Safeway to Merge with Albertsons Stores

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Less than a month after grocery store chain Safeway announced the company was in discussions regarding a possible sale, it said private equity firm Cerberus Capital Management would acquire the company in a deal valued at about $9.4 billion.

The deal combines Safeway with Cerberus’ Albertsons chain, which creates a formidable grocery franchise on the West Coast. It also creates a grocery network of more than 2,400 stores and 250,000 employees.

No store closures are expected, according to the company. Last June, Albertsons announced its stores would get rid of customer loyalty cards.

Safeway’s successful Just for U customer loyalty program accounted for about 45% of total company sales last year. The program offers an additional 10% to 20% savings off its Club Card, and it’s driving increased purchases from consumers jumping into the “loyal” category. Safeway officials have also seen the program grow via smartphones and tablets.

The tailored offers are based on a customer’s historic purchases that Safeway collects through Club Cards. Safeway can cut prices more efficiently through its “Just for U” personalized pricing by creating special deals on those products that an individual customer buys regularly. Just for U prices are for unlimited quantities and usually last 90 days.

Christine Wilcox, VP, Communications & Public Affairs, Albertsons told Loyalty360 there won’t be any changes to either store’s loyalty programs at this point.

“While it’s too soon to make marketing decisions of that nature, we understand that customers develop affinities for programs,” she said. “We always strive to make the right decision for the marketplace and its customers, whether it’s the products we carry or the services we offer. Right now, we are focused on building a stronger organization that can better meet the demands of our customers in a highly competitive marketplace and delivering the best products to more customers at lower prices, faster, and more efficiently than ever before.”

Albertsons’ CEO Bob Miller said in a press release that the transaction offers the opportunity to better serve customers by adapting more quickly to evolving shopping preferences in diverse regions across the country.

“It also brings together two great organizations with talented management teams,” Miller said. “Robert Edwards and his team have done an outstanding job in positioning Safeway’s core business for success, by investing in its stores and creating innovative strategic marketing programs that contribute to shareholder value. Working together will enable us to create cost savings that translate into price reductions for our customers. Together, we will be able to respond to local needs more quickly and deliver outstanding products at the lowest possible price, more efficiently than ever before.”

Safeway President and CEO Robert Edwards added that the merger is one of several actions taken in recent months as a result of the company’s strategic business review.

“Safeway has been focused on better meeting shoppers’ diverse needs through local, relevant assortment, an improved price/value proposition and a great shopping experience that has driven improved sales trends,” Edwards said. “We are excited about continuing this momentum as a combined organization. We look forward to working with Bob Miller and the rest of the Albertsons team as we proceed together on a path towards becoming an even stronger organization.”

Lenard Tessler, Co-Head of Global Private Equity and Senior Managing Director at Cerberus, said that Albertsons has successfully transformed underperforming retail grocery stores into strong performers by focusing on enhancing the local customer experience.

“Similarly, Safeway has consistently provided outstanding value and customer service throughout the communities it serves,” he explained. “Combining these strong management teams will strengthen the ability of Safeway and Albertsons to deliver on a shared commitment to offering customers higher quality products at lower prices, which will undoubtedly yield positive results for all stakeholders in the business.”

The merger is expected to close in the fourth quarter of 2014.

Safeway Inc., which operates Safeway, Vons, Pavilion’s, Randall’s, Tom Thumb, and Carrs stores, is a Fortune 100 company and one of the largest food and drug retailers in the United States with sales of $36.1 billion in 2013. The company operates 1,335 stores in 20 states and the District of Columbia, 13 distribution centers and 20 manufacturing plants, and employs about 138,000 employees.

Established in 2006, Albertsons operates ACME, Albertsons, Jewel-Osco, Lucky, Shaw's, Star Market and Super Saver, and stores under the United Family of stores, Amigos, Market Street and United Supermarkets. The company is privately owned by Cerberus Capital Management, Kimco Realty Corporation, Klaff Realty, Lubert-Adler Partners, and Schottenstein Stores Corporation, and operates 1,075 stores and 14 distribution centers in 29 states and employs about 115,000 associates.