Albertson’s Reveals Supermarket Meltdown as Global Deep-Discounters Promise Price War in Stagnating US Market

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Aldi’s $5 billion bet at a brutal time.

Today, Albertson’s explained in an amended S-4 filing for a debt exchange offering just how tough things have gotten for traditional supermarket chains.

As is so often the case, there is a private equity angle to it. Albertson’s was acquired in a 2005 LBO by a group of PE firms led by Cerberus. In January 2015, it acquired Safeway to eliminate some competition. It then wanted to sell its shares to the public. But in October 2015, as brick-and-mortar retail began to melt down, it scrapped its IPO.

The filing’s most revealing data are same-store sales on a quarterly basis through Q4, 2016, comparing year-over-year sales growth at stores that have been open in the current and prior year. I added the red line to show the trend since Q3 2015:

The S-4 supplied some reasons for the decline:

Our identical store sales decrease in fiscal 2016 was driven by a decrease of 1.9% in customer traffic partially offset by an increase of 1.5% in average ticket size. During fiscal 2016 our identical store sales were negatively impacted by food price deflation in certain categories, including meat, eggs and dairy, together with pressure to maintain competitive pricing in response.

The two key factors boil down to competition, precisely what the Safeway acquisition was supposed to have eliminated:

  • A “1.9% decline in customer traffic.”
  • “Pressure to maintain competitive pricing in response.”

In other words, starting in Q1 2016, competition pushed previously strong same-store sales growth off the cliff.




Given a series of acquisitions by Albertson’s over the years, total sales rose. The following are sales for the 12-month periods:

  • Through Feb. 2015: $27.2 billion
  • Through Feb. 2016: $58.7 billion (includes Safeway)
  • Through Feb. 2017:  $59.7 billion (includes 29 Haggen Stores and 76 A&P stores)

At the end of 2013, the company had 1,075 stores. It then acquired, divested, opened, and closed numerous stores. By the end of 2015, it had 2,271 stores. And by the end of 2016, it had 2,324 stores.

So in 2016, the net store count increased 2.3% but revenues inched up only 1.7%. Hence the decline in same store sales.

During those three 12-month periods respectively, the company had losses before income taxes of: $1.38 billion, $541 million, and $463.6 million.

And it had total debt of a breath-taking $12.3 billion as of February 25, 2017, up from $3.7 billion in 2013 before the acquisition of Safeway and the other chains.

It’s not going to get better anytime soon.

On Sunday, Aldi announced it would invest $3.4 billion to expand its base in the US to 2,500 stores by 2022. The privately held discount-grocery chain headquartered in Germany already has over 1,600 stores in the US. It also owns Trader Joe’s, which has an additional 464 grocery stores. In February, Aldi had announced that it would add 400 stores by the end of 2018 and spend $1.6 billion to “remodel and expand” 1,300 of its stores by 2020.

This would bring its newly announced investment in the US to $5 billion. The expansion will make Aldi the third-largest grocery chain operator in the US behind Wal-Mart and Kroger, the company said. And it’s going to compete on price.

“As we continue to expand and grow, our purchasing power continues to increase and allows us to bring products at better prices for consumers,” Scott Patton, Aldi’s head of corporate buying, told Reuters.

Another German grocery store chain, deep-discounter Lidl with 10,000 stores in 27 European countries has plans to open as many as 600 stores in the US, it revealed in May. Its first store will open on June 15. It expects to have 100 stores along the East Coast a year from now. It said it would undercut competitors by up to 50%.

This threat by arch-competitor Lidl stimulated Aldi’s thinking; CEO Jason Hart Hart said in a statement that Aldi’s prices also would be about 50% below those of traditional grocery stores.

Aldi has always focused on in-house brands to obtain the deepest price cuts. The company’s shares aren’t publicly traded, and quarterly earnings reports don’t cause any kind of ruckus.

Kroger, the largest supermarket chain in the US, booked a sales increase of 5% in 2016, but its net income fell 4.5%, and its shares, after a series of earnings disappointments, are down over 25% from the end of 2015, even as the rest of the stock market was booming.

Then there’s Wal-Mart Stores, the second largest grocery seller in the US. It’s experimenting with lower prices in 11 states and is hounding its vendors to undercut their competitors by 15%. According to analysts cited by Reuters, it’s willing to spend $6 billion on these efforts.

Target too has been plowing more aggressively into the grocery market. Online grocery sales are taking sales away from brick-and-mortar locations. Amazon is now more than just dabbling in it. Everybody wants into this $630-billion-a-year market.

Alas, over the past six years, sales at grocery stores are up a total of 14%, not adjusted for inflation, according to the retail trade report by the Commerce Department. Over the same period, the Consumer Price Index for food rose 14%, according to the Bureau of Labor Statistics. So in inflation-adjusted terms, over the past six years, “real” sales have been flat.

The price war will be a godsend for consumers, at least for a while. But what gives?

Shares of Whole Foods Market have fallen 42% since late 2013 as it grapples with the new environment. And there have been 18 bankruptcies among US grocery store chains since 2014, according to Reuters, including Marsh Supermarkets and Central Grocers in May and Fairway Group Holdings, parent of the “iconic” New York chain Fairway Market, a year ago.

This is the environment that over-indebted Albertson’s and its private-equity backers hadn’t planned on finding themselves in. Beyond PE firm Cerberus, the backers include real-estate investors Klaff Realty and Lubert-Adler, REIT Kimco Realty, and shopping center owner Schottenstein Stores.

To unload the company in an IPO on the unsuspecting public and conniving institutional investors managing the unsuspecting public’s money, the backers must have a buoyant and blind stock market because for equity investors, this must be one of the most toxic combinations: a brick-and-mortar supermarket chain in the age of online sales that was bought by a PE firm, loaded up with debt as it became a supermarket roll-up, in a stagnant market that is attracting the biggest deep-discounters from around the world.

And this, after years of asset stripping by PE firms and hedge funds. Read…  Brick-and-Mortar Retail Meltdown Has a Busy Month




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  125 comments for “Albertson’s Reveals Supermarket Meltdown as Global Deep-Discounters Promise Price War in Stagnating US Market

  1. robert sills
    Jun 12, 2017 at 5:38 pm

    great insight, once again, Wolf. thank you.

  2. AGXIIK
    Jun 12, 2017 at 5:51 pm

    Here’s an idea for the retail death march supermarkets. Offer $5 in Bit Coin for every $10,000 in stock purchases Monkey See Monkey Do

  3. Bob Russ Relick
    Jun 12, 2017 at 5:52 pm

    My local Safeway has been giving unprecedented discounts like $5 off every $25 basket of groceries. ??

    • Judy White
      Jun 12, 2017 at 8:11 pm

      Stores around us have been pricing many of their items below cost. Our food bill has gone way down. Of course the stores will eventually go under and the party will be over but until then it is great for the consumer who takes advantage. Helps to have a large freezer.

      • bandini
        Jun 13, 2017 at 10:25 am

        How do you know its below cost?

        I value shop (every month) at 5 different grocery stores (Trader Joes, Fresco, Grocery Outlet, Sprouts, and Walmart) and compare with Safeway which I won’t normally buy anything. Comparing items with Safeway, I see produce and some big name items at up to 1/2 price(with comparable size and quality). So even if Safeway reduced its prices by 1/2, it would probably be still capture a profit.

        Why do people shop at Safeway? Its esthetically attractive, convenient (too lazy to look) and/or ignorant and are ok throwing $$$ away. I know two people that fit all 3 of these factors.

      • Grace
        Jun 14, 2017 at 2:59 pm

        We live in the suburbs and the chain New Seasons is non gmo organic market with deli/ coffee/cafe has high prices it is jam packed, it took the remaining customers at the old rundown Safeway and created a stampede exit out. Albertson is another tired old store it is so dark, old dreary it needs a facelift and half. Albertson can survive if it goes local, go organic non gmo, have an old style 20’s vegetarian cafe, playing soft jazz Frank Sinatra .. a place that makes you feel good. Get rid of those sugary, syrupy sweets, go with what the high end places do four ingredient cookies with honey or 1/2 the sugar. I mean come on Albertson’s go with the flow or you will be left behind

  4. MaxDakota
    Jun 12, 2017 at 6:36 pm

    I see coupons regularly for Vons, Pavilions, Albertsons, Ralph’s, and even Bristol Farms. But the $5 coupons don’t offset the prices going up and simultaneous package size reduction. A lot of things that were 16 oz packages are now 12 oz. Plus the lines are long, check out is slow and the service at the bakery and deli counters slow or non-existent. I haven’t seen coupons from Whole Foods and they have great service, but it is just too expensive for my taste.

    We now do 95% of our grocery shopping at Aldi and Trader Joe’s. The 5% is only because Von’s is the closest so if we need something urgently, it’s the quickest trip. We actually go out of our way to shop at both Aldi and Trader Joe’s (especially for wine). Consistent prices, quality and service win our loyalty.

    • Mike
      Jun 12, 2017 at 7:19 pm

      Also, check out your Dollar stores! I do quite a bit of shopping there – you have to be selective and compare prices… I can save 50% there than at a regular grocery store on *certain* items.

      I explicitly make a point of boycotting the products that shrink…. like the 4 lbs bags of sugar that used to always be 5 lbs. I will never buy a 4 lb. bag, just on principle. And it’s so obvious, because a company will have massive sales to flush the old size out of the supply chain, and introduce the new smaller size so that hopefully consumers don’t see it…. If a company has to raise prices, they should do it honestly. I am not letting them get away with this stealth inflation with my wallet.

      • Judy White
        Jun 12, 2017 at 8:13 pm

        You could get even on the sugar if you wait for the 4# bag to go on Sale and then use a coupon that they double. Comes out a lot less than the 5# on a per pound basis. By the way it is not just sugar dozens of other companies have shrunk their product size.

      • nick kelly
        Jun 12, 2017 at 10:23 pm

        Here in Canada where we have metric, bacon was always in 500 gram packs, Butter they never rounded off. It’s 454 gm, i.e., a pound renamed.
        Then about 2 years ago, they switched to 375 gm packs.
        Like you, I will never buy one on principal.
        I buy a high quality outfits bacon ends, which I now prefer to reg.
        Or a kilo of same slices.
        But 375? FY

      • Laughing in Michigan
        Jun 24, 2017 at 7:47 pm

        And it really insults my intelligence when I go to Sam’s Club and they stock two different sizes of an item; let’s take brown sugar for example. When the consumer attempts to comparison shop by reading the label, one product is shown as “price per ounce” and the other size is shown as “price per pound”.

    • Lee
      Jun 12, 2017 at 7:44 pm

      Coupons?

      What coupons? We don’t have them here.

      What we have are these loyalty programs where every A$1 you spend you get one point. Once you get 2000 points you get a whopping A$10 off your bill.

      They also run specials once in a while if you buy xyz or spend X$ a week for so many weeks you’ll get extra points.

      You can also convert those points to FF miles. IIRC 2000 points will get you around 900 FF miles.

      And speaking of FF miles, many of the banks here are getting rid of bank issued AMEX cards as they used to give the most points/miles.

      So another area being squeezed.

      • Pavel
        Jun 13, 2017 at 8:37 am

        Here in Montreal my supermarket chain (IGA) has “Miles” loyalty cards and they ask me every bloody time at the till if I have one (I do not). Even the SAQ (state-run liquor store) has a loyalty card program. Sorry, I don’t want people knowing what I buy to eat (and especially) drink, and selling the data to some other company!

        IGA has pretty high-quality products but they have pretty high prices and they are very cheeky with their labels. They’ll post in big red letters “2 for $5!” but in small print the unit price is $2.50 anyway. Strange… or just annoying.

        I spend a fair amount of time in London and I understand that LIDL is taking a huge amount of business away from the established supermarkets (Tesco, Sainsbury’s, Waitrose). Tesco especially — it was the king of the hill a few years back with its “superstores” but now the trend is smaller local shops for the upper middle class and downtown hipsters and the discounted LIDL for the lower middle class.

        BTW there is some talk of selling marijuana in the SAQs when it is legalised next year, so they would then be tracking one’s smoking as well :)

        • Randolph Rush
          Jun 13, 2017 at 10:54 am

          From Germany,
          Lidl is going to be real fun for the Supermarkets once the
          customers get the hang of it.
          Aldi can be cheaper here, but overall effect (price and Quality)
          drives the majority here to Lidl. Their Regional and Luxury
          “In House” Brands are normally not as good as the same item
          from a small specialty store, But its good enough, and costs
          only half or a third as much. After an adjustment period, I would guess it will strip out a third of the purchases at the Supermarkets. Not only this, the Supermarkets will have to
          adjust the quality upwards on their in-house brands, and at
          the same time sink the prices if they are going to compete.
          (All this while servicing Billions in Debt)
          And Lidl’s Model works in every country I have been in. Period.

          The Supermarkets are going to feel like they took a pleasant morning jog, – – – With a Seasoned Triathlete.

          R.

        • South Westerner
          Jun 13, 2017 at 3:20 pm

          An American who just returned from vacation in Australia, I was shocked at how much better the Aussie food was than our precious Whole Foods and other groceries. Bring on the German food stores, especially if they bring their own non-GMO stock and other quality foods without dyes and additives. Aussies looked better than Americans too. We sit here thinking we have such a good deal and we’re cheated of quality food. Flavors were better in every class of food, especially produce. American produce is not very flavorful. Bring on the competition.

    • Kf6vci
      Jun 13, 2017 at 12:55 am

      ALDI South has a baking machine offering a dozen items from danish to different crusty rolls (with cheese on top etc.), besides whole fresh breads.

      10 free range eggs? $ 1.25!

      • Gerald Stehura
        Jun 15, 2017 at 10:18 am

        What will it cost for a heart bypass?

    • Ace
      Jun 13, 2017 at 7:17 am

      We see coupons for Whole Foods on a regular basis here in Tampa. Usually they come in one of those envelopes full of coupons that are mass mailed to everyone.

  5. David
    Jun 12, 2017 at 6:36 pm

    This is not rocket science. Every item at Albertsons & Vons is at least $1. higher than the same item at Winco, and most of the time the price diff is closer to $2. Why should I pay that much more for items that are much older, because they can’t sell it at their ridiculous markups, & the stuff just sits on the shelf past it’s exp date?

  6. Lee
    Jun 12, 2017 at 6:37 pm

    Well folks here in the wonderful world of OZ, we used to have three main grocery players: Coles, Woolworths (Safeway), and IGA.

    Then Aldi showed up. Aldi went after the main players here and basically has caused a grocery price war.

    Believe it or not, Australia, one of the world’s largest producers of food, grain, and fruit has insanely high food prices!!

    Bananas are cheaper to buy in Japan than in Australia.

    The downside to Aldi has been the increase in ‘house brands’ in the bigger chains to compete on price. These have driven off other brands and offer the consumer fewer choices. You go the store ad can’t find xyz anymore and instead there is a house brand there………

    IMO some of the house brands are real crap – low in quality and not good value for money. Only a few are really good.

    And once the other brands go away in a few years the prices on the house brands increase………….

    • jb
      Jun 12, 2017 at 9:27 pm

      well that may be the problem , you export your food commodities . put another shrimp on the barbie .

      • Lee
        Jun 13, 2017 at 2:37 am

        You mean prawn…………………shrimp is one of those Yank words…………..

        So let’s have a loooooooooook at this week’s specials:

        Prawns at the W supermarket this week on special A$22 a kilo (Australian Green), imported small cooked prawns A$16 a kilo; porterhouse steak A$29 a kilo (sorry but the last time we bought the meat it was full of gristle and tasted like cheap mystery meat – porterhouse is OFF the menu); pork rashers A$16 a kilo; lamb rack roast or cutlets – A$30 a kilo (A$1.99 off); chicken breast fillets $A8.50 a kilo a huuuuuuuuge savings of 50 cents a kilo; and wash it all down with some beer? How about some VB (no thanks – I’ll stick with Sapporo beer) at A$90 for 48 bottles – a savings of A$14.

        That’s right folks – beer is A$52 a case for VB or if you want cheaper you can try Carlton Mid in cans at 2 cases of 30 for A$78 – a savings of A$20 (A$49 for a case of 30 cans.)

        Not into beer? How about cider? Somersby is on sale for A$45 for a case of 24 bottles – a savings of A$9.

        And let’s look at the C supermarket. Boneless pork shoulder roast is on sale for A$7.50 a kilo – a savings of $2.50 a kilo. Pepsi is half price at A$10.50 for 24 cans. Or Coke at A$17.22 for a 30 can pack – half price too.

        Mince (hamburger to you Yanks is A$12 a kilo for the 4 star stuff. Whole chickens are A$3 a kilo – wow a savings of A$2.80 per kilo. (Normally A$5.80 a kilo – better check that out!!!); smoked leg ham is only A$22 a kilo – A$6 a kilo savings. Nope – we are having tonkatsu tomorrow night. Butter is on sale for A$4 for 500 grams – A$1 off. Booze is in the advert – JW Red is A$50 for a litre bottle.

        Avos are still 2 for A$5.00 at both places.

        Now a looksee at Aldi:

        Avos are 2 for A$4 – wonder about the size though. Free range chicken breasts are A$11 a kilo so A$2.50 a kilo more than at the other place, but ‘free range’………

        They have whole frozen duck for A$14.99; Booze – Bud in a four pack of cans for A$9.99 – can’t see the size of the can so I assume regular size cans. JD is A$32.99 for a 700ml bottle.

        Not much to compare to as not much in the weekly cat.

        Little cheaper to drive to the market this week as gasoline is down from a$1.399 a litre to A$1.259 a litre down the road. Our nearest is dearest as usual at A$1.379. Save 12 cents a litre by driving a mile down the road.

        • Kent
          Jun 13, 2017 at 7:56 am

          Without looking at quality and other issues, your beer is about double the price here in the states. That should be cause for revolution by itself!

        • DK
          Jun 13, 2017 at 9:25 am

          it’s $.75 A$ to the USD. I just bought 30 , 12 oz cans of natural light for $16 usd. It’s been this price for years now.

        • jb
          Jun 13, 2017 at 10:01 am

          lee your commodity currency got “bushwhacked”.
          Your food producers are probably feeding the pacific rim with your now ‘inexpensive’ food stuffs. Unless china builds a few more empty cities your economy will be in the doldrums . your interest rates are relatively higher to keep the currency from falling further. gold would have been a good hedge against your inflation. SO go outback and get the rights to a lithium mine and then give Elon Musk a call . you won’t care about the cost of beer.
          Good Day !

    • Randolph Rush
      Jun 13, 2017 at 10:59 am

      Lidl and Aldi fighting it out nose to nose
      gives you better options. But as you said,
      Brands do Disappear, but Lidl’s in house
      brands can be pretty good.

      R.

    • nick kelly
      Jun 14, 2017 at 1:08 am

      I don’t think you grow bananas in Oz. Maybe check currency

  7. Rob
    Jun 12, 2017 at 6:44 pm

    like with any of these groups you get what you pay for. do you get more ‘value’ at the discounters, sure, but you have to pick and choose what you buy as well. aldi and lidl have been in the uk for some time, and they have pressures the lower end chains like tesco, there was even a thought in the markets that tesco could go bust.

    separately, albertsons is a 10 year plus LBO that could still go bust…

  8. Duane Snyder
    Jun 12, 2017 at 6:46 pm

    I don’t think anyone will beat Aldi’ s on pricing. It is a pretty unique shopping experience and I can’t think of another store that has such a unique and diverse product lineup. You find pretty decent organics mixed in amongst super cheap “in house” offerings. At first I didn’t know what to make of it but have grown to like it more and more.

    • Dennismenace
      Jun 15, 2017 at 4:10 am

      Have to agree. I have found that I can get about 60-70% of the staples I need for a family of two at Aldi’s. In this area the prices are around 40% or more off supermarket prices for those staples. I mostly won’t settle for lesser quality; find that most Aldi items are superior IMO to brand names; especially green/transfat quality aspect. Supermarket and Aldi stores are only about 3-4 miles apart so it is possible with the “wives intel cabal” on specials to “cherry pick” best items such as meat which I have not as yet been a fan of Aldi’s because it is packaged. Amazing that we now import very good veal from Australia (packaged) which is halfway around the world because it is cheaper to buy than here in the states. Yet beef is still widely available although with wild price swings. Seems shoppers won’t tolerate the high prices and go heavy and freeze when low or switch to alternatives (pork, chicken).

  9. akiddy111
    Jun 12, 2017 at 6:48 pm

    No mention of Costco. Between Aldi, Lidl and Amazon, it may be fair to say that Costco’s days of posting positive store comps will be squarely in the rear view mirror.

  10. tony
    Jun 12, 2017 at 6:51 pm

    I have been in albertson in florida & california clean neat stores but prices are high compared to ralph’s & von’s. Talk about Australia, Hawaii has one of the biggest cattle ranch’s around they send meat to australia and australia sends there meat to hawaii make any sense.Nothing makes any sense any more and it gets worse all the time. On the bright side wait there is no bright side.

    • Pavel
      Jun 13, 2017 at 8:39 am

      You know what is really insane? Apparently the US sends chickens on planes to China to be plucked and otherwise prepared. Then they send the chickens back to the US on another plane. It can still be labelled as “from the USA” of course.

      • Spectroman
        Jun 13, 2017 at 9:25 am

        Yes, thanks to Walmart and others aggressively forcing their suppliers to cut price or risk being delisted as a vendor.

      • Wolfbay
        Jun 13, 2017 at 12:13 pm

        Another example of congress looking out for our best interest.
        Sincerely Fred Tyson and Frank Perdue.

  11. IdahoPotato
    Jun 12, 2017 at 7:13 pm

    When co-ops like Winco in the Northwest with rock bottom prices start giving $5 off coupons, you know there’s some trouble ahead.

    All produce in Natural Grocers (also a co-op) is organic, all meat and dairy are from clean sources. Winco now has a whole organic produce aisle. Between Winco and Natural Grocer (both co-ops) I hardly ever visit the chain groceries.

    Boise was Albertson’s HQ, now it houses SuperValu. I haven’t been to their stores in years. The only people who visit their stores here are employees, it seems.

    • Dave
      Jun 13, 2017 at 4:09 am

      Dave

      Be careful with the “organic” stuff. Organic products can be full of pesticides, but they are just naturally occurring pesticides (not man made). Often these natural pesticides are less effective in action so much higher quantities are needed to ward off insects. Now the man made pesticides are much more effective and in theory are engineered with the safety of the consumer in mind….. how effective this is is up for debate. What is not up for debate is that some of these “organic” “natural pesticides” are MUCH MUCH more harmful to humans then the bioengineered pesticides.

      There are multiple articles and studies to verify this.

      • BaritoneWoman
        Jun 13, 2017 at 6:17 am

        Got some links to articles on this? Thanks.

        • Dave
          Jun 13, 2017 at 8:10 pm

          yes I do but am unable to post as when I originally posted this with links it was not allowed through moderator filter. Anyway just do a google search on organic produce and pesticides. Scientific american had a very informative article on it. Anyway google will direct you on the topic to articles pro and con….. after a decent bit of reading I am unimpressed with organics. Not all organics are bad, but the hype and sale of organics also leaves out many very big (and dangerous) shortcomings.

          Here is a snippet…..

          “What makes organic farming different, then? It’s not the use of pesticides, it’s the origin of the pesticides used. Organic pesticides are those that are derived from natural sources and processed lightly if at all before use. This is different than the current pesticides used by conventional agriculture, which are generally synthetic. It has been assumed for years that pesticides that occur naturally (in certain plants, for example) are somehow better for us and the environment than those that have been created by man. As more research is done into their toxicity, however, this simply isn’t true, either. Many natural pesticides have been found to be potential – or serious – health risks.2
          Take the example of Rotenone. Rotenone was widely used in the US as an organic pesticide for decades 3. Because it is natural in origin, occurring in the roots and stems of a small number of subtropical plants, it was considered “safe” as well as “organic”. However, research has shown that rotenone is highly dangerous because it kills by attacking mitochondria, the energy powerhouses of all living cells. Research found that exposure to rotenone caused Parkinson’s Disease-like symptoms in rats”

          Many other examples too

      • nick kelly
        Jun 14, 2017 at 1:11 am

        Cyanide is a naturally occurring substance.

        • ML
          Jun 15, 2017 at 1:07 am

          I’ve been eating organic veg and fruit for years. Amongst my favourites is this story of lettuce. To ward off its predators organic lettuce defence systems (natural pesticides) are around 15 times more toxic than when lettuce is grown inorganically, ie with the use of man-made pesticides.

          To avoid the risk of harmful natural pesticides getting into your system, the secret is to only to buy lettuce that has never experienced any stress in its life.

        • Arizona Slim
          Jun 15, 2017 at 12:09 pm

          So is arsenic.

    • IDAHO OLDTIMER
      Jun 13, 2017 at 3:46 pm

      Albertson’s only advantage in Boise is # of stores. Three county area has something like 25 outlets. However, one has to be crazy to pay their prices. They must dump tons of produce since they’re so overpriced. I check them out weekly but they’re lucky to get $20 from me.

  12. Jun 12, 2017 at 7:52 pm

    How these grocery companies will compete is to hold the line on wages or even cut wages and benefits paid to it’s work force.. Sure a blue blazes no CEO will take a cut and God help them if Stock prices fall.. We shop at WinCo. Cheaper than Walmart and employee owned..

  13. Old Farmer
    Jun 12, 2017 at 8:21 pm

    One way the chains can drive down prices is to stick it to their suppliers. If you want to get your product on the shelf, you have to pay a slotting fee (i.e. bribe). Might be $50k depending on the number of stores. If you want it in a good location at eye level, the slotting fee can be quite a bit higher. In addition, the chains put the screws to their suppliers on price. Trader Joe’s is notorious about badgering producers for lower prices, and producers I know won’t sell to them, but I imagine the other chains are as bad.
    I produce organic extra virgin olive oil of high quality. I’m unwilling to pay the slotting fees, and I sell through independent co-ops instead of chains. Good olive oil is expensive, and the industry is riddled with fraud. The inexpensive store brands are usually old, rancid oil that has been refined by steam distillation and extraction with solvents to remove the rancidity, then dyed green or gold, maybe cut with some cheap canola. You won’t find that on the label. That’s one way that they get the price down and still make money.

    • Dan Romig
      Jun 13, 2017 at 7:09 am

      Interesting comment Mr. Farmer. I use Trader Joe’s ‘California Estate Limited Reserve Extra Virgin’ olive oil (2016 Harvest), and it seems to be good quality to me.

      Much of European imported olive oil is indeed sourced from all over, and labeled as to where it was packaged I believe. Any other readers have insights into the olive oil markets/business?

      • Old Farmer
        Jun 13, 2017 at 8:14 am

        You’re right, Dan. There is one olive variety, Arbequina, that can be machine harvested (the others are hand harvested which makes them expensive), and the machine-harvested California Arbequina olive oils come in at a lower price, and they’re not bad. The oil is somewhat bland compared to alternatives–kind of like Merlot compared to all the other possible alternative wines.

      • Petunia
        Jun 13, 2017 at 1:21 pm

        My mother always used olive oil from Spain sold in big tin cans. I think the brand was IBERIA. You could smell it all over the house when she cooked. Now none of the oils I buy smell like that, none.

  14. Max Power
    Jun 12, 2017 at 8:28 pm

    Aldi and Lidl are going to crush the legacy grocers.

    I don’t really need to choose from say 9 different brands of corn flakes. It’s more than fine to give me a choice between a couple of truly high-quality private label ones at half the price of the name brands. Also, the way Aldi arranges items on their shelves, there’s no need to employ an army of stockers to constantly tend to keeping the 9 different brands of corn flakes plus the often low-quality private labels other supermarkets stock arranged.

    Aldi and Lidl have made a science of this efficient type of operation and the North American grocers as well as the staples companies are about to get some tough lessons from those guys.

    • Flying Monkey
      Jun 12, 2017 at 10:51 pm

      I live in Germany and prefer Lidl for the whole shopping experience. The routinely open new check out lanes when it backs up. At Aldi they seem not to care the customers are standing in line.

      Lidl seem to be cross more with a normal store. The Aldi’s have that warehouse feel.

      I have the impression they are hurting the other German stores too. The full service stores seem to me to be much more expensive. I only go in a Reve or Wasgau when I am on along bike ride and nothing else is close. There is generally a Lidl in the local shopping area next to the Aldi, Kik. If I find a Penny or Netto they are ok too and very similar to Lidl.

      I would have to spend much more on groceries if I had to shop at Reve, Wasgau, or Edeka. You go into those stores and see perfectly staked fruit and vegetables and you pay for it. With Lidl you take it out of the box and cut out the extra handling. The box is empty soon enough anyway. Nothing lasts long there..

      • Max Power
        Jun 13, 2017 at 6:30 am

        Where I live in Virginia they are building a brand new Aldi and a brand new Lidl within about half a mile from each other. Both look like they will open later this summer.

        It will be interesting to see not just how they compete with the legacy grocers but also with each other.

        As for check out lines and waiting times… in the US it’s become popular to install self checkout lines in supermarkets. For those like myself who don’t mind using them they’ve all but eliminated waiting in lines as well as reduced the waiting times in the manned checkout lines (while also I imagine causing a not insignificant number of cashiers to lose their jobs). Not sure if Aldi and Lidel plan on installing them also.

        • Rg
          Jun 13, 2017 at 8:05 am

          The local grocery chain where I live eliminated the self check out lanes. I was told that it was due to excessive theft by customers

        • Mary
          Jun 13, 2017 at 6:03 pm

          Self checkout really is an invitation to shoplift. Our local Vons set up two banks of self checkout registers. Being an impatient, klutzy senior, I could never get the checkout sequence right and would end not paying for a substantial portion of my groceries. Never once was I caught. (Being an old radical, I viewed my accidental pilfering as a protest against Albertson’s attempts to pink-slip cashiers.)

          Needless to say, those self checkout registers have vanished

    • South Westerner
      Jun 13, 2017 at 3:27 pm

      Bring on the competition. Americans deserve better food.

  15. Bobbi
    Jun 12, 2017 at 8:33 pm

    I only get my food at the local farmer’s market and coop. Mostly local, fresh, organic. I buy only a minimal amount of processed or prepared foods. I value the quality of the food, such as what Old Farmer sells, and the investment in my health pays dividends. But many people, especially in “food deserts” do not have that option. These stores are falsely driving down the cost of food that is more toxic to health, and in the long run everyone pays the price.

    • intosh
      Jun 13, 2017 at 2:16 am

      Of course, when competing on price, something’s gotta give. For processed foods, it’s what they put inside.

    • Meme Imfurst
      Jun 13, 2017 at 6:48 am

      If memory serves…Cerberus was a Chrysler Auto takeover at first. There were three main partners (Cerberus the three headed dog), I remember two, John Snow and Dan Quale. Incase you forgot who they were, Secretary of the Treasury and Vice President under Bush. All those contacts in the rolodex.

      That, they would be in this business now, to me is a big red flag. They got bailed out once with your tax dollars, perhaps there is less of an interest in pricing when domination is the goal here. These boys don’t like completion and when the competitors are gone, those bargains will be gone too. And if the largest grocery chain in America begins to fail, do you think they will allowed to go under? Imagine what that would be like as a disruption. Get out your check book folks.

      • Duke De Guise
        Jun 13, 2017 at 12:25 pm

        Yes, Cerberus, the three-headed dog, guarding the gate to the Underworld.

  16. M L
    Jun 12, 2017 at 8:36 pm

    Amid much hoopla, an Aldi store opened near us. As fans of Trader Joe’s for their unique options and quality, we looked for similar quality and variety at Aldi. We took a sample list for comparison shopping and left without buying anything. We shop once a month at WinCo, spending about $350 for most of the items we need, and augment that with dairy at our local Stater Bros., and produce at a weekly farmer’s market. $500 a month for two, plus pets. We eat well, with a wide variety of meals, snacks and treats. Our furry family of three eat quality foods and treats. We could never do that at Kroger or Albertsons, which is embarrassing because my husband has worked in the Kroger organization for more than thirty years.

  17. TCG
    Jun 12, 2017 at 9:15 pm

    I wish Albertsons had left Safeway alone. It wasn’t a wonderful store, but with the acquisition, I feel they’ve just increased prices more and more in order to pay for their debt and monopoly aspirations.

    I’d love to see some competition with other stores moving into the same neighborhoods as Safeway. There are a few TJs and a few posh markets around, but none convenient to us and Safeway was already one of the biggest players in the Bay Area and the Albertsons takeover made them even worse than they were before.

    The store nearest me is terrible: small, the roof leaks when it rains (buckets catching drips everywhere), bad selection of products, no in-store bakery or butcher, tiny deli. It was never great, but has gotten even worse lately. They’ve had plans to rebuild it for years but now seem to be kicking the can down the road even more after the acquisition and debt spree by the financializers hoping to make a quick buck stripping some value out of them.

  18. Mike Earussi
    Jun 12, 2017 at 9:17 pm

    I can’t speak for the rest of the country, but in Oregon the four main chains are Safeway/Albertsons, Walmart, Fred Meyer (Kroger) and Winco (I don’t really include Costco because even though it has great prices it’s selection is limited).

    Of those four Safeway/Albertsons is known for their high prices and limited selection compared to the others. In fact the price difference on some items can be up to 50%. Because of this I’ve often wondered how Safeway can say in business at all. So hearing that they’re having trouble doesn’t surprise me. I just figured it’s about time.

    • Realist
      Jun 13, 2017 at 5:19 pm

      Also being in Oregon, I agree about Safeway. Hardly any people in there and always seem to have more staff than shoppers. Same with Rite Aid and Walgreen’s. For the longest time I have been trying to figure out how those two chains stay in business.

      • thelocalpragmatist
        Jun 13, 2017 at 11:11 pm

        How do they stay in business? SNAP program and those so subsidized who do not look at prices. 47 Billion a year.

  19. Lou Mannheim
    Jun 12, 2017 at 9:18 pm

    “So in 2016, the net store count increased 2.3% but revenues inched up only 1.7%. Hence the decline in same store sales.”

    If the metric is same store sales (down 1.9%), then net store count increase in 2016 isn’t an issue as you’re comparing revs for stores open in 2015, no?

    • Jun 12, 2017 at 9:35 pm

      I’m not sure I follow your question 100%. So I’ll just add this: The net store count isn’t an “issue.” It’s a data point to consider in the mix of data points. Since there are so many stores that were added, sold, opened, or closed, over the two-year period for the same store sales metrics, the number doesn’t parallel total sales or same-store sales.

      My understanding of Albertson’s definition of same-store sales: To qualify for the same-store metric, each store in the metric, per each quarter, had to be open in the “current” and in the “prior” year. For example, all the stores in the Q3 2015 same-store sales metric had to be open from Q3 2013 through Q3 2015 (current and prior year). This eliminates stores that weren’t around for the entire two-year period.

      • Lou Mannheim
        Jun 12, 2017 at 10:19 pm

        Thanks – poor English on my part. What I was questioning was why the 2016 net store count increase was relevant to the 2016 decline in same store sales, given that the decline would only apply to stores open in both the current and prior periods.

        • Jun 12, 2017 at 10:54 pm

          I see your question clearer now (I was pretty close the first time). It’s an important number to have. It’s relevant. But it doesn’t perfectly parallel the other numbers for the reasons stated.

  20. Petunia
    Jun 12, 2017 at 9:21 pm

    Both Aldi’s and Whole Foods are overrated on opposite ends of the price spectrum. I think they are both awful. The best one in my area is Fresh Market.

    Grocery prices are unbelievable, they have doubled in the last 3 years.
    The people who track inflation are making up their numbers because there is no way food inflation is 2% or 3%.

    • Kf6vci
      Jun 13, 2017 at 1:08 am

      Hear, hear! Add Obamacare, kindergarten fees and HMOs and rents and the middle class family is struggling making ends meet.

    • Jun 13, 2017 at 7:35 am

      I don’t know where you buy, but our grocery prices have NOT doubled in the past 3 years, not even close. A few items might have doubled temporarily, because some products like eggs, beef, etc. go through large swings. For example, egg prices did double (some kind of disease?) but then they crashed and now are back where they’d been before.

      Fruit has seasonal prices. If you want to buy strawberries in the winter, sure, they’re expensive. But we buy apples, pears, and the like then. In the summer, our local strawberries are flooding the shelves, and they’re a lot cheaper. Same with peaches and other fruit. They all have their local seasons. We try to stick to seasonal stuff as much as possible.

      So yes, overall, given on where we shop, grocery prices are up over the past three years, but in total not anywhere near 100%.

      • Petunia
        Jun 13, 2017 at 9:50 am

        Part of the reason is access to discount stores. In FL we were closer to Big Lots and other discounters where we stocked up on can goods and other staples. Where we are now the discounters don’t carry major brands. Publix was a good source for high quality on sale products. We would stock up on condiments and salad dressings at reasonable prices.

        Where we are now we have access to better meats and vegetables, but they are not cheap. The selection of products is very average in most supermarkets. I don’t need to eat fancy foods but I do like variety, here variety is limited and expensive. Also we can’t eat some foods due to health reasons, no matter how well priced they might be.

        • Jun 13, 2017 at 11:10 am

          That clarifies it. Thanks.

      • Meme Imfurst
        Jun 13, 2017 at 11:50 am

        Prices do not have to double if the amount in the package is less. That practice is everywhere and has been for several years. Just bought a jar of honey which was 36oz, but now is 30.5oz. Plastic jar not glass and the look is the same, That is a 20% reduction in contents, for the same price.

        That is one example, try cereal or frozen food. Look at the ingredients of say pasta sauce, the first item is now usually water not tomato or cream (as in alfredo).

        Five ounces is the new eight ounces, and water water everywhere.

        • mynamett
          Jun 13, 2017 at 12:16 pm

          You are too sophisticated for most people. People are so naive and take government data at face values. Most ice creams now do not contain cream or event milk. First ingredient on most ice cream is now modified mild milk substance and sugar.

          Most people are in love with their government and are happy to be governed and to be told what to think and how to behave. So many people now have no personality and are totally empty inside, with no moral, courage or conviction on anything.

      • Niko
        Jun 13, 2017 at 2:24 pm

        Wolf,

        Have you looked at the package sizes? Quantity/size has been reduced in most packaged consumables yet the price has stayed the same or increased. I would consider that inflation (a general increase in prices and fall in the purchasing value of money). My wife complains about it all the time and she is the consummate bargain shopper

        • Jun 13, 2017 at 3:54 pm

          Oh sure… I agree, this – and “crapification” – happens all the time.

          In about 2009 (?), my local Safeway (worst in the world) cut the package size on OJ from 64 oz (1/2 gallon) to 58 oz or 59 oz (can’t remember now). It took me a few weeks to figure it out. When I did, I stopped buying there. Now I buy at Trader Joe’s – still 64 oz and lower price, and from nice Florida “not from concentrate” oranges with lots of pulp, the way I like it.

          But here’s the thing: Safeway reduced the size ONCE in 8 years, by 7.8%. They cannot keep reducing the size or else you end up with a tasting cup after a while. They also raised prices, and then they have specials to lower prices, and what not.

          A grocery store that stocks 30,000 items can cut package size on each item once in so many years. So that item jumps in price that year, but then it won’t move much for many years.

          Package size is figured into the basket of goods for the inflation measure. So lowering content quantity raises the official inflation measure. But “crapification” is often not measured.

          That’s how you get food inflation but it’s not 100% in three years, not anywhere near.

      • Lee
        Jun 13, 2017 at 4:11 pm

        Oh, I forgot eggs – A$3.00 a dozen for the cage eggs. Much higher for ‘free range’ – sorry chicks, but I ain’t paying almost double for the dubious label.

        Don’t remember the price of eggs here when we moved.

        We used to buy them direct from the ‘free range’ chicken place down the road. That has now been turned into houses on stinky little blocks of land.

        And just think in Japan when I lived there they would throw in 10 eggs free when you bought xx amount during certain times of the day.

        Been here in Oz and in over 20 years never seen a ‘buy one – get one free’ or coupons to save on groceries.

        Don’t remember exactly how much we used to pay for all that stuff but since we moved here beef, lamb, pork, salmon, SHRIMP, and most fish prices have doubled.

        Gasoline is more than double – it was 60 cents a litre back then and even though the A$ is now about the same and crude is a little higher the price has doubled. I’m pretty sure that NG/LPG for cars has done the same.

        Electricity has more than doubled in the past ten years and, sewer, water, and rates (RE taxes) have more than doubled along with it. Water costs are 2 1/2 times what they were 10 years ago.

        1 July electricity prices are going up again – just need to wait for the shock………….some say a 30% increase is coming.

        Oh, and minimum wages are going up on 1 July – to A$18.29 an hour. That is a 3.3% increase. However, the Medicare levy will be going up by 0.5% one of these days.

        And 19% of that will be taken up up income tax.

        Believe it or not here in Oz the 32.5% marginal rates starts from A$37,001 or US$27,750 a year.

        So next year you may have the “interesting’ situation” if the minimum wage goes up again you may have people on the minimum wage working a full time job paying the marginal rate of 32.5%. (Plus the 2% Medicare levy soon to be raised to 2.5%)

        Of course for those that have kids or are retired these rates aren’t real as they get a bunch of payments or credits from the government.

    • Ace
      Jun 13, 2017 at 7:36 am

      My wife likes Aldi’s for certain things, but otherwise I’m in full agreement with your view of Whole Foods and Fresh Market. Both are expensive, but we get meat and fish at Fresh Market because the quality has always been top notch. Whole Foods on the other hand has really been hit and miss.

    • Kent
      Jun 13, 2017 at 8:09 am

      Aldi’s opened a store in my town a few years back. Did a grocery run there. I bought packaged sandwich cheese and it was moldy within a couple of days. Never went back.

      And I agree with Wolf. I’ve been shopping for the same items for years at Walmart and Publix (mostly Publix) and my prices haven’t really changed for years. I’ve been spending about $500/month on food and groceries for a decade.

    • Smingles
      Jun 13, 2017 at 11:36 am

      “Grocery prices are unbelievable, they have doubled in the last 3 years.
      The people who track inflation are making up their numbers because there is no way food inflation is 2% or 3%.”

      I’ve pointed out to you before that the Fed publishes their data, and you can look up the prices of various products… and yup, they’ve averaged generally around 3% a year for the past few years. Some more, some less. But the staples (meat, milk, fruit, etc.) have been relatively stable.

      You’re arguing that the price of a box of cereal (for example) that used to cost $5 three years ago now costs $10. That’s absolutely ludicrous on the face of it. From your explanation below, it sounds like you are shopping at different places and buying different brands, hence the price differences. That is a far cry from what you said above and not at all related to general food price inflation.

      • Petunia
        Jun 13, 2017 at 2:25 pm

        The govt doesn’t ask shoppers what they spend weekly or on average, so their prices don’t correlate to the real world. For example, I never buy cereal because it is very expensive and I’ll bet that $5 box of cereal is not full to the top. I know the box of macaroni I buy is 3/4 full now and the price is 20% more, that translate to a big price increase. If the old box was $1.00 and the new box is $1.20 the price increase is 45% for me, 20 cents in price and 25 cents for the missing macaroni.

  21. raxadian
    Jun 12, 2017 at 10:29 pm

    When I was a kid I got tired of hearing how supermarkets where killing neighbourhood local food stores and so on. And now supermarkets themselves are dying.

    Why?

    Because you can buy food on the Internet. Because Amazon and other companies can either deliver food right at your home or you can go to their store to pick up the stuff you ordered at a cheaper price than having it delivered.

    Because people go online to compare prices all the time.

    Because people are buying cheaper brands to save money. Fun fact, there really isn’t that much difference in quality if you buy a slighty cheaper brand on some things.

    And of course if you don’t know how much your heathcare costs will rise and if you ignore if are still going to keep your job tomorrow, thenof course you are going to save money just in case.

    • Smingles
      Jun 13, 2017 at 11:45 am

      I don’t think Amazon, or other food delivery services, are a big part of the market just yet.

      I really think it’s classic economics… supply and demand. Supermarkets overbuilding (usually by taking on loads of debt), competing directly with each other, lowering margins… they’re cannibalizing each other, to the benefit of the consumer. No economic profit remaining.

      • raxadian
        Jun 15, 2017 at 3:13 am

        People are always gonna buy food but in a crisis they tend to buy cheaper food? That’s it?

        Supermarkets are in crisis because they expanded too much?

        I guess that’s one of the consequences of the zero interest rate for the dollar, it was just too temping to borrow money.

  22. Kf6vci
    Jun 13, 2017 at 12:51 am

    Thanks for another great article, Wolf!

    There are an ALDI and a LIDL store within half a mile’s radious from my home in a small town called Laupheim. KAUFLAND has an underground parking garage and about 20 shops in a tiny mall like setting in the city centre.

    i do 85% of my shopping at ALDI “South” (the Aldi brothers split the country into North and South with different but overlapping inventory). FYI, here are some prices:

    * 1.5 % milk, about $ 0.70 the liter after a 5% price hike last month. 3.5% milk costs $ 0.79.

    * 1 liter cherry yoghurt with real fruits? $ 1.82

    * Lots of 1.5 liter own brand sodas (regular, zero, “Limette” with about 4.5% real juice all @ 0.39 € or $ 0.44! (They have a machine shredding the bottles for a refund of the recycling fee of 0.25 € at all stores).

    * 200 grams spicy potatoe chips in a big bag? $ 0.75!

    * Last Saturday, I bought 3 x 1.5 kg of Spanish sweet oranges for 1.49 € (marked down, because stores must close on Sundays). Normal price 1.79 € or 1.89 €. let’s say $ 2.12. Get that anywhere in the U.S.?!?

    * premium ice cream like “Chocolate Chip Cookie Dough”, 500 ml @ $ 2.83. Not Ben & Jerry’s quality, but good stuff.

    * 350 gr. (a few months ago, it was 400 gr.) sweets without animal gelatine only 0.99 € or $ 1.12. Quality stuff. Not the junk loaded up with artificial this and that.
    °°°

    In the UK, they offer 2 liters of soda @ 17 p. Clearly a loss leader. And n o t a threat to KO (Coca Cola) in blind taste competitions ;)

    Sandwiches, frozen meals – quality stuff for way less. They also sell booze and tobacco. I even got their cell phone pay as you go plan. $ 15 for 600 minutes or SMS and 1 GB data. Free calls to other ALDI sim cards.

    They have been murdering the competition in the UK. ASDA, SAINSBURY’S, TESCO and MORRISONS are fighting back, sometimes matching a few items. And UK grocers have been a great success in decades past.

    ALDI and LIDL run specials. Want Ginger jam? Buy bulk once a year! They sell notebooks, cell phones and PCs now and then. (I loathe their electronics. My Dad bought a PC and it has only 2 slots for RAM and a RAM size limit of 2 GB…). A different system plus a SSD and 8 GB RAM beats that PC hands down. But then, most customers see the sticker price and rush in when they perceive things as “cheap”

    American grocers will remember the openings like others do “D-Day”.

  23. Matt
    Jun 13, 2017 at 5:03 am

    Wolf, I have been following the Safeway, Albertsons earnings reports debacle for the past 2 years. I was just talking to my brother yesterday that this will be the next major bankruptcy in the supermarket era along with Kroger that nobody is paying attention to. Whole Foods also will disappear. Many people such as myself are finding ALDI as a better alternative to the name brand stores and have found the local chain supermarkets provide better service and steeper discounts on meats

    • Petunia
      Jun 13, 2017 at 10:02 am

      Albertson’s has the same problem as all the other businesses owned by private equity. PE can not give customers good value when their business model is maximum profit extraction. Every retailer owned by PE will land up in bankruptcy because their business model makes it easy for customers to substitute their competitors.

      • Smingles
        Jun 13, 2017 at 11:48 am

        100% agree with you, for once :-D

  24. J.Henderson
    Jun 13, 2017 at 5:23 am

    All grocery stores are intermediary,the internet WILL change everything.

  25. Bob
    Jun 13, 2017 at 6:47 am

    Shaw’s owned by Albertsons was high priced before the latest buyout. Market Basket is now in debt and still great compared to Shaws. There is a few Aldi’s within 50 miles of me. If they continue to open more Aldi’s, Shaws is going to feel even more pain.

  26. Drango
    Jun 13, 2017 at 7:11 am

    If Aldi’s is going to expand here in the states, they may want to spend some money on advertising. I don’t think I’ve ever seen an ad on television for Aldi’s, and it was just recently I found out it’s a grocery store. It doesn’t help that their buildings look like local drug stores.

  27. Chicago Follower
    Jun 13, 2017 at 7:17 am

    Wolf, question for you.
    Has anyone ever done an in-depth analysis of the impact of P/E firms on a very broad, multi industry basis that shows that their utilization of leverage, the tendency to award P/E stake holders with special dividends and cash distributions has resulted in massive job losses and diminished competitiveness?
    I ask because from my perspective (30+ years of institutional investment management experience), the only “winners” are the investors in the P/E funds themselves, and that they only achieved a “winning” outcome was from levering what was originally a pristine balance sheet, and using the opportunity to lever it against a relatively small equity position to achieve high ROE returns.
    Thoughts?

    • Jun 13, 2017 at 8:04 am

      I agree. I used to work with a PE firm for a couple of years. Their goal is to extract management fees and special dividends, paid for by having the portfolio company lever up to the hilt. They also try to improve the operations (including layoffs). Sometimes they combine them with other portfolio companies. And after about 5-7 years of this, they try to unload the company, most often to a large corporation, but also via IPOs.

      What happened in brick-and-mortar retail (including Albertson’s) is that PE firms, which got into the sector during the LBO boom before the Financial Crisis, now cannot get out. Some PE firms that unloaded early were able to get out (Container Store, 2013). But most did not. Now they’re stuck. And the retailers that have been loaded up with debt cannot deal with the current retail environment. Hence the numerous bankruptcies.

      I discuss that PE angle a lot in my articles on the brick-and-mortar retail meltdown. I think it’s one of the key factors. Brick-and-mortar would have huge problems anyway, but the current debt levels due to PE firms accelerates the process into bankruptcy.

      • Harvard
        Jun 13, 2017 at 9:06 am

        Your average reader might not know the nature and intricacies of P/E firms, i.e, what it is they do and who owns them.

        I thought the ‘load up the balance sheet with debt’ strategy was only something that Bain Capital type companies did to the companies they’re managing, not the parent company.

        Wikipedia describes Bain Capital as “a global alternative investment firm”.

        • Jun 13, 2017 at 11:08 am

          It’s the portfolio company (the company owned by the PE firm) that takes on the debt. The proceeds from that debt are often used to fund in part the buyout itself (“leveraged buyout” or LBO). Proceeds from that debt are also used to pay special dividends back to the owners (PE firms). This is called “asset stripping,” because the PE firm gets the asset (cash) while the portfolio company is stuck with the debt.

          Banks lend to these portfolio companies on this basis and then sell these loans (“leveraged loans”) to other investors because these leveraged loans are too risky for banks to keep on their books.

          A whole ecosystem as developed around this process.

          And yes, PE firms and hedge funds are called “alt investments,” which were a few years ago the hottest thing in town.

    • Petunia
      Jun 13, 2017 at 10:09 am

      I wouldn’t consider this a study, but read up on Bain, they have a lot of experience hollowing out businesses.

  28. Ace
    Jun 13, 2017 at 7:42 am

    We’re seeing a battle royale playing out down here in Tampa. Publix is the big dog down here, but is under assault by the usual suspects, Wal-Mart, Winn Dixie and Safeway, as well as Trader Joes, Aldi, Fresh Market and Whole Foods.

    We’ve also had two more chains enter the market that I haven’t seen anyone mention yet, Sprouts and Earth Fare.

    Going to be interesting to see who survives down here.

    • Kent
      Jun 13, 2017 at 8:18 am

      I live on the east coast. Shop Publix mostly. It is a great company. Routinely one of the top 100 companies to work for in the country. Stores are generally clean, well stocked, and has a courteous staff.

      I’ve found that if I buy carefully, prices can be lower than buying at Walmart. You just have to buy in bulk when sales roll around.

      Publix is well known for contributing to the community by providing local church’s with food for the indigent as well as hiring people with slight mental and physical handicaps to provide them with work skills and incomes.

      • TJ Martin
        Jun 13, 2017 at 9:04 am

        Ahem … unless you have a family of four or more … buying in bulk is the red herring / grocery store con job of the century . Take a lesson from the best of Japanese manufacturing . Buy what you need … when you need it . No more . No less . But more importantly … buy fresh [ rather than prepackaged / canned ] and cook for yourself rather than succumbing to the lure of convenience . Both your health and your pocketbook will love you

        • Jun 13, 2017 at 10:59 am

          TJ Martin,

          Our family of two buys in bulk everything except what we cannot consumer before it spoils. A lot of things don’t spoil for weeks or months, if ever, from toilet paper to properly packaged coffee. Beer lasts months. Some fruit and vegetables (apples, regular onions, garlic, etc.) last weeks. The fresh stuff gets filled in when needed. Things like bread, green onions, strawberries, etc. need to be bought every few days.

          So if done properly, bulk buying can save a lot of money on a lot of items. The other stuff you have to buy fresh in between. It works once you figure out how to do it (inventory management?).

      • TheDona
        Jun 14, 2017 at 9:27 am

        Publix is employee owned, and is in fact the largest employee owned company in the world. Employees get regular reviews and roadmaps to success and they promote from within. Great article about them here: http://fortune.com/publix-best-companies/

        My grocer of choice is privately owned Central Market, an HEB store. It is a foodie store. Bulk spices so you can buy a tablespoon or 2 of some unusual spice for 37 cents instead of a $10 dollar bottle that will never be used up. High end bulk teas, freshly made nut butters, duck breast, unusual produce, etc., but the prices are great. The store near me opened 20 years ago and most of the same employees are still there. They will jump through hoops to keep you happy. If they are out of something they will say try this instead at no charge.

        Albertson’s seems to cater to Kraft/Heinz, has almost zero selection of anything, produce over priced and meat quality is abysmal. On non grocery items the prices are higher than you can get them at CVS. Their employees seem to be hired from a work release program.

        I don’t see how Albertson’s can compete, even if they didn’t have all of the debt.

    • Junglejim
      Jun 13, 2017 at 2:19 pm

      “Going to be interesting to see who survives down here”

      I live in Clearwater and my money is on Publix. They are clean, well organized and the staff actually try to help. If you learn the cycle on their sales including the buy-one- get- one- free, you can do quite well.

      We have a lot of different stores here including Fresh Market, Sams, Costco, and even a small Aldi. I’ve visited all of them and I don’t see a Publix killer in the lot.

      • Ace
        Jun 13, 2017 at 2:38 pm

        Yeah, the only problem with the BOGO is when you’re DINK’s like me and my wife. Some things lend themselves to BOGO for us but other things not so much. If the wife of an upper middle class family like ours thinks your prices are too high, I’d say you’re not completely out of the woods. They do have the home field advantage though and that’s huge.

  29. Rg
    Jun 13, 2017 at 8:16 am

    Publix is expanding rapidly in NC by opening stores in very close proximity to Harris Teeter stores. I can’t see how both chains can do well so close together while competing for the same customer base.

    Meanwhile Target is trying to compete with Walmart and Walmart is trying to compete with AlDI. I think there is a lot more pain in store for Target shareholders.

    You have to be careful buying fresh produce at ALDI though because occasionally some of it is old, but other than that the store is much cheaper than Walmart and Food Lion. The place is always packed

  30. Pavel
    Jun 13, 2017 at 8:43 am

    Wolf, just to say you have developed a great (and at times amusing) community here full of insight and experience. Coupled with your fantastic posts, it is a pleasure to come to your site every day. The only problem is that it takes up a lot of my time!

  31. TJ Martin
    Jun 13, 2017 at 8:57 am

    Not to be contentious but .. there’s a whole lotta context missing here .

    In reality Albertsons has been in the financial weeds with continually declining quality and sales since the late 80’s .. with their purchasing Safeway only managing to bring what was left of Safeway’s quality down to the level of Albertsons rather than boost sales for either . Proving once again Cerberus’s abject inability and ineptitude to revive much anything they manage to dig their steely claws into

    So perhaps saying Albertsons continuing descent into the abyss is in any way indicative of an overall supermarket meltdown is a bit of hyperbole verging on misinformed exaggeration ?

    As for the rest ? Funny thing . Independent locally owned supermarkets are on the rise with their popularity growing by the day rapidly surpassing their Mega Chain competition . re; Clark’s Market Aspen / Snowmass / Telluride with Denver Ft Collins Colorado Springs and the Front Range begging for them to come down mountain . Also KCMO’s Cosentinos . So maybe its the over homogenization of the chains as well as the fact that they’re forcing THEIR brands down the customers throat and NOT the Mega Discounters thats putting the nails in the coffin of the Mega Chains . Gee … imagine that … lack of imagination and abject greed bringing the mega anything to its knees .

    Sigh ….

  32. Wilbur58
    Jun 13, 2017 at 9:21 am

    Wow, no mention of Sprouts? (I saw one comment that just barely alluded to it.)

    Sprouts is the reason my family no longer shops at Ralph’s, Von’s, Albertson’s, Safeway, etc.

    Produce at Sprouts is cheap and good quality.

    We generally do our grocery shopping as follows:

    – Produce: Sprouts
    – Meat: Local Carniceria or Bristol Farms or Whole Foods (only for chicken)
    – Trader Joes: Bananas specifically, Romaine Lettuce, Peeled Garlic, Milk, Eggs, Snacks, Cereal, and other random frozen items

    Whole ‘Paycheck’ has been a joke forever. The produce isn’t even superior and it’s way overpriced.

    • DK
      Jun 13, 2017 at 9:33 am

      Agree. Sprouts and trader joes seem to be crowded all the time here in the southwest. I only buy food from them. Walmart for all other household items.

    • Enquiring Mind
      Jun 13, 2017 at 10:21 am

      Sprouts has good prices, although their produce tends to be a little further along the ripening path. That isn’t a problem if you buy smaller quantities and eat the food within a day or two of buying.

      Another option to consider for various food items: ethnic markets. They often have significantly cheaper food, except for dairy due to lower volume.

  33. Mort
    Jun 13, 2017 at 10:58 am

    It’s a shame to see what Albertson’s has become. I have been going into Albertson’s stores since the 60’s when I was a kid. (Remember the old advertising jingle?: “It’s Joe Albertson’s supermarket …”). Joe would be furious if he saw what they have done to his store and his name.

    Many of their stores are old, their floor plans are inconsistent with customer traffic patterns (shelving jammed in too close to check out areas leaving no place to stand in the inevitable 4 or 5 person waiting line and people trying to travel between aisles), their parking lots (pot holes) and sidewalks (frost heaves resulting in uneven sidewalk sections) are not being repaired, etc.

    It has been evident for some time that Albertson’s is a dying brand. Then, they made things worse by acquiring Safeway, which was a massively incompetent operation and had been for years. Albertson’s has obviously learned from Safeway in that regard as they continue to run themselves into the ground.

    I will often go to the local IGA or Western Family brand stores – stores that are locally owned and operated. It costs more but customer service is better and crowds are usually smaller. It’s a tradeoff but as these corporate stores fall by the wayside, its the Mom and Pops that will still be there. Farmers markets are also popular among a certain segment of people as they seek alternatives to Albertson’s, Wal-Mart, etc.

    Tune in next week for another edition of ‘As the American Empire Crumbles’. (Same Bat channel, same Bat time – a nod to the passing of the original Batman Adam West, another name from the distant past. “Pow. Bam. Zonk …”)

    • Petunia
      Jun 13, 2017 at 4:24 pm

      Or as Robin would say, “Holy sardine Batman!”

  34. Dave Kunkel
    Jun 13, 2017 at 1:50 pm

    In Santa Clara county, we do 90% of our shopping at the many Asian and Indian markets here. These markets are almost always crowded and have the best values on meat and produce.

    We seldom buy packaged food, so we have little need to go to traditional markets.

    As an aside, one of the largest Chinese chains here, Ranch 99, has 2 of its local stores housed in former Safeway stores. Another Chinese chain, Lion’s, also has stores located in old Safeway buildings.

  35. Lotz
    Jun 13, 2017 at 2:02 pm

    Publix in 2011,
    4 pack bar of Dial soap was $3.75. Wow soap has gone up what did I miss and put it back. Saw the same pack at Walmart for approx. a dollar that same week.

    From that day forward I never bought non food items at a grocery store.

    They slit their own throats.

  36. Jonathan
    Jun 13, 2017 at 11:19 pm

    In Singapore, prices for raw produce are already getting stupid, when I can just buy the equivalent cooked meal nearly anywhere for US$3 without worrying and wasting time on storage, cooking or cleaning up and be STILL cheaper at the end of the day.

    Once the generation of retirees, who has all the time in the world to do cooking at home are gone, it’s game over for the supermarts here.

  37. Tom Kauser
    Jun 14, 2017 at 3:57 am

    Walmart has plenty of room to beat aldi at its own game ( 1500 stores already and it takes another 5 billion to get noticed?) and you don’t have to worry about the German guy selling toilet paper outside the ladies room by the sheet at any Walmart.

  38. russell1200
    Jun 14, 2017 at 12:00 pm

    I believe a (sort of) minor correction is needed. You note that Aldi’s owns Trader Joes. If they do, that is a very recent development.

    Two brothers in Germany, Karl and Albrect, split a grocery store chain in 1960. One became Aldi’s North, the other, Aldi South. Aldi South owns Trader Joes, Aldi North owns the Aldi chain in the United States.

    • Jun 14, 2017 at 12:54 pm

      Trader Joe’s has been owned by Aldi Nord since 1979.

  39. Justme
    Jun 14, 2017 at 2:30 pm

    My impression is that grocery chains like Safeway and others have been spending quite a bit of money during 2009-2013 on building new stores and even replacing existing stores in the same location, plus considerable amounts of remodeling, especially in upscale locations.

    Prices went up accordingly, but foot traffic went down, it seems. That may apply more so to the fancy/expensive new stores. My observations are from the West Coast.

  40. ML
    Jun 15, 2017 at 1:49 am

    Individual decisions around pricing is all very interesting but irrelevant. Supermarket retailing is a high volume business with wafer-thin margins and the formula only works properly when there are more than enough customers for both the core products and the other stuff.

    All retailers including supermarkets have core products. These are the items that sell regardless. the competition for customers is intense and the margins slim or almost non-existent. To make up the difference retailer stock a range or assortment of other products In the hope that while the customer is shopping for the core product they would buy some of the higher margin stuff.

    Known as ‘discounters’ in the UK – the term is often used in a slighly prejorative manner – even though they are not, what Aldi and Lidl have done is concentrate on selling the core products and at their own prices and often own-label which just happen to be a lot lower than the prices charged by most other retailers. Which is why people swarm to Aldi and Lidl for the basics yet still have to go elsewhere to top-up for other items.

    Life is tough for the other retailers including supermarkets because without enough volume for their own core products the rate of stock turn of the higher margin stuff has slowed.

    Aldi are building a new store round the corner from where I live. For the planning permission, I and a few others objected because we think the planners have under estimated the impact the store is going to have on the town centre. Others seem to miss the point that just because Aldi’s modus operandi elsewhere is ‘x’ it doesn’t follow that the same modus would be used in out town. In our town we have a Tesco and another supermarket and they also objected, mainly for the plausible reason for drop in footfall and spin-off for other shops (but privately they must be qualing in their boots). However we objectors were outnumbered by the supporters (mostly low price cheap foodies) by about 10 to 1 and the planners were in favour too. The new store will be opening in a couple of months time so not long to wait to find out who was right. If the reasoning in my objection transpires then I expect our town centre to be decimated within a couple of years.

  41. TheDona
    Jun 16, 2017 at 10:09 am

    Hot off of the press: Amazon buys Whole Foods!!! And that is right after Whole Foods CEO called activist investor Jana Partners “greedy bastards.”

    http://www.fooddive.com/news/grocery–breaking-amazon-to-buy-whole-foods-in-137b-deal/445202/

    Another interesting tidbit is Sprouts is partnering with Amazon Prime: http://www.fooddive.com/news/grocery–sprouts-partners-with-amazon-prime-now-for-denver-service/445170/

    What a shake up!

  42. Allen
    Jun 18, 2017 at 8:35 pm

    Look deeper. The same trend of buy out the competition and disportionally increase debt against revenue is also happening at the processor and ‘farmer’ level.
    Agribusiness ‘s buy out farms or lease ground from union pension plans that have now included farm land to their porfilios along with condominiums, lease new equipment from sales desperate dealers and in turn sell product on negotiated contracts to Albertsons.
    They rely on contracts in hand to obtain easy debt and government programs to maintain their debt rolling momentum.
    Eventually the reality that it takes from 1/2 to 15 Petroleum calorie equivalents to produce 1 calorie of food under this system and that interest on debt catches up will sink this ship.

  43. Roger
    Jun 22, 2017 at 12:38 pm

    “During those three 12-month periods respectively, the company had losses before income taxes of: $1.38 billion, $541 million, and $463.6 billion.”

    Did you mean to put 463.6 billion or was that supposed to be million?

    Cheers!

    • Jun 22, 2017 at 1:19 pm

      Thanks. That would indeed be a lot of money to lose.

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