Albertsons IPO Hopes Crushed by Amazon Whole Foods Entry into Supermarket-Meltdown Price War

Store traffic already spirals down at Albertson’s, Safeway.

Something ugly happened to Albertsons Companies, Inc., the owner of Albertson’s, Safeway, and smaller supermarket chains totaling 2,329 stores, 27 distribution centers, and 18 manufacturing facilities: Amazon, on its first day as new owner of Whole Foods, slashed prices on many items by the double digits, some of them by over 30%, and reportedly by up to 43%.

Ferocious price competition from Amazon – a stock-market darling that doesn’t need to make money on grocery sales – is the last thing Albertsons Companies needs.

But that’s what it got. Amazon’s $13.7-billion acquisition of Whole Foods and the price cuts slammed all grocery store chains, and their shares took a beating, but Albertsons Companies is particularly vulnerable, and this comes at a very inconvenient time.

Private equity firms led by Cerberus acquired the supermarket chain Albertson’s in a 2005 leveraged buyout. In January 2015, it acquired Safeway in another LBO, which it hoped would eliminate much of the competition. It also acquired regional supermarket chains. Then in 2015, the PE firms wanted to sell the whole schmear, now named Albertsons Companies, via an IPO to the unsuspecting public. But in October 2015, as brick-and-mortar retail began to melt down, it scrapped the IPO.

But they’re still trying to unload their investment – now bogged down in $12 billion in debt – to the public. On August 22, just a couple of days before news of Amazon’s price cuts at Whole Foods clobbered the industry, Albertsons Companies filed an amended S-1 Registration Statement with the SEC, showing that it wants to keep its hopes for an IPO alive.

The filing’s two most revealing operational eye-openers are ongoing nasty losses and declining same-store sales on plunging customer traffic.

First the losses:

Given a series of acquisitions by Albertsons Companies over the years, total revenues rose. These are the revenues and net losses for the past three fiscal years:

  • Fiscal 2014 revenues: $27.2 billion; Net loss: $1.23 billion
  • Fiscal 2015 revenues: $58.7 billion (boosted by Safeway acquisition in January 2015); Net loss: $502 million
  • Fiscal 2016 revenues: $59.7 billion (boosted by acquisition of 29 Haggen Stores and 76 A&P stores); Net loss $374 million




In the first quarter of fiscal 2017 (ended in June 17), revenues of $18.46 billion edged up a tiny 1/3 of a percent year-over-year, while the quarterly net loss of a salty $205 million was 53% higher than the loss in Q1 a year earlier. This is not a propitious trend.

Same-store sales:

Sales at stores open at least one year in fiscal Q1, 2017 (ended in June) fell once again, this time 2.1%, the third year-over year decline in a row. In the chart, note the sharp downturn since Q3 2015:

The company blamed the same-store sales decline in Q1 on a 3.7% drop in “customer traffic.” This is far worse than the 1.9% drop in customer traffic in the prior quarter revealed in a June filing. Going to hell in a hand basket in just a few months?

The decline in customer traffic was partially “offset” by an increase of 1.6% in average ticket size.

And it blamed “competitive pressures” – this was before Amazon’s price cuts at Whole Foods – on the decline in same-store sales: It said it was “negatively impacted by food price deflation in certain categories, including meat, eggs and dairy, together with investments in price to respond to competitive pressures.”

But on the eve of the Amazon price cuts at Whole Foods, hope is maneuvered to the front:

[W]e believe our operating playbook has enabled us to improve our competitive positioning in the food retail channel during the period. As a result, we believe we are well-positioned to take advantage of projected food price inflation in the latter half of fiscal 2017 and during fiscal 2018.

We’ll get to that hope of “projected food price inflation” in a moment.

The price cuts at Whole Foods were just the latest salvo. It came after two German deep-discounters Aldi and Lidl started firing their own salvos in the US. Aldi announced in June that it would invest $3.4 billion to expand its presence in the US to 2,500 stores by 2022, more than Albertsons currently has! Lidl started muscling into the US market in June and is planning to expand from there. Kroger, Walmart, Target, and all the other grocery sellers have started to respond in what has become a full-fledged price war with powerful new players in the stagnating US grocery market.

But Albertsons’ 3.7% drop in customer traffic shows that it’s losing customers to competitors. And this started in fiscal Q1 2016, when competition pushed previously strong same-store sales growth off the cliff.

So under the heading, “Risks related to our business and this offering,” the filing said: “Competition in our industry is intense, and our failure to compete successfully may adversely affect our profitability and results of operations.”

No kidding!

The section, “Risk Factors,” lists a slew of competing categories, from supercenters and farmers’ markets to “meal solution companies” that will squeeze Albertsons from all sides.

Then there’s “consumers’ growing desire” to shop online. Although Albertsons has a “growing internet presence,” with home delivery and in-store pick-up, “there is no assurance that these online initiatives will be successful.” And even if these initiatives are successful, they “may have an adverse impact on our profitability as a result of lower gross profits or greater operating costs to compete.”

Nowhere in this endlessly long SEC filing does the company mention the new force breathing down its neck: Amazon’s Whole Foods strategy, which doesn’t need to make money on grocery sales, and what this will do to the pricing environment. So Albertsons’ feverish hopes for “food price inflation in the latter half of fiscal 2017 and during fiscal 2018” is already turning into a pipe dream.

The Chicago grocery sector is an example. Bankruptcies don’t help. Even the big chains are closing stores. Read…  Grocery Store Turmoil in Chicago




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  85 comments for “Albertsons IPO Hopes Crushed by Amazon Whole Foods Entry into Supermarket-Meltdown Price War

  1. Citizen AllenM
    Aug 28, 2017 at 7:30 pm

    Grocery stores are a commodity and convenience business, period.
    And it will be WalMart versus the other discounters, plus Costco.

    Quite frankly, we have too many stores here in Phoenix, and they all ruthlessly coupon to compete. I personally think that the idiots behind Cerebus will make a profit, but it sure won’t be the killing they anticipate.

    Meanwhile, everyone thinks online will be their savior, and here comes Amazon to further crush margins. More dead big box stores are coming, people.

    On another note, almost all of the big insurance companies are going to start locking in today’s market prices through futures and options to start raising cash for the huge claims coming from the hurricane- but it won’t be much on the residential side- I think that most people who are flooded won’t have flood insurance, so losses will be total and brutal.

    A lot of stress on exposed mortgage portfolios from senior loans going belly up from this as well.

    On the other hand, just think of all the submerged new cars that are going to be scrapped or sold cheap soon after a “cleaning”…

    The amount of wealth destroyed in this one is immense.

    Houston will take a decade to recover or longer.

    Someday this war’s gonna end…

    • Mark out West
      Aug 28, 2017 at 8:04 pm

      Yes mother nature and Global Warming the great leveler for price discovery.

      • Carlada
        Aug 28, 2017 at 9:03 pm

        You missed the memo, the cult leaders want you to call it “climate change” now. There is no “mother nature”—keep your pseudo-religion out of science. Resist!

        • Kent
          Aug 29, 2017 at 6:02 am

          LOL. Deniers are so cute.

        • chip javert
          Aug 29, 2017 at 8:22 pm

          So are people who view the world thru computer models…well, many “cute” isn’t the right word.

    • Suzie Alcatrez
      Aug 28, 2017 at 10:47 pm

      The major insurance companies all have reinsurance and will be profitable like they were after Katrina.

      Buffet’s company General Re may be on the hook for billions though.

    • nick kelly
      Aug 29, 2017 at 6:25 am

      This may enter the Fed’s calculations. If it was looking for an excuse not to raise, this may be good enough.
      The question is how many multiples of ten billion it is. 2. 3, ….?
      If the whole city is flooded, it’s conceivable it’s up to ten or 100 billion.
      Re: reinsurance. That too is not infinite. Lloyd’s almost went bankrupt before this.
      Apparently most of the losses aren’t insured so we’re back to the Fed/ government.
      The REALLY bad news: this may endanger funding for THE WALL

      • J Bank
        Aug 29, 2017 at 11:15 am

        Speaking of THE WALL, here are the last two stories I’ve seen about the border and drugs. How high is the wall going to be, and how deep into the ground is it going to go?

        http://www.latimes.com/local/lanow/la-me-drug-smuggle-drone-20170819-story.html

        http://www.sandiegouniontribune.com/news/public-safety/sd-me-border-tunnel-20170826-story.html

      • chip javet
        Aug 29, 2017 at 8:36 pm

        Brand stinking new idea:

        If you live in an area that frequently gets DEVISTATED by nature (Tx coast has been hit 64 times since 1850; once every 2.6 years) – PACK YOUR CRAP UP & MOVE SO THE REST OF US DO NOT HAVE TO PAY FOR YOUR STUPIDITY.

        You listening, New Orleans?

        • Beard681
          Aug 31, 2017 at 5:37 am

          Actually the whole area used to be swamp until the Feds built the reservoirs and levies as part of the canal project that brings tankers 50 miles inland to Houston. Similar to Katrina flooding areas below sea level

  2. OutLookingIn
    Aug 28, 2017 at 8:03 pm

    Amazon. The new and improved definition of “Robber Baron’s”.

    Their favorite tactic? Under cut their competition to the point of driving them out of business, or into bankruptcy. Then moving in to pick up the assets for pennies on the dollar.
    Once this game plan has run its course, then they hike prices sky high and commence to rob the public, while stopping all R&D and capital improvements and filling up on debt. Finally selling the dry husk that’s left to any bag holder that is stupid enough to buy.

    • chip javert
      Aug 29, 2017 at 8:46 pm

      Nothing wrong with building a better mousetrap and driving your competition out of business. Lots of people think Amazon does a pretty good job of this.

      It is a problem if the remaining monopoly “… hike prices sky high and commence to rob the public, while stopping all R&D and capital improvements and filling up on debt…”. However, Amazon has not done this, and if they did, it would fall squarely in the arena of anti-trust.

      It is also a problem if profits from one segment are used to subsidize “below cost” activity in another segment. It remains to be seen if Amazon does this.

      • Beard681
        Aug 31, 2017 at 5:40 am

        Driving all competition out of the market is illegal. Pricing is irrelevant

    • Kay
      Sep 2, 2017 at 7:31 am

      The prices at Whole Foods-Amazon are still too high. I can get organic food and regular groceries cheaper at Smiths. Plus the crowd that is into organic food tend to be leftists so they make boycott Amazon Whole Foods because they don’t like Jeff Bezos turnig the Washington Post into a CIA propaganda newspaper.

  3. michael w Earussi
    Aug 28, 2017 at 8:05 pm

    Albertsons/Safeway’s continued survival has always been a mystery to me given that their average prices are usually 25%-50% higher than the competition and their selection far less. In my area (Portland, OR) virtually every other store is less expensive. I only shop at Safeway for the tiny handful of unique items they offer. Other than that it’s Kroger (Fred Meyers), Winco and Walmart.

    If they do go out of business I’m not sure most people will even notice.

    • Kasadour
      Aug 28, 2017 at 8:19 pm

      I shop at the Trader Joe’s over on Bangy Road (Lake Oswego). I get everything I need there. And their prices are ok. Sometimes quality is hit and miss, but satisfactory for the most part. Their French Vanilla ice cream is the best.

    • alex in san jose
      Aug 28, 2017 at 9:17 pm

      Where I am, there’s a small Safeway downtown with the weirdest layout I’ve ever seen, a larger “ghetto” Safeway a few miles away on San Carlos Street, that’s huge but in both, service is terrible, there are not enough checkers working, and prices are high.

      Then there’s Whole Foods, Sprouts, 99 Ranch, a Vienamese supermarket just south of downtown, and a soon-opening Korean market near me.

      Oh yeah and Target.

      I’m a real price-comparing shopper, so I get certain things at one market, other things are other markets.

      The thing is, people who don’t like the idea of going into a “foreign” market are not going to go to the markets I do. If they just want “American” food, and none of that hoity-toity “health food” there’s only two choices: Safeway and Costco. That’s it, for miles. And if you’re shopping for a family, you’re gonna shop once a week or once every two weeks and load up. And a lot of people aren’t going to pony up that $50 or $60 a year for CostCo membership, so Safeway had a lock on Joe Six-Pack and the Six-Pack family.

      I doubt this Amazon/Whole Foods thing is going to affect me at all. Maybe I’ll get some kind of discount for being a Prime member, like having a “club card” at other places. I’m not sure how they’ll know I have Prime though; I tried applying for the Amazon credit card and was turned down. Gee, trashed credit and only making $12k a year, go figure!

      • Frederick
        Aug 29, 2017 at 4:04 am

        With your income that low aren’t you qualified for an EBT card ?

        • Petunia
          Aug 29, 2017 at 10:47 am

          White men don’t get any benefits from the govt. I’m not joking.

          When we applied in Florida, the only reason I got through on their phone line was because I eventually realized they don’t pick up on the English only line, they only pick up on the Spanish or Creole line. Because I speak Spanish I was able to apply. We got a grand total of $79 all together. I had minority neighbors working and getting hundreds of dollars a month in food stamps.

        • alex in san jose
          Aug 30, 2017 at 3:53 am

          No, I do not qualify for an EBT card. I’d have to make utterly nothing, plus it’s a hell of a song-and-dance to stay on it. They “churn” you; they’ll sign you up then kick you off then woops you’re on again and here’s your money you should have gotten all in a lump … You have to go to lots of interviews and check-ups and generally, for the $200 (or $140-odd these days) I’d rather play my trumpet thank you.

          I’m sure I’d qualify for an Obama phone, but you have to have a “homeless card” that’s right, a literal card, and no doubt that’s a huge song-and-dance too. So I have my little flip phone and pay $17 a month.

          Amazon even has a low-income program for Prime, isn’t that nice? Under that program, Prime would cost me about $140 a year. But since I’ve never told them how poor I am, I just got regular old Prime for $100 a year.

          Actually, eating is the easiest thing around here and I could probably get by by raiding dumpsters, asking, visiting food banks and soup kitchens etc and never have to spend money for food. I don’t really spend that much, maybe $150 to $200 a month. My new “keto” diet seems to have me spending less! No more fancy $2.69 Japanese cup ramens, no more $3 big bags of popcorn to inhale while watching YouTube, no more $10 Pho from Pho Tau Bay…. Hell City Fish doesn’t even get any love from me these days, because I’m OK with the fish and even the slaw, but the beer, the batter on the fish, the fries, are right out.

          Made one prototype out of foam last week, and did some work on two more out of cheap pine tonight. Not getting into the $30 piece of red oak until I know just what I’m doing, and probably even then not until I’ve joined TechShop and can use some nice tools. Eventually … eventually… I’ll be able to tell you all what the hell the thing is.

      • Anonymous.1
        Aug 29, 2017 at 5:07 am

        “And a lot of people aren’t going to pony up that $50 or $60 a year for CostCo membership, so Safeway had a lock on Joe Six-Pack and the Six-Pack family.”

        The Costco bathroom tissue purchases alone will recoup your membership expenses in no time. It’s currently 40+ rolls for $15.99. Deal.

        • TJ Martin
          Aug 29, 2017 at 8:52 am

          Unless you have a household of five or more … and even then … y’all might wanna try doing the actual math before making the assumption that $50-60 dollar annual fee is in any way shape or form saving you money . Cause all bets are if you do … you’ll find out … you aint

        • IdahoPotato
          Aug 29, 2017 at 10:30 am

          @T.J. Martin. We are a very frugal family of two. The Costco Exec membership no longer makes sense for us, but the dry goods alone (TP, kitchen towels, detergent, batteries), plus nuts, coffee and fruit make the regular membership worth it.

        • Anonymous.2
          Aug 29, 2017 at 2:06 pm

          Very true Anonymous.1 but ware are the shoplifters and people on EBT Go?

        • Guido
          Aug 29, 2017 at 3:33 pm

          Plus, Costco mails you a check at the end of the membership year that is usually about the membership fee. This is assuming you have shopped enough at Costco to accrue those discounts. So the membership almost free.

        • chip javert
          Aug 29, 2017 at 8:55 pm

          Anonymous.1

          There is a reason some people have trash credit and live on $12k/yr.

          TJ Martin

          CostCo $50 membership is $1/week – you’re telling us that a regular shopper of almost any volume won’t save $1/week at CostCo?

        • Aug 29, 2017 at 9:47 pm

          Just the 4% rebate on gasoline purchases with the Costco CC just about covers the annual Membership fee.

    • TJ Martin
      Aug 29, 2017 at 8:48 am

      Amen to that M.E. The reality is Safeway and Albertson’s individually were on the verge of bankruptcy … so how bringing them together was ever supposed to rectify the situation is beyond me .

      Suffice it to say individually and collectively their selection has been abysmal for decades .. their prices on the high side in comparison to Kroegers etc .. their layout and customer service has beeb abysmal .. so like Sears … what has been keeping the S/A twins alive is beyond my comprehension

  4. r cohn
    Aug 28, 2017 at 8:41 pm

    I went into my local Whole Foods.I noticed NO price changes
    I do not understand why there are more and more entries into the grocery business,if they are not profitable

  5. george
    Aug 28, 2017 at 8:48 pm

    I don’t get it. Amazon built a Amazon Fresh pick up / store a few blocks from my house in Seattle. It has been open for nearly 7 months and I have yet see a car in there. I often see people in annoying green smocks just standing around in front. My friends notice the same thing. And guess what is a few miles down the road. Yup, a whole foods. I stick to the local IGA.

  6. Geno
    Aug 28, 2017 at 9:12 pm

    Is it possible that Amazon’s money making strategy is to simply short many of its grocery competitors stock?

    They could make money on Krogers (19 billion market cap), CASY, SFM and even Walmart. Maybe they’ll buy Albertsons just so they can close it?

    Is there any law against dumping products in the US at a loss for the sole purpose of destroying competition.? AMZN is emulating China!

  7. Rates
    Aug 28, 2017 at 10:09 pm

    Alberton’s will soon be Bezo’s and Safeway will be Primeway.

    Any questions?

  8. Bobber
    Aug 28, 2017 at 10:10 pm

    My impression is Safeway offers good locations but it’s overpriced. When consumer tighten their belts, Safeway is going to suffer. More pain to come.

    I only shop there when I need a few items quickly. I would never fill up my cart there.

  9. R2D2
    Aug 28, 2017 at 11:05 pm

    I don’t know about people’s experience with Safeway, but on many occasions if I don’t watch it, the cashier overcharges me by anywhere from $5 to $20. Once there was a lot of fruits on sale, and so I was buying a lot of it. The cashier said something like $130 for the total; once I made him redo the whole thing, the total came down to around $80. She was trying to overcharge me by $50. I think Safeway setup is such that the crew can steal; and that is why they overcharge.

    I don’t know if other people have had similar experience, or that only specific crew in specific stores pull such stunts. But now I don’t buy at Safeway, and if I do, I watch them like a hawk. Anyone has had similar experience at Safeway stores?

    • Matt P
      Aug 28, 2017 at 11:53 pm

      Use self checkout, it’s safer.

      • R2D2
        Aug 29, 2017 at 12:25 am

        Generally, I try to keep some jobs alive by not doing self checkout.

        But these days with Safeway, I definitely use self checkout, except not all their stores have that.

        • alex in san jose
          Aug 29, 2017 at 2:23 am

          I’ve not had that problem at my Safeway, but I sure do have it added up in my head what my bill should be so I’d know …. plus I keep the receipts and read ’em over when I get home.

          But, will Whole Foods or Safeway or any of ’em adopt some Soviet principles? As always, the answer is to be found on The Ushanka Show…

          https://www.youtube.com/watch?v=ZwnWq9Ybr-8

        • R2D2
          Aug 29, 2017 at 12:12 pm

          alex in san jose: Thanks; that was a fun video to watch. I can’t believe that these giant businesses so easily get away which such obvious and in your face fraud. It’s like there are no laws in the land of the big business, and they can do what they are pleased.

          I hope you are trying to turn me into a communist commarad :).

        • R2D2
          Aug 29, 2017 at 12:13 pm

          That was supposed to be “I hope you are NOT trying to turn me into a communist commarad :).”

        • alex in san jose
          Aug 30, 2017 at 4:01 am

          R2D2 – My pet peeve is at CostCo, they’ll label pieces of cheese $X per piece and when you get to the counter it’s per pound.

          Some excellent points are being made about CostCo membership and I may consider joining again. I just reflected on the fact that my new diet has me eating a fair amount of nuts, and their prices might be really good on those, and I remember their being about the best place to buy olive oil too.

          If I ask nicely, they’ll let me go in and walk around and check prices, I just won’t be able to buy anything – but it’s a very good point that $1 a week justifies the membership cost.

        • alex in san jose
          Sep 3, 2017 at 9:20 pm

          Update: I was at Safeway the other day and the bill was $23-odd, and I gave the gal $24. She said, “One more dollar” and I thought through it quickly and said, “You’ve got 24 dollars in your hands” and she said something about it being a joke, and gave me my change.

          Do that with even a few customers an hour and get away with it, and it can fatten up the hourly wage nicely.

    • Frederick
      Aug 29, 2017 at 4:06 am

      That’s ridiculous I’d report it to the manager and better business bureau I think They sound like Joel Osteen

    • Beth
      Aug 29, 2017 at 9:22 am

      I understand your frustration on this but your theory is totally wrong. You being overcharged by the cashier to make up for them to steal is just not possible. That’s not how transactions on registers work. You being overcharged on produce items is 90% cashier error, by using incorrect codes. There are literally hundreds of produce codes available for cashiers to use. The other 10% is possible price errors. A cashier could possibly get away with that kind of thing in a small “mom and pop” environment where inventory and register transactions aren’t accounted for, but not at any of the regular grocery stores. That being said, I and all consumers, should check their receipts to ensure you are paying what you expect for the products you buy. You work hard for your money, you owe that to yourself.

    • Frederick
      Aug 29, 2017 at 1:42 pm

      When I was living in Raleigh I’d shop at Kroegers and if they overcharged you they refunded you three times the mistake I went to the courtesy desk looking for a dollar and the girl handed me three Needless to say I was pleasantly surprised I was hooked and found their service to be unsurpassed

      • Kay
        Sep 2, 2017 at 7:41 am

        I shop at Smiths which part of the Kroger chain. The employees are union and they can buy shares of Kroger stock for $5.00 per share every pay day. The gives them an incentive to make the stores succeed.
        I really want them to bring the on line order and schedule to pick my groceries. My store is packed with people all the time.

    • TheDona
      Aug 30, 2017 at 4:28 pm

      My experience is that their computer system is never up to date with prices on specials.

  10. nick kelly
    Aug 29, 2017 at 12:04 am

    Good God. Who would imagine so many would chase such a marginal biz.
    Accidental pun: low margin.
    If this isn’t picking up nickels in front of a steam roller, what is?
    I thought PE was smarter.

    • Stevedcfc72
      Aug 29, 2017 at 3:45 am

      Great article by Wolf, agree with your comment nick kelly.

      From the UK it just sounds like there is far too many supermarket stores chasing the same dollar.

      Sad that a company like Albertsons is now 12 billion in debt chasing it’s tail to make a profit.

      I worked for a company which was a nice well run profitable business employing about 800 people in the UK. It was bought out by a VC for about 100 million pounds, it was worth about 60 million pounds in reality.

      From that moment on saddled down by all that debt, it started missing its banking covenants, always re-financing chasing its tail.

      Similar to the example above the whole business model was turned upside down once PE came in. At the time being the finance manager I was taking calls at 3am from the VC’s asking questions about parts of the business.

      In the end the VC managed to sell it on after realising it had made a mistake buying it, the good news it sold it for substantially less.

      • Realist
        Aug 29, 2017 at 9:33 am

        The VC probably managed to siphoon off more than enough from the company so that they did make a nice profit regardless of the price they did get when they sold it off. Usually a VC buys a company on the 20 + 80 basis, ie 20 % cash, the remaining 80 % debt that is baked into the bought company’s balance sheet, then they cut most ( all ) of R&D, pay out extra dividends and arrange other sheganigans that are paid through the bought company aquiring additional debt, emptying the company on as much equity as possible. In the end the bought comany is only a debt laden shell when the VC passes it on either as an IPO or a buyout by another so called investors ….

        • Michael Fiorillo
          Aug 29, 2017 at 10:49 am

          Transaction fees, consultant fees, special dividends, etc.: the PE parasites have further enriched themselves long before they leave the corporate carcass in a ditch.

          It ain’t called Cerberus – the dog guarding the gates to the Underworld – for nothin’.

    • Petunia
      Aug 29, 2017 at 10:50 am

      Like bank robbers, PE goes where the money is, even people with no money have to eat.

    • chip javert
      Aug 29, 2017 at 9:25 pm

      Nick Kelly

      The reason the grocery business looks crummy to you is you’re definitely looking at the wrong metric:

      Yea, grocery stores average margins in the 1-3% range (not much); however, their 2012 average return on equity (only industry number I could find) is about 12% (link: http://yourbusiness.azcentral.com/average-return-equity-grocery-store-industry-29074.html).

      By comparison, in 2015 (again only number I could find) banking ROE was about 8.5%. BMW was about 16%, and (here’s a shocker) Google’s (well, Alphabet’s) ROE was 15% (mainly because they have so much cash on the balance sheet).

  11. Flying Monkey
    Aug 29, 2017 at 12:10 am

    Another example of the unintended consequences of nearly free money.

    Free money is decimating the economic landscape.

    Subliminally it is saying there is no future and living for the now is more important.

    It is like that psychology experiment with kids waiting to eat marshmallows, just modified.

    Give the kid the choice of eating 2 now or 1 in 10 minutes in the future. and see what happens. People will eat their seed corn and have nothing for next year’s planing.

    It is funny. We learned to let communism whither on the wine and let itself fall apart by itself, yet we don’t have the same wisdom not to interfere with the the pricing of savings.

    • am
      Aug 29, 2017 at 1:40 am

      It does look like free money is creating a centrally planned economy in the US. Pretty soon you’ll be shopping at what is effectively a central bank subsidized grocery store, which doesn’t make a profit selling goods.

  12. ian
    Aug 29, 2017 at 4:16 am

    Lidl and Aldi are going great guns here in the UK. They have been a real eye opener to the UK consumer who now realize how much they are getting ripped off by the others. It took a while to catch on, snobbery and the like dissuading people but the credit crunch brought them many customers who have stayed. Not everything is cheap, regular brands are not much less but their own brands or their ‘unknown’ brands are cheap and really good quality on the whole. We shop there as much as we can, to save some cash but also to stick it to the others.

    • Dave
      Aug 29, 2017 at 6:53 am

      often times those store brands are packaged by the big name brands, private label drops price

  13. Kent
    Aug 29, 2017 at 6:01 am

    I don’t understand PE firms taking on grocery stores. You can’t outsource anything to China and there is no R&D that can be slashed. Cerberus looks like they were trying to buy up enough regional operators to create a monopoly and jack up prices. But that is a very risky strategy in a market that has a lot of well capitalized nationwide corps.

    At some point we need some investment bankers to really take it in the shorts so others will do some basic due diligence.

    • Mel
      Aug 29, 2017 at 7:52 am

      I can only imagine that they tell themselves that the masses *have to* pay for food. Like, they can stay away from other retail stores, but they can’t stay away from food. And the $12billion debt means that Safeway largely bought itself with borrowed money and gave itself to the PE operators… no?

      • Kent
        Aug 29, 2017 at 10:09 am

        “Safeway largely bought itself with borrowed money and gave itself to the PE operators… no?”

        Yes, absolutely. So who is holding that debt? And what the heck were they thinking when they lent it?

  14. Dave
    Aug 29, 2017 at 7:02 am

    I worked as a manager in the grocery business for 22 years before I became a nurse. The typical store makes ~.02 to .025 cents on each dollar. The really good operators can close in on .05 cent/dollar.
    There are 3 types of pricing structure…….

    #1) High/Low: these are the stores which have loss leaders in the ad where the price is so cheap they lose money on each unit…..BUT before that ad breaks they increase prices all over the store in the hopes that you buy the marked up item to compensate

    #2) EDLP, Every Day Low Price, these stores have no loss lead items and can therefore avoid gouging you on other items….. thus presenting an overall lower cost reputation

    #3) The Whole Foods strategy, pretend you are special and gouge every single customer without even wearing a mask as you rob them…. a little tongue in cheek with a whiff of truth there. WH cutting prices by 30% is just bringing them down to NOT outrageously expensive levels, but still damn expensive as related to all others!!

    • nick kelly
      Aug 29, 2017 at 10:29 am

      Good bit Dave so I hope you won’t think its nitpicking to say that of course you mean .02 to .025 dollars, or between 2 and 2.5 cents.

    • nick kelly
      Aug 29, 2017 at 10:41 am

      BTW: the loss leader strategy can really screw a supplier, especially of niche items. A guy up here in Canada had a product he had convinced a number of mom and pops to carry. Then after a while he got his big break when he signed a major. But he didn’t stipulate a price and they used it as a loss leader. totally peeing off the mom and pops, who were the backbone of his operation.
      Then the big dog moved on to something else and dropped him.

  15. DK
    Aug 29, 2017 at 8:44 am

    I shop in three southwest market areas on a regular basis. Safeway and albertson have been getting emptier every year. The PE firms can’t manage well. TJs , Smiths and Sprouts are packed.

  16. Wilbur58
    Aug 29, 2017 at 9:18 am

    When do we stop pretending that there’s a single VC or PE firm that knows a single thing about running a business?

    • Michael Fiorillo
      Aug 29, 2017 at 10:55 am

      What’s running a business got to do with it?

      It’s all about extracting the wealth built up over the years: purchase the company with debt, load up on even more (with hefty “management” fees tacked on) and then sell out to the pension and mutual fund rubes down the line.

      Look at what Lampert did with Sears; it’s obvious he never had any intention of running it as a viable business, but instead used it as a vehicle for his personal enrichment.

      • Wilbur58
        Aug 29, 2017 at 3:58 pm

        Michael,

        I just love hearing all the things that these guys think businesses should do. A recent example would be Bill Aikman saying that ADP should cut service costs and improve technology, as if ADP’s service hasn’t gotten bad enough already. Meanwhile, some of their modules work pretty darn well.

        These VC’s actually think they’re business people because they look at a financial statement and think “good” or “bad”. “More sales, good!” “Lower costs, good!” Fricken genius.

  17. economicminor
    Aug 29, 2017 at 10:09 am

    As I have traveled thru rural America I find Safeway markets in many smaller towns. For the most part, they were the major food markets.. In the last few years Dollar General has moved into virtually all its locations. Safeway still has a much better selection but DG under cuts them on lots of high profit items. DG usually doesn’t carry ice or fresh fruits and vegetables either. When Safeway does go under, it will be very harmful to lots of small towns across this country.

    Again, another story about how PE and leveraged buyouts have harmed people to make a few a lot of money. Vulture Capitalism at its best!

    What I’d still like to know is who funds these predatory activities and do the funders make lots of money or are they left holding the bag as it appears to me. How much of our retail melt down is directly due to these VC?

    • IdahoPotato
      Aug 29, 2017 at 10:39 am

      I live in Boise, ID. Albertson’s was started by a local family. Many of the folks who used to be traditional farmers for generations invested to start flagship Idaho companies like Albertson’s, Simplot and Micron. These companies and their owners contributed to the community by way of public infrastructure and projects.

      People who worked at Albertson’s before will tell you how crappy the work environment is under the new VC management. They will bleed these companies dry and be gone. They have no loyalty to their employees, to customers, or to the community.

  18. tony
    Aug 29, 2017 at 10:13 am

    Not a fan of whole food over priced plus crooked scales, go with my daughter once in a while.30% discount makes their prices almost suggested retail, 40% off has to be close to expired date or things slow selling that amazon will not carry in the future. I do not think albertson has to worry about anazon.

    • Frederick
      Aug 30, 2017 at 3:59 am

      Tony I agree Visited one of their stores once bought a few items and never went back Way overpriced

  19. economicminor
    Aug 29, 2017 at 10:41 am

    Above there is a discussion about the catastrophic losses in Southern Texas. They appear from the pictures I have seen to be beyond huge.

    I have read that only about 15% of the losses will be covered because that is all that had flood insurance. I am not educated about re-insurance either. Does an insurance company take part of the premiums and buy insurance from someone else? Then use the balance for what? I assume it is in the markets somewhere.. Does anyone know the structure of modern insurance and who will actually take the losses?

    I am wondering how many of these dwellings and commercial buildings were mortgaged to the hilt? With the Federal Government already dysfunctional over the nation’s debts, can/will they take on another trillion$ to cover the costs of an event like Harvey? Seems like a dilemma for them as Houston is the capital of oil and oil is needed to run the country and the military.

    If I was living in a home severely damaged or destroyed by a hurricane and it was mortgaged to the max, I probably would just walk away. Go somewhere else and start over.

    Could Harvey be that Black Swan that is slowly cruising in to destroy the markets?

    • Variance Doc
      Aug 29, 2017 at 12:50 pm

      Reinsurance is really insurance for insurance companies. The idea is to move part of the risk (of the insurance portfolio) that is not well known or understood to other parties (reinsurance companies).

      For example, State Farm doesn’t want the big exposure (claims) to floods by hurricanes, and thus wants to transfer part of their portfolio (flood insurance due to extremes) to another insurance company. They do this because they lack the expertise in determining the event loss magnitude and associated probabilities. Note that these events are extremely rare and follow heavy tail distributions. Thus, they transfer risk to another insurance co. This is in the form of State Farm paying a premium to the reinsurance co.

      If a triggering event happens (floods due to hurricanes), the reinsurance pays out the claim. In risk jargon, reinsurance is understanding and insuring against tail-risk.

      Now the question is, are the reinsurance companies solvent against tail risks. The answer is very much so; they live on heavy tailed analysis and that is reflected in the premiums.

  20. polecat
    Aug 29, 2017 at 10:47 am

    Re. ALBERTSONS & Co. …. Couldn’t happen to a nicer bunch of wankers !
    The whole Haggen kerfufle has really left a sour taste in my mouth, with 2 Safe(ha!)way stores remaining …
    Just last week, it was announced that the owner of Saars International Markets (based in Widbey Island, Wa.)had purchased our (Port Angeles) empty Haggen ( formerly Albertsons) building, with the intent of including products & produce with an hispanic and asian influence, stating that the trend is for more people cooking at home ..
    I can hardly wait, as I loath Safeway, and find the shopping experience there …uh … ‘distasteful’ ! The local demographics probably exclude and Aldi, or Lidl, or even (Praise the Gods!) a A$$Whole/Amazon FlyingFoods, which I’m ok with, as that would equate to 2 big Corporates ($afeway) vs 2 locally owned & operated (Saars & the co-op Countryaire) doing business in our tiny part of the world.

  21. jonlaughing
    Aug 29, 2017 at 10:54 am

    The industry already has some significant problems, and the Germans are coming too. WFM is too small to make any difference by a few price cuts on overpriced organics. That’s not anywhere near the fundamental problem.

  22. Ambrose Bierce
    Aug 29, 2017 at 12:04 pm

    it might be Bezos will run his superchain as a loss leader for the rest of his businesses, forever, which don’t make much money either. online grocers are one answer to the lack of shopping in the inner city. the other is for people to leave the city and go out into the country where food is grown, and you can breathe.

    • economicminor
      Aug 29, 2017 at 12:31 pm

      How does a person buy fresh fruits and vegetables on line.. or meat for that matter? or milk… although in Europe most of the milk is not in a cold case. It is on a pallet in 1 liter boxes…

      I mostly shop the outer isles most of the time. Just wondering what the plan was for health conscience consumers?

      • Frederick
        Aug 30, 2017 at 4:03 am

        I see fresh daily milk at every store in Warsaw although they also offer the boxed milk you describe

  23. QQQBall
    Aug 29, 2017 at 1:12 pm

    Don’t drink milk.

  24. California Bob
    Aug 29, 2017 at 1:48 pm

    What do you expect when a guy who can’t spell ‘potato’ is running a PE firm that buys a grocery chain?

  25. R Davis
    Aug 30, 2017 at 12:00 am

    ” Amazon – a stock market darling that doesn’t need to make money on grocery sales”

    So –
    Who exactly – sent Amazon in to shut down the competition ?
    And – it must have cost them – in dollar terms – more that the venture was worth to do so –
    Desperation make people do strange things.
    So who in the grocery industry is that bankrupt .

    • R Davis
      Aug 30, 2017 at 12:01 am

      This has all been done before & in o may different guises.

    • Ambrose Bierce
      Aug 30, 2017 at 10:50 am

      because when you buy those groceries he sells at a loss you will also buy other things which are not groceries,

  26. ML
    Aug 30, 2017 at 1:03 am

    When Wholefoods opened in UK, wife and I (long term wholefood vegetarian organic foodies) excitedly looked forward to making WF our regular store.

    Just one visit to its London flagship was enough to bring us to my senses. Most of the products on offer come under our definition heading of junk food. Packaged to look healthy but when you know what you are looking for the small print doesn’t stand up to scrutiny.

    We wouldn’t buy fruit and veg at WF. Apart from the dubious hygene of piles of produce touchable by all and sundry, we think WF’s food waste must be massive. Their instore cooked stuff is mostly tastless.

    As for the skin care products, we know the brands. WF prices are several pence (GBP) more than our preferred haunts which means the occasional purchase but certainly not first port of call

    If and when Amazon WF prices reduce in UK, likely the pricing will still be more than orher places. But for the uninformed WF will feel affordable and for Amazon that means profitable.

    Our weekly spending is about £200 (GBP) on food and basics and we are not particularly price conscious which is why despite the march of Aldi and Lidl, including a new Aldi store just a few mintutes walk away, we are loyal to preferred suppliers even though that means a 20 miles drive to get to them.

    I know we are in a minority. Good.

    • Frederick
      Aug 30, 2017 at 4:05 am

      200 quid a week Good gawd

  27. philbq
    Aug 30, 2017 at 7:00 am

    Here in Washington State, Safeway does good business. It is Albertsons that is dying. You go in a store, and there are few shoppers. Yes, Safeway is more expensive than Fred Meyer (a Kroger subsidiary), but people know and trust Safeway. Albertsons stores should just be closed, with Safeway continueing. They share the same ads. It is stupid to have both chains selling the same things. Put Albertsons down. Free Safeway!

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