As previously talked about at length in this space, merger and acquisition activity in the supermarket industry was highly active in 2013, and was projected to be equally or more extensive in 2014. Announced yesterday, we received a whopper of one – two top 10 supermarket chains Safeway and Albertsons will merge to create a $60 billion powerhouse. How will this new mega company affect the industry? For one, the new entity vaults all the way to #2 supermarket chain operator with an estimated 2,400 locations, second only to Kroger. The companies do not anticipate any immediate store closings, although the Federal Trade Commission might have something to say about that. Looking further, the most important thing company executives seem to be focusing on are cost efficiencies and retail price reductions.

The deal, if allowed to go through as planned, is expected to close in the fourth quarter of this year. Interestingly, Bloomberg has reported that there is a 21-day window built into the deal during which other companies have the right to make competitive bids. Kroger was rumored to have interest in some or all of Safeway, and there also have been reports that Kroger could acquire assets from Albertsons after the deal is completed.

There is quite a bit of store overlap between the two chains, especially in the Los Angeles metro area. The combined company would operate over 215 locations there and position firmly as the #2 chain by market share, behind Kroger. Based on Chain Store Guide data (illustrated below) a number of large metros have both Safeway and Albertsons. However, none represent a glaring market share jump if/when the companies combine where the FTC would require large store divestitures. If the FTC did, which is likely in a deal this size, the markets below could see the most movement.

Top Five Safeway/Albertsons Overlapping Markets*
Metro Core-Based Statistical Areas

*Source: Chain Store Guide’s 2013 Grocery Industry Market Share Report. Share figures represent fiscal 2012.