Albertsons and Safeway, the nation’s second-largest grocery chain, said Thursday that they will merge under the control of the company that owns Albertsons.
Safeway’s current CEO, Robert Edwards, will become CEO of the new combined chain. Bob Miller, Albertsons’ CEO, will become executive chairman.
Albertsons’ parent, AB Acquisition LLC, a unit of an investor group led by New York private-equity firm Cerberus Capital Management, will acquire all outstanding shares of Safeway, the companies said in a joint news release after stock markets closed for the day.
The $9 billion deal is expected to close in the fourth quarter of 2014. If the merger fails, the Albertsons parent company will have to pay Safeway $400 million.
"Working together will enable us to create cost savings that translate into price reductions for our customers," Miller said. "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."
The deal will create a chain with more than 2,400 stores, 27 distribution centers and 20 manufacturing plants. The combined workforce will exceed 250,000.
The companies said no stores are expected to close as a result of the merger.
Safeway employs 1,885 worker at 21 stores in Hawaii 14 on Oahu, four on Maui, two on Hawaii island and one on Kauai. The company is planning to open a second store on Kauai, though it has yet to determine an opening date. It opened its first store in Hawaii in Honolulu in 1964 along Pali Highway.
With traditional grocers continuing to struggle nationwide, Safeway, based in Pleasanton, Calif., put itself up for sale last month. Analysts and industry watchers said a Safeway sale would reshape the industry, leading to the closure of stores across California and the Southwest and transforming Safeway into a neighborhood grocer that more closely resembles Trader Joe’s.
AB Acquisition LLC, which operates Albertsons, along with Acme, Jewel-Osco, Lucky, Shaw’s and other stores, operates more than 1,000 locations. Albertsons is based in Boise, Idaho.
Safeway has been panned for neglected stores and ranked by industry publications as having among the worst customer service in retail.
"The supermarket was built on the principle of, if you’re 8 years old to 80, we carry everything in the store for you," said Frank Dell, president and chief executive of consulting group Dellmart & Co. and a 30-year industry watcher. "I just don’t see bigger as being better anymore."
Smaller neighborhood markets that tout locally sourced meat and organic produce and attract customers with friendly service, ambience and one-of-a-kind items are pulling customers away from mainstream supermarkets, experts say.
Trader Joe’s has earned a loyal following with its private label. The small-format stores have a limited selection, but shoppers know it’s the only place they can get Trader Joe’s brand couscous or kale chips, which industry experts say keeps them coming back.
Safeway has private-label products, including organics, which last year reached an all-time high of 28 percent of total grocery sales. But Trader Joe’s small and clean stores, lower prices and helpful staff have made it the rising star of specialty grocers.
Even Walmart has pivoted, from big-box to neighborhood market stores about a quarter the size of its Supercenters that emphasize groceries.
Between discount retailers, drugstores, the local farmers market and the Whole Foods Market or Trader Joe’s around the corner, traditional supermarkets have lost 15 percent of the grocery market and are expected to cede even more by 2016, according to industry reports.
