Jewel, Marianos could join forces in potential mega-fusion

Kroger, the largest traditional supermarket chain in the country, is reportedly in talks to buy Albertsons, creating a supermarket giant with nearly 5,000 stores and annual sales of more than $200 billion.

The potential supermarket mega-merger is also likely to be controlled by regulatory authorities in markets such as Chicago, where rival chains Jewel and Mariano’s could end up in the same business basket.

Cincinnati-based Kroger has 2,750 supermarkets in 35 states, including more than 40 Mariano’s stores in Chicago. Albertsons, based in Boise, Idaho, has more than 2,200 supermarkets in 34 states, including 188 Jewel stores in the Chicago area.

How many of those overlapping stores should be sold to other grocers or closed remains to be seen, according to industry analysts.

“The regulatory side of this is a very real question,” said Zain Akbari, an equity analyst who covers the food industry for Chicago-based Morningstar. “In Chicago, both Albertsons and Kroger have a significant presence through both Jewel and Mariano’s. And that story is repeating itself in many other markets across the country.”

Pickup employee Jordyn Jenkins will pick up groceries from Mariano's Bucktown on Thursday, August 18, 2022.

Neither Kroger nor Albertsons responded to requests for comment on Thursday. Bloomberg reported Thursday morning that a deal could be reached this week, citing people familiar with the matter.

Kroger and Albertsons have made their way into Chicago’s competitive market over the past decade primarily through acquisitions. But thin margins and the emergence of Walmart and Amazon as big players — both with brick-and-mortar locations and the growing online segment — could be driving the urge to merge for Kroger and Albertsons, Akbari said.

“Scale is a big advantage in the supermarket landscape, especially in local markets,” says Akbari. “The food industry has very, very tight margins, and any savings you can make are beneficial just because the industry is as price competitive as ever.”

A possible merger would bring together one of the oldest supermarket chains in Chicago and its main challenger in the new millennium.

Founded in 1899 as Jewel Tea, a horse-drawn delivery service that sells tea and coffee, Jewel evolved into Chicago’s largest supermarket chain, with 188 stores in the city and suburbs. In 2013, Jewel was sold to Cerberus Capital Management as part of a $3.3 billion acquisition that also included now publicly traded supermarket chain Albertsons.

Mariano’s was launched in 2010 by former Dominick’s executive Bob Mariano. The chain grew rapidly after the demise of Dominick’s, a venerable Chicago grocer, which was closed in 2013 by parent company Safeway. In 2015, supermarket giant Kroger bought Mariano’s parent company, Milwaukee-based Roundy’s, for $800 million.

Last year, Mariano opened the first of its new downsized fresh grocery stores, Dom’s Kitchen & Market, in Lincoln Park, with a second slated to open in Old Town next month. Meanwhile, its namesake chain remains a staple of the Chicago grocery landscape under Kroger.

Founded in 1883, Kroger left the Chicago market in 1970 and sold its stores to Dominick’s. But it found its way back with the 1998 acquisition of California-based Food 4 Less, a mid-sized discount chain. It now has 104 stores in Illinois under the Kroger, Mariano’s and Food 4 Less banners.

Kroger is expected to generate nearly $150 billion in revenue this fiscal year and has a market cap of nearly $33 billion, Akbari said. Albertsons is expected to generate $76 billion in revenue by 2022 and has a market cap of nearly $14 billion.

Albertsons share price rose 11.5% on Thursday after merger speculation, while Kroger rose about 1%.

Akbari said Kroger is “way above” other traditional grocers in analytics, its private label offerings and digital capabilities. He said Albertsons is “one step behind” on all fronts. For Kroger, the deal would increase its footprint, digital capabilities and help it leverage costs.

Albertsons backers, including Cerberus Capital, which remains the largest shareholder with a 28.5% stake, have shopped in the supermarket chain this year and are looking to cash out, Akbari said.

Kroger could potentially add thousands of brick-and-mortar supermarkets, but the merger could focus primarily on the growing digital market.

The pandemic has led to a major shift to online grocery shopping, with sales at retailers nationwide growing 55.6% in 2020 and an additional 11.3% last year, to more than $121 billion, according to research firm. Insider Intelligence. Online grocery sales are expected to grow 15.8% to approximately $140 billion by 2022.

According to Insider Intelligence, online sales are expected to reach approximately $212 billion by 2025, or nearly 14% of the $1.5 trillion US grocery market.

Walmart has leveraged its massive retail footprint to become the largest online grocery player at nearly 28%, followed by Amazon, which has a 21% share through its Fresh and Whole Foods stores, according to Insider Intelligence.

Kroger has about 10% and Albertsons less than 4% of the online grocery market, but Blake Droesch, a retail and e-commerce analyst at Insider Intelligence, said they could increase their online share through the merger.

“Kroger has been investing in digital for a long time, while Albertsons is quite late in the game,” Droesch said. “Kroger can continue to grow digitally by using Albertsons locations as fulfillment centers to drive sales, while giving Albertsons access to this delivery infrastructure they never had.”

Chicago shoppers may see other changes if the merger is approved.

Kroger’s private label brands, including Private Selection, Kroger and Simple Truth, which are proliferating at Mariano’s, are likely to hit Jewel’s shelves after the merger, Akbari said.

It remains to be seen whether the stores will adopt a common name or continue to operate under separate banners. But even if regulators don’t demand divestments, Akbari expects some shrinking in the Chicago portfolio — if Jewel and Mariano’s share the same ownership.

“Ultimately, aside from the regulators, there’s probably a good reason to lose some stores in this area,” Akbari said. “Add Jewel to Mariano’s and you’re probably a little too compact.”

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