In Colorado, Safeway will be owned by 2 companies post merger. Neither will be Albertsons. 

If the supermarket megamerger goes through as proposed, Safeway stores in Colorado would be owned by two companies. Neither would be the current owner Albertsons, which would fade into acquirer and King Soopers parent, Kroger Co.

But while Kroger plans to take over 14 Safeways, the other 89 in the state would find a new owner in C&S Wholesale Grocer, a wholesale distributor that aspires to become a major grocery chain.

And don’t forget there are two Albertsons in Pueblo and Durango that C&S plans to buy as part of the divestiture and conversion to Safeway. But C&S won’t own the Safeway brand — just a license to use the name in Colorado and Arizona for three years. Kroger plans to keep the other Safeway stores it’s acquiring nationwide as part of the proposed $24.5 billion merger of Kroger and Albertsons.

Confused? There’s more. There’s no clarity on how shoppers would distinguish between the differently owned stores or their weekly ads or prices (though both of the new owners said they plan to lower prices). Nor is it clear if their loyalty cards or mobile apps would still work before their local store is rebranded.

But such concerns were probably the last thing on everyone’s mind last week, the second week of the Colorado Attorney General’s antitrust case seeking to block the merger because of the harm it would cause to consumers, workers, farmers and local suppliers. There is so much testimony still to be heard that lawyers with the Colorado Attorney General’s Office were unable to wrap up Friday as planned. Closing arguments are now scheduled for Oct. 24, nearly a week later than expected.

Colorado’s case differs from the Federal Trade Commission’s antitrust case, which wrapped up last month and awaits a decision. It’s also different from the ongoing case in the state of Washington, which doesn’t want a repeat of the massive closure of local grocery stores that followed the Albertsons-Safeway merger of 2014. Colorado’s case doesn’t want that to happen either, but also alleges collusion between Kroger and Albertsons officials to not hire workers or poach pharmacy customers during the King Soopers worker strike in 2022.

Albertsons officials, who admitted their prices are higher than Kroger’s, feel they are unable to compete not just with Kroger stores but larger grocery retailers like Walmart and Costco. Merging is the only way to achieve better scale and move ahead profitably without layoffs, Albertsons CEO Vivek Sankaran testified.  

But whether a wholesale grocery distributor is fit to run a national network of grocery stores was a big question asked by the AG’s team last week. C&S is set to buy 579 stores for $2.9 billion as part of the divestiture to reduce antitrust concerns. But Albertsons appears to be unloading 40 unprofitable locations to C&S, including eight in Colorado, according to the back-and-forth between Assistant Attorney General Robin Alexander and C&S senior vice president of corporate development Alona Florenz. 

Alexander also questioned the motives of C&S, which may be a large food distributor but has little footprint as a retail grocer. In the past, the company has sold or closed unprofitable locations. It re-entered the retail grocery business in 2021 and would grow overnight to 600 stores from about two dozen if the merger is approved. In Colorado, 91 stores would be sold to C&S. 

An analysis by the company C&S hired to review the divestiture included a recommendation that “148 of the stores would be good candidates for monetization” because they come with property that could be sold and leased back to the store, Alexander pointed out. Florenz responded that C&S hadn’t asked for that piece of information.

C&S’s plans for Safeway stores, including in Colorado

Florenz testified that the century-old New Hampshire wholesaler is committed to becoming a viable competitor in the retail grocery industry. It already brings in $20 billion in annual revenues and it has the distribution backbone that serves thousands of independent grocery stores. And retail is much more lucrative, she testified, with profit margins four-times higher than the wholesale business.

In 2019, C&S lost its top customer and profits were cut in half, causing it to rethink its aging business model. It needed something “transformational,” Florenz said. That’s when its move into owning and operating retail grocery stores began, starting with the acquisitions of about two dozen Piggly Wiggly and Grand Union supermarkets in 2021. 

“We’re here because we want growth. We’re here because we want diversification. This allows us to have a private label and tech system that we can take back to our independents,” Florenz said. “This idea that we would dismantle all of our strategic benefits even though the economics don’t align, it just doesn’t make sense to me.” 

With lessons learned from past acquisitions, C&S wanted to take more time to transition, so that was part of the negotiations. They didn’t want to rebrand new stores overnight — or as they say in supermarket-merger jargon, “rebanner” — to limit disruption for customers. C&S has three years to make the changes, although there’s a six-month deadline to distinguish the Safeway  website and its ecommerce service. (Kroger is keeping the Safeway.com internet domain.)

“The reason why you see the timelines for rebannering in three years … is so we can spend the time that we need to transition each of these stores,” she said. “Things go better when you can go slower because you can pilot it, you can test, you can react rather than have a hard cutoff. We were very much looking to avoid those hard cutoffs.” 

She added, “There is potential for confusion but I think what our teams are working on are ways to differentiate early,” Florenz testified. 

In an email, C&S spokeswoman Lauren La Bruno said nothing is final yet and “C&S’s agreement is subject to Kroger and Albertsons resolving the pending cases in court.”

She also added: “C&S is excited about our retail expansion and is looking forward to ensuring that all our new shoppers become braggingly happy customers!” 

Did King Soopers and Albertsons collude?

On Tuesday, Jon McPherson, who handles labor relations at Kroger, took the stand as Assistant Attorney General Elizabeth Hereford began her inquiry. 

In January 2022 when King Soopers union members went on strike for nine days, union leadership advised employees to move their prescriptions to Safeway during the strike and told associates they could work at Safeway during the strike, McPherson said. He said he was not concerned about King Soopers employees leaving to work at Safeway, saying it would be highly unlikely that they would be hired and that they would lose their benefits once they returned to King Soopers.

McPherson said he wrote an email to Albertsons, per his superior’s instruction, to ask if they intended to hire any King Soopers employees. In a return email, Albertsons leaders said they did not intend to hire King Soopers employees.

“So Kroger wanted to be able to change its business plans depending on how Albertsons was going to act?” Hereford asked.

“That was my assumption,” McPherson said. 

Despite the intention stated over email, McPherson said the two stores did not enter a formal agreement to not hire King Soopers employees. 

McPherson said it was the first time in 25 years that he had seen union leadership advising its striking employees to work for King Soopers’ competitors. 

“They get their strike pay, and hopefully the strike will last a short period of time, and they just return to work. And typically, a lot of employers won’t hire striking employees just because the assumption is that they’re going to come on board for a very short period of time,” McPherson said. 

Dan Dosenbach, Albertsons’ senior vice president of labor relations, also testified that there was no formal agreement between the companies for strike assistance. Albertsons didn’t consider hiring striking King Soopers employees, which Dosenbach said would be a “bad business decision.” 

Notes from the trial

• On Wednesday, the AG’s expert witness, a former grocery executive with Roger Davidson, testified that 80 companies had an interest in buying Albertsons. In certain cases, there were definitely candidates better than C&S, said Davidson, who previously worked at HEB grocery stores in Texas and now has a consulting firm, Oakton Advisory Group. 

• Albertsons CEO Sankaran said that its customers in Colorado typically spend 14 cents of their grocery dollars at an Albertsons-owned supermarket like Safeway. That’s less than the 20 cents those same customers spend at Walmart and the 16 cents spent at Kroger stores (King Soopers and City Market). Five cents go to Amazon and the remaining is split among companies like Costco, Trader Joe’s, Whole Foods and other stores that sell groceries. “Does that mean that Albertsons customers are spending more with Walmart than they are with Albertsons?” the state asked. “That’s correct,” Sankaran responded.

• Senior prosecutor Jason Slothouber also grilled Sankaran about a $4 billion dividend paid to shareholders, which included Cerberus Capital Management, the private-equity firm and Albertsons’ largest investor “Cerberus, like the dog from Hell,” Slothouber said. “They were the ones pushing to get money out of Albertsons through that dividend. … That $4 billion dividend you paid out, that’s bigger than the divestiture package.”
  
  Slothouber asked, why not spend it on wages? Sankaran said it was the board that decided on the payment. Attorney generals from multiple states had fought the payment. Washington Supreme Court rejected appeals in Jan. 2023. To make the dividend payment, it would take on $1.5 billion in debt. “That $4 billion could have paid a lot of wages,” Slothouber said.