Long-time North Texas grocery rivals Tom Thumb and Albertsons would become part of the same company under a $9 billion merger deal announced Thursday.
Safeway, the California company that owns Tom Thumb and several other supermarket chains, agreed to be acquired by an investment group led by Cerberus Capital Management, which owns the Albertsons chain.
Safeway has more than 1,300 U.S. locations, including 107 in Texas doing business under the Tom Thumb and Randall’s banners, according to its website. Houston-based Randall’s Food Markets bought Dallas-based Tom Thumb in 1992, and Safeway acquired Randall’s in 1999.
The joint announcement gave no indication how the merged companies will operate in the highly competitive North Texas market, where both have lost market share to discounters like Wal-Mart and Target, and an ever stronger Kroger. But its announcement indicated that it would continue to operate the separate branded chains for now.
“This transaction offers us the opportunity to better serve customers by adapting more quickly to evolving shopping preferences in diverse regions across the country,” said Bob Miller, Albertsons’ chief cexecutive officer. “It also brings together two great organizations with talented management teams.”
Many new entrants have joined the crowded local grocery scene in recent years including Whole Foods, Central Market and its parent H.E.B., Brookshire’s, Sprouts, Aldi’s, Trader Joe’s and Winco, not to mention a number of growing Hispanic-oriented markets like Houston-based Fiesta and regional independent chains. They have all eaten away at sales at traditional grocery stores.
Safeway and Albertsons say the deal will allow them to better respond to customer needs and cut costs. They also expect to refurbish some stores and expand product offerings.
The deal is expected to close in final three months of this year, pending review by federal regulators and approval from Safeway shareholders.
“I’m not sure how the market would be affected going forward,” said Gary Huddleston, a Kroger spokesman in Dallas. “I know we are moving very aggressively, breaking ground today [Thursday] on a 123,000-square-foot, ‘marketplace’ store in North Richland Hills.” Kroger has 85 stores in the Metroplex, while Albertsons has slightly less than 50 and Tom Thumb around 60.
Albertsons has no distribution center of its own in North Texas, relying on a third-party distributor that acquired its building, but Safeway’s Tom Thumb unit does. If it were shared, there would some technological and logistical issues to untangle before savings resulted.
The companies said it is too early to determine where a combined company will be based and exactly what its operations will look like after the deal. They do not anticipate any store closings.
There are arguments for and against aligning stores under a single name, although both now operate units under several different banners around the country. Less money would be spent on advertising and sourcing private label lines in a single market like Dallas-Fort Worth, while customer loyalty could be lost at stores under new signs.
Safeway, based in Pleasonton, Calif., has more than 1,300 U.S. locations under banners including Safeway, Vons, Pavilion’s, Randall’s, Tom Thumb and Carrs.
AB Acquisition LLC, which operates Albertsons, along with Acme, Jewel-Osco, Lucky, Shaw’s and other stores, is owned by Cerberus and other investors. It operates more than 1,000 stores. Albertsons is based in Boise, Idaho.
Combined, the companies will have more than 2,400 stores, 27 distribution facilities and 20 manufacturing plants.
The deal comes amid ongoing consolidation in the supermarket industry, which is facing growing competition from big-box retailers, specialty chains, drug stores and even dollar stores.
Cerberus bought five chains including Albertsons and Jewel-Osco from Supervalu Inc. last year. And in September, it added 50 stores operated by Lubbock-based United Supermarkets, including the Market Street in Colleyville.
Kroger Co. also recently snapped up regional chain Harris Teeter.