A tale of three supermarket companies and innovation: Kroger; Safeway; Albertsons

There was an article in my newsfeed that Kroger, the largest supermarket company, is going to buy Albertsons, the second largest supermarket company ("Albertsons merger with Kroger could be announced this week," CNBC.

A few years ago, Albertsons bought Safeway and its banners.

Kroger.  While Kroger is an impressive company, I have an entry about how they are a great example of what I call "stranded best practice" in that, with a couple of exceptions, they aren't very good at transferring and adapting best practice from one chain to another.

-- "Problem solvers vs. possibility thinkers (and Kroger) ," 2017

Photo: Dave Rossman for the Houston Chronicle.

Besides loyalty programs, the primary exception is the Marketplace format ("Big or small? Retailers take different tacks on store size," Supermarket News), based on Fred Meyer, and like Target and Walmart, which adds general merchandise to the grocery store.  It's not necessarily "every day" low price, as the image of Walmart and Target is, and the range of items isn't quite as large, but they have frequent sales which makes it a viable competitor.

But I think the primary purpose is to make it harder for Walmart and Target to open stores in areas where Kroger operates. (It also helps that your general merchandise purchases can tally up points to save money on gasoline.)

They also bought the New York City based Murray's Cheese store and ported it as the specialty cheese section to their stores across the country.

Kroger is also a leader in store brands--we prefer for example their store brand beans or chicken broth to other store brands, and to national brands.

But while some of their divisions have augmented stores with specialty departments, like "Fresh Fare" in Texas slowly being ported to other markets but seemingly only for banners named Kroger ("Kroger opens another Fresh Fare store in Ohio," Drug Store News, 2008), or the store by their headquarters in Cincinnati ("Inside Kroger’s New Downtown Grocery Concept and Eatery," Cincinnati Magazine) which has a food hall featuring locally owned restaurants, and they bought more upscale chains like Harris-Teeter and Mariano's (Chicago), those practices don't end up in other chains, definitely not the way that Giant-Eagle (Market District) and HEB (Central Market) have a small set of upscale stores, and Giant-Eagle has branded its convenience store-gas stations as GetGo, featuring Market District and Giant-Eagle brands.  (In fact, Kroger had a massive set of convenience stores, didn't learn from Giant-Eagle, and sold most of them off).

Some people report that under Kroger, Mariano's is even being "dumbed down," becoming less special.

Safeway.  To me, Safeway is most impressive for its destruction of shareholder value.  It bought chains in Chicago ("How Dominick's Lost its Way in Chicago," Chicago Business Journal) and Philadelphia, running them out of business, and chains in Texas (Randall's and Tom Thumb) are less successful than when they bought them.  From the article:

Perhaps the key reason why Dominick's ultimately was doomed is something much trickier to quantify — a failure of zestful imagination across the boards. To put it bluntly, Dominick's had become an immensely boring grocery shopping experience. Nothing in the way management designed or merchandised the stores made them distinctive enough to engage shoppers and build loyalty. Any sort of "wow factor" was totally absent.

It cost the company billions of dollars.  How did that not end up with the CEO getting fired?

But they've been very successful with their private brands, like what was called Safeway Select, now Signature Select.  I miss some of those products, like Asian Stir Fry frozen vegetables and seltzers here.  Plus, their loyalty program and coupon doubling (they probably don't do that now).

Petworth, DC.

And earlier than some of their competitors, they began opening new stores in center cities, starting with Portland in 2003. DC has a couple of those stores, Downtown at CityVista, and the Petworth store, which became the ground floor of a multiunit apartment building, which they repeated in Capitol Hill.

The company always remained committed to DC proper, having the most stores of any chain in the city (although they closed small neighborhood stores in favor of larger stores serving multiple neighborhoods to which residents "had" to drive.)

Albertson's today isn't really the same company it was 20 years ago.  It went through an iteration of independence, then it was bought by Supervalu--now no longer in existence itself, a wholesaler and supermarket chain owner, but they sold off a huge amount of stores to private equity (Cerberus) and then the private equity company fixed those stores and bought the rest.

One of their moves was to buy United Supermarkets in Texas, a small company, but one with two specialty divisions, a Hispanic oriented market, and an upscale market, like HEB's Central Market, called Market Street.

Then they bought Safeway, allegedly for their management prowess, but really for their private brands.  They took off the Safeway name--now it's Signature Select, etc. and ported them to all the Albertson's chains, the way that Kroger uses the Kroger brand across chains (although maybe not at H-T and Mariano's).

One of the amazing things Albertson's has done is to take the Market Street format and slowly apply it to other banners.  

For example, there are two stores in Boise--where the company is headquartered, and I guess one now in Montana that are basically Market Streets, super stores.  

Patio furniture displayed in the parking lot of the Broadway Albertson's, Boise.

I was blown away by the one in Boise, next to Boise State University and Downtown, except for the high prices ("Albertsons Market Street Store is a Food Paradise" Progressive Grocer).  It has a second story bar, a ground floor cafe, grass fed beef featuring ranches from the region, creative displays even outside the store.

Conclusion.  So unlike Kroger with what I call stranded best practice, and unlike Safeway in how they destroyed store banners they bought losing billions in the process, the latest iteration of Albertson's under private equity shows innovation.

If Kroger buys Albertson's my sense is that the innovativeness of Albertson's will be left to die.  And I doubt that Kroger will adopt Signature Select instead of the Kroger brand, thereby destroying lots of value and brand equity there.  Although it's possible they'd let those brands continue being offered in the Albertson's banners.

I don't think the acquisition will result in better choices and options for grocery patrons.  But it probably won't hurt.  And outside of some markets, like California and Texas, they don't really compete.

It's possible, with Kroger as the buyer, that they will reduce prices in Albertson's chains, which tend to be higher than Kroger chain pricing.