have to [sell].”
One key question, experts say: Which stores actually end up in the divestiture bucket?
Certainly, Kroger-Albertsons could reasonably be expected to want to keep their top-performing locations. Yet in theory, divested locations have to be desirable enough to woo a serious buyer.
That raises questions around the fate of locations that have historically struggled, including a Safeway store in Seattle’s Rainier Valley.
Who such a buyer might be is also a major mystery — though experts have gamed out a few possibilities.
A national chain, like Florida-based Publix, or even a global player, such as German-based discounter Aldi, might see the several hundred SpinCo stores as way to grab market share, especially in the Western U.S. where Kroger and Albertsons have heavy concentrations, say Boeh and Harford.
Alternately, a regional grocery player — Idaho-based WinCo, say, or California-based Raley’s Supermarkets — could snap up SpinCo’s stores as a way to scale up a level.
One caveat: whether a smaller regional buyer has the resources or operational skills to compete for Seattle-area shoppers against a now much larger, more efficient Kroger-Albertsons combination, says Harford.
Another wrinkle: Divested locations would be unionized, which could complicate any sale — not least because union officials aren’t fans of the proposed deal.
One union concern: that divested locations get “spun off into a different company that is potentially nonunion, where people’s health care and pensions would be impacted,” says Faye Guenther, president of United Food & Commercial Workers Local 3000. The union represents nearly 26,000 workers at 265 Kroger and Albertsons locations and is “pretty stridently opposed” to the merger, Guenther says.
But the biggest unknown: whether any merger-related grocery divestiture can actually work.
That question is certainly more salient in the wake of the 2015 Safeway and Albertsons deal. To win approval, the firms agreed to spin off 168 locations, of which 146 locations were to go to Haggen, a Bellingham-based grocery that hoped the purchase would fuel an ambitious expansion.
But in less than a year, Haggen had filed for bankruptcy protection and ended up selling 29 of its “core” stores to Albertsons.
Haggen has “haunted” all subsequent efforts to merge retailers, says attorney Douglas Ross, an antitrust expert at the University of Washington School of Law.
For Kroger and Albertsons, but also for regulators, the Haggen experience raises serious questions about whether they can “possibly assure themselves that any divestitures are going to work,” Ross says.
Still, for Seattle shoppers, the fate of divested locations may ride less on regulators’ calculations or the size of a prospective buyer than on something more nebulous — whether their neighbors will keep shopping in person or start buying their groceries via the online systems that boomed during the pandemic and are still widely seen as the industry’s future.
Throw in other in-store challenges, such as shoplifting, Harford adds, and one begins to see how even traditional brick-and-mortar players like Kroger and Albertsons might see a merger as a chance to rethink the in-person shopping concept.
“It’s not fun to operate a physical grocery store right now,” Harford says.
Of course, some Seattle-area shoppers might argue that it’s no fun to try to visit a physical grocery store, either.
After his old Albertsons closed down (it’s now a Sprouts), Silverman shifted to the Safeway near Lake City Way.
“But that means we have to go across the freeway, right?” Silverman says. “So, for example, if I want to load the grandson in a wagon and walk there, that’s a pretty scary walk.”
Silverman now drives to get his groceries, which he resents — and he wonders if Kroger and Albertsons are mindful of the way such resentment can add up.
He knows others who’ve abandoned in-person shopping altogether and buy almost everything online. He wonders whether, in their efforts to battle Amazon, Kroger and Albertsons may end up driving customers “into Amazon’s arms.”
In the meantime, like many Seattleites, Silverman worries how changes to the local grocery landscape will affect the way residents see their own neighborhoods.
Part of what attracted Silverman and his wife to the neighborhood in the first place, “was the availability of a grocery store close by,” he says.
“Now it’s gone.”
This story has been updated with the correct title for UFCW president Faye Guenther