After the proposed sale of Safeway cleared a key hurdle last week, shoppers and Safeway employees are one step closer to knowing what’s in store.
The $9.4 billion deal orchestrated by New York private equity firm Cerberus will merge Safeway, the nation’s second-largest supermarket chain, with Albertsons, the country’s fifth-largest, and most likely will result in closing stores, changing or tossing familiar products and laying off employees, industry experts say.
“It is going to get worse before it gets better,” said Mitchell Marks, a business consultant and professor in the College of Business at San Francisco State University.
Even if a neighborhood store stays open, shoppers may find it no longer carries some of their favorite foods, and the Safeway loyalty card program could be in question. Meanwhile, employees of Pleasanton, Calif.-based Safeway may lose productivity as they wonder whether they’ll still have jobs after the merger is completed at year’s end.
Safeway and Albertsons executives have said they have no immediate plans for store closures and the companies will operate independently through 2014.
On Thursday night, the window during which Safeway could solicit a better offer closed and Safeway said Friday morning that no one else was interested in buying it. The companies can now put into motion the buyout plans they announced March 6, combining the century-old Safeway chain with Cerberus-owned Albertsons stores.
The deal first awaits approval from shareholders, and the Federal Trade Commission, which will, in as little as a month, determine whether Cerberus can merge the two chains and how many stores it needs to shed to meet federal antitrust rules. In neighborhoods where an Albertsons is down the street from a Safeway, for instance, one of those stores could close.
“If their favorite store is Albertsons, and the FTC’s decision is to close their local Albertsons store, consumers are going to look around,” said Dale Achabal, executive director of the Retail Management Institute at Santa Clara University.
Industry experts say store closings are almost certain in California, where Safeway and Albertsons have a combined 678 stores.
While Northern California does not have any Albertsons stores, Safeway stores there could still be sold or closed as Cerberus works to weed out the less profitable ones. Other areas where Cerberus may close stores: Washington, Oregon, Colorado, Arizona and Texas, where each chain has considered the other a top competitor.
Consumers also may see changes to Safeway’s loyalty card program. Albertsons canceled its loyalty program after it was bought by Cerberus in 2006. Safeway’s Just for U program, with about 6 million members, is considered one of the best in the industry.