With Rite Aid Merger Scuttled, Albertsons May Take Advantage of Another Recent M&A Deal

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With Rite Aid Merger Scuttled, Albertsons May Take Advantage of Another Recent M&A Deal

By Randy Hofbauer - 08/09/2018

Even though its planned merger with Camp Hill, Pa.-based drug store chain Rite Aid has officially died, there actually remains opportunity in the ruins for Albertsons Cos. to expand its grocery operations through another recent M&A deal, one grocery industry observer believes.

Last month, United Natural Foods Inc. revealed its plans to purchase Eden Prairie, Minn.-based grocery retailer-wholesaler Supervalu Inc., which has been working hard to shed its retail operations to focus on wholesaling and distribution. At the time of the announcement, UNFI revealed its plans to “over time … divest Supervalu retail assets in a thoughtful and economic manner.” Supervalu had already recently divested its Farm Fresh banner, and also spoke of plans to continue pursuing the sale of its corporate-owned and -operated Shop ‘n Save and Shop ‘n Save East retail operations.

With the Rite Aid agreement now shut down, Albertsons has the opportunity to use capital from the deal to purchase one, two or even three of the best Supervalu corporate retail chains: Cub Foods, Hornbacher’s and Shoppers Food & Pharmacy, all of which Supervalu didn't know how to operate effectively and competitively, noted Burt Flickinger III, managing director of New York-based Strategic Resource Group.

“Since Bob Miller and his Albertsons team are doing an exceptional job turning around prior Supervalu chains – i.e., Jewel, Shaw's and Star Markets, Acme, et al. – Albertsons can successfully and accretively transform Cub Foods, Hornbacher’s and Shoppers,” he told Progressive Grocer.

Other opportunities for the Boise, Idaho-based grocery giant – which is No. 3 on Progressive Grocer’s 2018 Super 50 list of the top grocers in the United States – may include Sprouts Farmers Market, Flickinger added.

Was This Rite Aid’s Last Chance?

Turning to Rite Aid, however, Flickinger observed that the now-dead merger agreement may have been the “last, best and final” opportunity for Rite Aid’s longer-term viability. The aborted deal regrettably holds short-, intermediate- and long-term implications for the drug chain, which could be catastrophic.

Typically, Institutional Shareholder Services (ISS) gets it right, he noted. This time, however, ISS appears to have made a “major mistake” in viewing Rite Aid as more valuable as an independent company rather than when combined with Albertsons, given that Albertsons CEO Bob Miller and Mary Sammons, CEO of Rite Aid from 2003 to 2010, “uniquely saved” the drug store chain from a near-certain retail death sentence following former CEO Martin Grass’ financial scandals roughly two decades ago – which landed him in federal prison – and their aftermath.

“Without Bob Miller to save Rite Aid again a second time in two decades, as part of Albertsons, Rite Aid has a very uncertain future at best – and more likely a very regrettable retail and financial future as an independent company, in effect controlled by some underinformed financial firms,” Flickinger asserted.

Rite Aid already has an urgent need to transform itself. With many of its stores operating in the Rust Belt, where a higher percentage of smokers reside, its strong cigarette sales don’t jibe with the increasing focus on health and wellness in retail – especially at drug stores. Neither do its higher-than-average sales of snack foods and beer.

Rite Aid needs large investments to transform itself from being a leader in categories that are unhealthy to growing its presence where the competition is: pharmacy, health and wellness, convenience food, and beauty care. This will help it not only in competing against the other two of the big three chains – Walgreens and CVS – but also other strong retailers that combine food and pharmacy operations, such as Target (with its CVS pharmacies), Albertsons-Safeway (with its Osco and Savon pharmacies), Walmart, Costco, and Amazon-Whole Foods.

About the Author

Randy Hofbauer

Randy Hofbauer

Randy Hofbauer is Progressive Grocer's digital and technology editor. He has more than a decade of experience as a journalist and researcher, almost all of it covering CPG retailing. Read More