The Little-Known Company Holding the Key to a $20 Billion Grocery Deal
Federal judge to examine whether C&S could be a new supermarket contender after Kroger-Albertsons deal
The largest supermarket merger ever hinges on a little-known grocery distributor.
C&S Wholesale Grocers, a 106-year-old company based in New Hampshire, is set to play a key role in an antitrust trial that will decide whether Kroger KR -0.52%decrease; red down pointing triangle can move ahead with its planned $20 billion purchase of rival Albertsons ACI 0.87%increase; green up pointing triangle. The case is scheduled to begin Monday in a federal court in Oregon and expected to last about three weeks.
The Federal Trade Commission sued to block the deal in February, saying that combining the two biggest U.S. supermarket companies would eliminate the fierce rivalry in markets where Kroger and Albertsons have competing stores, leading to higher prices for shoppers.
That is where C&S comes in. To neutralize antitrust concerns, the two chains have agreed to sell 579 stores to the closely held grocery distribution company, which supplies more than 100,000 different products to retailers across the country. C&S also owns or franchises around 160 grocery stores, including Piggly Wiggly and Grand Union.
The companies first will have to convince a federal judge in Oregon that C&S can credibly operate so many stores and compete with its larger rivals. Together, Kroger and Albertsons run around 5,000 U.S. locations.
C&S executives say the company is ready to join the supermarket big leagues. The FTC says C&S won’t be able to compete and can’t replace the benefits of lost competition if Kroger absorbs Albertsons.
The roughly $3 billion divestiture deal with Kroger and Albertsons would boost C&S’s store total to 744, on par with Trader Joe’s and Whole Foods. C&S would become the eighth-largest U.S. grocer by revenue, with more than $40 billion in estimated sales, according to investment firm Solomon Partners, which is working with Kroger and Albertsons.
“We will be a leader in the industry,” said Eric Winn, C&S’s chief executive.
The deal would give C&S the primarily West Coast chains QFC, Haggen and Carrs, along with Mariano’s in Illinois. C&S would also receive licensing rights to the Safeway banner in Colorado and Arizona and the Albertsons banner in California and Wyoming.
Besides its own stores, C&S supplies about 7,500 grocery customers. Adding the locations from Kroger and Albertsons, the company said, would give C&S greater leverage with food companies and other suppliers, benefiting C&S as well as its other supermarket clients.
The FTC said C&S’s record as an acquirer is poor. Over the past two decades, the agency said, C&S has acquired hundreds of stores and wound up selling or closing many of them.
As recently as 2021, the FTC said, C&S stated that it didn’t intend to enlarge its retail operations or run grocery stores long term, and instead expected to divest stores as opportunities arose.
A C&S spokeswoman said it is committed to expanding its retail footprint and that the company has an experienced management team and the financial strength to invest in the business.
Piggly Wiggly goes to market
C&S has said it is the largest wholesale grocery supply company in the U.S. It is owned by Rick Cohen, whose grandfather founded the company in 1918 in Worcester, Mass. Privately held C&S doesn’t disclose its financial results.
S&P Global analysts said C&S’s sales dropped 27% from nearly $30 billion in 2017 to less than $22 billion in its fiscal year ended September 2023, largely because of the loss of Ahold Delhaize, a major customer, which they said moved to a self-distribution model.
Some grocery industry executives said C&S has a problematic reputation as a distributor, and is ill-equipped to absorb hundreds of new stores.
Errol Schweizer, a former vice president at Amazon’s Whole Foods who advises consumer brands and grocery stores, said some stores C&S is affiliated with are in rough shape. Schweizer said that on a recent visit to several Piggly Wiggly stores in Georgia, he saw dark, dirty facilities that smelled like rotten produce. Freezers stood empty and extension cords dangled in the aisles.
“It’s a real red flag for C&S as a retail operator,” Schweizer said.
A C&S spokeswoman said most Piggly Wiggly stores in Georgia are independently owned and operated under a licensing agreement, using the Piggly Wiggly name.
Frank Puleo, a retired C&S vice president of retail marketing and services, said the company is a credible supermarket operator and is reinventing itself.
C&S already provides thousands of independent grocery stores with marketing programs, payment software, accounting and assistance laying out stores, Puleo said.
“This is a Goliath,” Puleo said, “with deep pockets and very profitable that has operated for 100 years.”
The Haggen factor
Kroger and Albertsons have said their deal with C&S is better than an earlier grocery divestiture that went sideways. In 2015, the FTC blessed Albertsons’s $9.4 billion acquisition of supermarket chain Safeway, conditioned on Albertsons selling 168 stores to Haggen, a little-known West Coast grocer.
Haggen about a year later went bankrupt, costing some workers their jobs and neighborhoods their stores. Albertsons reacquired dozens of its former stores. The episode was an embarrassment for the FTC.
Current Biden administration antitrust enforcers say failures like Haggen’s show why divestitures are a poor solution for flawed mergers.
The role of divestiture buyers such as C&S has become more important as the FTC and the Justice Department, which share antitrust enforcement authority, challenge more deals. Kroger and Albertsons argue the store sales to C&S are a central part of the deal and demonstrate the merger won’t result in a loss of competition. The FTC is seeking to limit how much the divestiture can be considered in the litigation.
Courts can block mergers if they decide a deal may substantially lessen competition. In the hearing set to begin Monday, the FTC is asking a judge to issue a preliminary injunction that would stop the companies from closing their deal so that a separate proceeding, in the FTC’s in-house court, can decide the fate of the merger.
Most companies abandon their merger if a federal judge grants the preliminary injunction.
C&S has agreed to hire Albertsons’s chief operating officer, Susan Morris, to take over as its head of grocery retail if the deal goes through, it said in July.
Jose Tamez, managing general partner for Austin-Michael, a Colorado-based executive recruiter focused on food retail, said Morris would bring continuity and familiarity with Albertsons managers, reducing the odds of potential turnover at the stores and in the corporate offices.
“Hiring Susan sends a positive message,” said Tamez, whose firm isn’t doing work for Kroger, Albertsons or C&S.