Reports have emerged this week citing that C&S Wholesale Grocers may purchase 400 or more stores as part of the merger of Kroger and Albertsons. While details have been scant, indications exist that this is a serious deal. It was first reported via Bloomberg Tuesday evening that C&S, with the backing of Japanese Financial Institution SoftBank, planned to purchase these stores, with the possibility of the deal being publically announced by the end of this week. Houston’s connection to C&S is their 2014 purchase of locally owned Grocers Supply Co. While their investment is coming on nearly ten years, only relatively recently has C&S switched out a majority of Grocers Supply private labels. Moving from the old Federated supplied brands (Parade, Hy-Top, etc…) to C&S lines, mostly Best Yet. Another factor in C&S’s minimal recognition is their lack of any substantial supermarket operations. The company operates a handful of stores, mainly under the Grand Union banner, in and around New York State. When purchasing Grocers Supply Co., C&S did not seem interested in any of GSC’s retail outlets.
So, what does this all mean for Houston? Right now, nothing, as the deal isn’t even official yet. However, assuming that this sale is allowed, the next question we would have to ask is, are we sure the sale would include stores in Houston, or even Texas, for that matter? Well, here’s where we can get a little insight: Texas stores will almost definitely need to be divested, and there is significant overlap in the DFW market, although Houston is a bit more of an unknown, possibly as collateral damage from Dallas. Which ones will be divested? Well, we don’t and won’t know that for some time. However, that doesn’t prevent some wild speculation. So, let’s get to the burning question: If there were a “Hail Mary” spin-off of Randalls, would they survive? The answer is probably no, at least not for long. This speculation is built on the real-life example of Haggen, a Western grocery chain that stepped up to purchase 100+ Safeway/Albertsons locations during their merger in 2014. There are many fingers to point as to why Haggen failed, and most of them point at Albertsons Safeway. However, primarily, the failure can be summed up in the fact that the company spun off its worst-performing locations. Whether that will happen with C&S is yet to be seen. However, I could easily see the stores being leased out to local competitors by C&S in lieu of operation as well. At this point, only time will tell what happens to Randalls.
H-E-B must be salivating over the prospect of this coming true.
History shows any “spinoff” will be swirling the drain from day one (remember Apple Tree). Although the effect in Houston may be no more than the final act for Randall’s, The Kroger/Tom Thumb/Albertson’s monopoly in DFW will require shedding dozens of locations. As soon as C&S tanks, H-E-B will be snapping up leases left and right in the Metroplex for it’s main banner, not to mention a few leases in marginal areas for Joe V’s. Whatever H-E-B doesn’t lease will still be fair game for banners including Winco and Walmart Neighborhood Market.