The Idaho-based company announced its plan to go public just six months after swallowing rival Safeway in a $9.4 billion deal that created a nationwide grocery giant. Indeed, with more than 2,200 stores under 18 different banners (Albertsons, Safeway, Jewel-Osco) in 33 states and $57.5 billion in pro forma sales, Albertsons ranks as the second-largest grocery chain in the US (after Kroger).
A successful IPO would be a big win for Albertsons’ owner — private equity firm Cerberus Capital Management — which acquired some 650 struggling Albertsons stores in 2006, closed most of them to pay off debt, and set about orchestrating the chain’s revival.
Albertsons’ IPO appears well timed to capitalize on changes in the US retail grocery industry, marked by fierce competition at the high and low ends of the market and lackluster sales growth. Revenues in the food-and-drug retail industry inched up an average of 1.3% from 2010 through 2014, according to Albertsons’ S-1 filing. To compete with the rise of discounters, including Walmart, ALDI, and Lidl; specialty chains (Trader Joe’s, Whole Foods); and online operators, mainstream chains are combining to capture economies of scale and other efficiencies.
Albertsons’ recent purchase of Safeway sparked other combinations, including Dutch retailer Ahold’s $29.5 billion pending purchase of Belgium’s Delhaize. Both are big operators of supermarkets on the East Coast of the US under banners that include Giant, Stop & Shop, Food Lion, and Hannaford Bros. Combined, the two companies will operate more than 6,500 stores. Their merger comes after Kroger acquired the Harris Teeter Supermarkets chain in the Southeast last year for about $2.5 billion. Kroger’s CEO in a conference call earlier this year said he expects consolidation in the supermarket industry to continue and aims to be part of it.
Albertsons, which lost $1.2 billion on $27.2 billion in sales last year, says it expects its merger with Safeway to lift its operating margin by leveraging its fixed costs and that it’s currently executing on an annual synergy plan of approximately $800 million by the end of fiscal 2018.
The company plans to use the proceeds from its IPO to pay down debt. It also has plans to open new stores and is mulling future acquisitions. The IPO filing did not specify the number of shares to be sold or the price range.
Industry Impact: Consolidation among mainstream US grocery chains is being driven by a combination of slim margins, slow growth, and fierce competition from alternative channels, including discount operators, specialty organic and natural food chains, and online grocers.
Alexandra Biesada shops everyday, whether she wants to or not, and pines for the days when it was strictly a recreational activity. She has covered the retail beat for Hoover’s since 2001. Follow her on Twitter.