Joya, Mariano’s could join forces in possible mega merger

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

The potential supermarket mega-merger is also likely to draw regulatory scrutiny in markets like Chicago, where rival chains Jewel and Mariano’s could end up in the same corporate basket.

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

According to industry analysts, it remains to be seen how many of those overlapping stores might need to be sold to other supermarkets or closed.

“The regulatory side of this is a very real question,” said Zain Akbari, a Chicago-based equity analyst covering the grocery industry for Morningstar. “In Chicago, both Albertsons and Kroger maintain a significant presence through Jewel and Mariano’s. And that story is being repeated in many other markets across the country.”

Neither Kroger nor Albertsons responded to requests for comment 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 the competitive Chicago market primarily through acquisitions in the past decade. But thin margins and the rise of Walmart and Amazon as major players, both with brick-and-mortar locations and a growing online segment, could be behind the need for Kroger and Albertsons to merge, Akbari said.

“Scale is a huge benefit in the grocery store landscape, particularly in local markets,” Akbari said. “The grocery industry has very, very tight margins, and any savings you can get are beneficial just because the industry is as price competitive as it’s ever been.”

A potential merger would bring together one of Chicago’s oldest supermarket chains and its main challenger during the new millennium.

Founded in 1899 as Jewel Tea, a horse-drawn delivery service that sold tea and coffee, Jewel has evolved into the largest supermarket chain in Chicago, 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 the now publicly traded supermarket chain Albertsons.

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

[ Dominick’s: From a corner grocery to a Chicago institution ]

Last year, Mariano inaugurated the first of his new reduced fresh supermarket stores, Dom’s Kitchen & Market, in Lincoln Park, with a second scheduled to open in old town next month. Meanwhile, its namesake chain remains an important part of the Chicago supermarket landscape under Kroger.

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

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

Albertsons’ share price rose 11.5% Thursday on merger speculation, while Kroger’s rose 1%.

Akbari said Kroger is “head and shoulders above” other traditional grocers with analytics, its private-label offerings and digital capabilities. He said Albertsons is “a step behind” on all fronts. For Kroger, the deal would expand its footprint, digital capabilities and help it take advantage of costs.

Backers of Albertsons, including Cerberus Capital, which remains the largest shareholder with a 28.5% stake, have been buying into the supermarket chain this year and looking to cash out, Akbari said.

Kroger would potentially add thousands of physical grocery stores, but the main focus of the merger may be on the growing digital market.

The pandemic has fueled a major shift toward online grocery shopping, with nationwide retail sales growing 55.6% in 2020 and another 11.3% last year, topping $121 billion , according to research firm Insider Intelligence. Online grocery sales are projected to grow 15.8% in 2022 to around $140 billion.

By 2025, online sales are projected to reach about $212 billion, or nearly 14% of the $1.5 trillion US grocery retail market, according to Insider Intelligence.

Walmart has leveraged its massive retail footprint to become the biggest player in online grocery sales with 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, an analyst who covers retail and e-commerce at Insider Intelligence, said they may increase their online share through the merger. .

“Kroger has been investing in digital for a long time, while Albertsons has been pretty late to the game,” Droesch said. “Kroger can continue to grow digitally by leveraging Albertsons locations as fulfillment centers to drive sales, while for Albertsons, they will gain access to this delivery infrastructure that they have never had before.”

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

Kroger’s private label brands, including Private Selection, Kroger and Simple Truth, which are rampant at Mariano’s, are likely to hit Jewel 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 require divestitures, Akbari expects there will be a reduction in the size of Chicago’s portfolio, if Jewel and Mariano share the same owner.

“At the end of the day, regulators aside, there’s probably a decent case to get rid of some of the stores in this area,” Akbari said. “Add Jewel to Mariano’s and it’s probably a little too dense.”

rchannick@chicagotribune.com