The Kroger Co. and Albertsons Companies Inc. announced on September 8 that they have entered a definitive agreement for $1.9 billion with C&S Wholesale Grocers, LLC for the sale of 413 stores, multiple banners, eight distribution centers, two regional offices and five private label brands across 17 states and the District of Columbia in connection with their proposed merger previously announced on October 14, 2022.
A contingency of the deal, pending forthcoming Federal Trade Commission clearance, may require C&S to purchase an additional 237 stores in certain markets. If that scenario were to play out, that would mean that Kroger and Albertsons will have divested 650 stores to C&S, the maximum number Kroger originally agreed to in the SEC merger filing last October. If that number exceeds 650 supermarkets, Kroger can walk away from the deal but would owe Albertsons a breakup fee of $600 million.
Additionally, as a result of the comprehensive divestiture plan announced with C&S, Kroger has exercised its right under the merger agreement to sell what would have been the SpinCo business to C&S. Consequently, the spin-off previously contemplated by Kroger and Albertsons Cos. is no longer a requirement under the merger agreement and will no longer be pursued by Kroger and Albertsons Cos.
At presstime, none of the specific locations of the 413 stores to be sold has been announced. In the Mid-Atlantic, only 10 non-union Harris Teeter stores in Maryland, northern Virginia and Washington, DC, are part of the large parcel of stores that C&S has agreed to buy.
The proposed merger, according to both chains, will create meaningful and measurable benefits for America’s consumers, Kroger and Albertsons associates, and communities that both Kroger and Albertsons serve by expanding access to fresh, affordable food and establishing a more compelling alternative to large, non-union retailers. This comprehensive divestiture plan marks a key next step toward the completion of the merger by extending a well-capitalized competitor into new geographies. The divestiture plan ensures no stores will close as a result of the merger and that all frontline associates will remain employed, all existing collective bargaining agreements will continue, and associates will continue to receive industry-leading health care and pension benefits alongside bargained-for wages.
Its new transaction partner, C&S, one of the country’s largest wholesale grocers, was founded in 1918 in Worcester, MA as a supplier to independent grocery stores. The company currently supplies more than 7,500 independent supermarkets, retail chain stores and military bases. The Keene, NH-based distributor currently operates Grand Union grocery stores and Piggly Wiggly franchise and corporately-owned stores in the Midwest and Carolinas. C&S noted that it is deeply invested in the communities where it operates, and this retail expansion will continue its long-standing mission to keep communities fed. Through its wholesale and retail operations, C&S purchases more than 100,000 products, giving it the ability to provide customers with the best product selection and pricing available. In addition to its franchise and corporately-owned supermarkets, C&S provides end-to-end wholesale, supply and marketing services to its retailer customers. C&S also brings experience with the merger process, having been an FTC-approved divestiture buyer in prior grocery transactions with a strong track record of successfully transitioning union employees and their associated collective bargaining agreements.
In anticipation of the agreement, C&S said that the 1918 Winter Street Partners retail holding company has been established to ensure a seamless closing process. C&S’s depth of industry knowledge, financial strength and commitment to growing its associates’ careers makes it the right fit to ensure the divested stores, distribution centers and offices grow and thrive for years to come, the company said.
“Following the announcement of our proposed merger with Albertsons Cos., we embarked on a robust and thoughtful process to identify a well-capitalized buyer who will operate as a fierce competitor and ensure divested stores and their associates will continue serving their communities in the ways they do today. C&S achieves all these objectives,” said Rodney McMullen, chairman and CEO of The Kroger Co. “C&S is led by an experienced management team with an extensive background in food retail and distribution and has the financial strength to continue investing in associates and the business for the long run. Importantly in our agreement, C&S commits to honoring all collective bargaining agreements which include industry-leading benefits, retaining frontline associates and further investing for growth.”
McMullen continued: “We appreciate our incredible associates who support and serve our customers and communities, and who help both of our companies succeed. C&S will offer exciting opportunities for associates to advance their careers – from frontline associates and store leaders to merchants and other professionals. We are confident the associates joining the C&S family will have an amazing opportunity to continue to build a thriving career in the food industry in one of the largest private companies in our country. C&S’s strong operational focus and financial resources, along with a comprehensive operational infrastructure included as part of the divestiture agreement, will position it to successfully operate and continue to grow these iconic brands for years to come. C&S is a values-driven organization that is committed to ending hunger while creating healthier communities – now and for future generations.”
According to Kroger and Albertsons, the divestiture plan fulfills the commitments set out in their original merger agreement in October 2022 with regard to divesting stores, including:
• Extending a competitor to new geographies through the sale of stores to a well-capitalized buyer that is led by seasoned operators with a strong balance sheet and a sound business plan ensuring that no stores will close as a result of the merger
• Maintaining all current collective bargaining agreements, which include industry-leading healthcare and pension benefits, bargained-for wages, and ensuring frontline associates remain employed
• Committing to invest in associates and stores for the long term
• Kroger said it took several steps to ensure a thoughtful and comprehensive divestiture plan. The terms of the plan support C&S’s ability to operate divested stores effectively and efficiently by providing:
• Strong teams, with deep industry expertise and the ability to operate at scale, and to drive growth and operational advancements in the divested business
• A cohesive set of stores in each geography supported by two regional headquarters as well as banners, and private label brands with strong consumer recognition that will provide C&S with an established base on which to grow its store network
• An operational infrastructure, including distribution centers and offices to support both the immediate and long-term success of the divested business.
“I have long respected C&S and its leadership team,” said Vivek Sankaran, CEO of Albertsons Cos. “I am thrilled that C&S’s outstanding capabilities and financial strength will ensure these divestiture stores can continue to grow and serve their communities as they do today. Most importantly, they have made a clear commitment to continuing to invest in and care for associates, including by honoring all collective bargaining agreements currently in place. I echo Rodney’s confidence in the bright future ahead for the associates joining the C&S team.”
“We look forward to welcoming thousands of new associates to the C&S family and providing them the opportunity to build long and successful careers,” said Eric Winn, chief operating officer and designated CEO (effective October 2) of C&S Wholesale Grocers. “As a leader in the grocery industry, we have a strong heritage of value and customer service that is enabled by a deep commitment to our consumers, employees and communities. Today’s announcement is another exciting opportunity for C&S to further expand into the retail market, which is an important component of our growth and future success. We look forward to providing a superior shopping experience that delivers both quality and value to our customers.”
The 413-store divestiture transaction includes regional banner brand names such as QFC (59 stores in Oregon and Washington), Mariano’s (which operates 44 stores in Illinois) and Carrs (11 supermarkets in Alaska). Stores in those areas that are currently under these banners that are retained by Kroger will be re-bannered into one of the retained Kroger or Albertsons Cos. banners following the close of the transaction. In Arizona, California, Colorado and Wyoming, where C&S will have the license to the Albertsons banner, Kroger will re-banner the retained stores following the close of the merger with Albertsons Cos. Kroger will maintain the Albertsons banner in the remaining states. In addition, Kroger will divest the Debi Lilly Design, Primo Taglio, Open Nature, ReadyMeals and Waterfront Bistro private label brands which are all owned or affiliated with Albertsons.
The number of stores contained in the divestiture plan by geography is as follows:
Washington -104 Albertsons Cos. and Kroger stores; California – 66 Albertsons Cos. and Kroger stores; Colorado – 52 Albertsons Cos. stores; Oregon – 49 Albertsons Cos. and Kroger stores; Texas/Louisiana – 28 Albertsons Cos. stores; Arizona – 24 Albertsons Cos. stores; Nevada -15 Albertsons Cos. stores; Illinois -14 Kroger stores; Alaska – 14 Albertsons Cos. stores; Idaho -13 Albertsons Cos. stores; New Mexico – 2 Albertsons Cos. stores; Montana/Utah/Wyoming -12 Albertsons Cos. stores; DC/Maryland/Virginia – 10 Harris Teeter stores.
The above stores (regardless of banner) will be divested by Kroger following the closing of the merger with Albertsons Cos.
The definitive purchase agreement has customary representations and warranties and covenants for a transaction of its type. The transaction also provides a comprehensive operational infrastructure the eight distribution centers, two offices, five private label brands, and district, division and functional associates, to ensure C&S can continue to operate the divested stores competitively and cohesively with no disruption to the associate or customer experience. All fuel centers and pharmacies associated with the divested stores will remain with the stores and continue to operate.