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Sprouts And Albertsons: Will A Deal Sprout Up?

Recent news suggests preliminary talks have occurred between privately held Albertsons, which is controlled by Cerberus Capital Management and Sprouts, which is a publicly traded fresh driven retailer. This merger occurs at a time when food retailers are under almost unprecedented pressure from food deflation and a competitive promotional environment. Few food retailers have been immune to these twin pressures, with industry leader Kroger seeing a 13 year streak of comparable store sales come to an end and natural food leader Whole Foods also seeing sustained negative comparable store sales.  Albertsons has seen comps decrease by 2.1% in their latest quarter and Sprouts comps have slowed to a crawl after years of leading the industry.

The net impact of this has been a decline in Sprouts stock price, which is down considerably over the past year. Despite this, Sprouts still remains one of the best growth stories in food retail. With just over 250 stores and $4.0 billion in sales, the company only operates in 13 states and has considerable runway for future growth in new and existing geographies.  Albertsons, which is no stranger to large deals would pick up a potential growth vehicle that could help accelerate their overall growth and perhaps add an interesting wrinkle to their portfolio. More importantly, it could add some needed diversity to their portfolio of largely conventional stores and help position them for their long awaited IPO when conditions for grocery retailers improve.

For Sprouts, there could also be advantages:

  • Access to Albertsons buying power, particularly in the grocery and HBC categories
  • Potential leverage of Albertsons private label program, including brands like O Organics
  • Potential access to real estate, which could be converted to the Sprouts banner. Albertsons operates nearly 2,300 locations

As evidenced by the past, not every rumored deal actually comes to fruition. In this case, I think a merger makes sense for both parties. I’ll wait and see if reality meets rumor.

Neil Stern for Supermarket News


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