Albertsons Questions

Yesterday, the deal was struck between Albertson's and a consortium of buyers. The AZ Republic lays out the details:

Albertsons won't check out of Arizona, at least not immediately, after the supermarket chain's sale on Monday.

The new owners said they will continue to operate stores under the Albertsons name "on an ongoing basis" in certain regions, including Arizona.

A consortium including grocer Supervalu Inc., drugstore chain CVS Corp. and an investment group led by Cerberus Capital Management struck a deal on Monday to buy Albertsons Inc., the nation's second-biggest traditional grocery store chain, for $9.7 billion in cash and stock and $7.7 billion in debt assumption.

Basically, it appears that Supervalu Inc. has purchased all the Albertson stores that are performing well, which are Idaho, Utah, southern Nevada, southern California, and the northwest. CVS will get the freestanding Osco stores, and the underperforming stores - which include the AZ stores - will be purchased by Cerberus Capital.

The local grocer's union representative is reported as "questioning the motives" of the Cerberus purchase:

Alan Hanson, an organizer for United Food and Commercial Workers Local 99 in Phoenix, questions the motives of the group that will oversee Arizona stores, led by Cerberus Capital Management in New York.

"These entities . . . are not interested in running a grocery business," Hanson said. "They are interested in the real estate value."

I don't think that he needs to question motives; real estate is what this company is in the business of doing; and they have the right to do that without disparagement. But for us Morrison Ranch residents, the real question is, what will happen to our Albertson's at Higley and Elliot?

The answer is unknown for the moment; I suspect it's even unknown by the folks who will make the final decision. The grocery business is a difficult business to run; the margins are small, the competition is fierce, and the consumer is picky. The Wall Street Journal (subscription only) describes the evolution of supermarkets:

For most of the past century, supermarkets dominated the food-selling business with weekly specials and prime locations. King Kullen opened what is widely considered the first supermarket in Queens, N.Y., in 1930, advertising itself as a "price wrecker" with new concepts like self-service instead of employee picking, and ample parking.

Following the population growth in the suburbs in the 1960s, supermarkets began focusing on larger locations outside of cities. Through the 1970s and 1980s they added banks, coffee shops, video rentals and other amenities to turn the grocery store into a one-stop shopping center.

But in the 1990s, supermarkets began losing their grip as new rivals with lower operating costs lured customers with cheaper goods. Wal-Mart Stores Inc.'s consistently lower prices meant shoppers no longer had to clip coupons and stock up on sale items to keep grocery bills low.

In addition to seeking lower prices, customers joined clubs like Costco that turned grocery shopping into a treasure hunt with diamond rings and cashmere sweaters at closeout prices. In 2001, Wal-Mart displaced Kroger as the nation's largest food seller. At the same time, Whole Foods and other upscale grocers siphoned off a small but lucrative batch of consumers with appetizing prepared foods and organic and natural goods.

The result is a new generation of shoppers like Shay Hemphill. Although her mother always shopped at the same Jewel store run by Albertson's, the 23-year-old Chicago student shops at three retailers. She buys vegetables at a small local grocer, paper products at Wal-Mart and deli meats and frozen foods at Jewel. At discounters "the prices are easier on the pockets," Ms. Hemphill says.

This mega-billion dollar sale is supposed to be completed mid-2006. After that the decisions will begin to be made regarding the Arizona Albertson's. So it seems safe to conclude that our own Albertson's will continue as is through most of 2006; after that, we shall see.