Kroger poised to buy Walgreens/Rite Aid stores

Dec 13, 2016, 3:02pm EST

Steve WatkinsStaff ReporterCincinnati Business Courier

Kroger Co. could be close to wrapping up a deal to buy some of the Walgreensand Rite Aid stores that Walgreens needs to divest when it completes its acquisition of the drug store chain.

The deal involving multiple buyers for nearly 1,000 stores should be finalized by year-end, an attorney told mergers and acquisitions reporting website CTFN.

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Kroger is expected to buy some Walgreens and Rite Aid stores that the chains are selling… more

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A real estate executive told CTFN that Kroger — the parent company of Matthews-based Harris Teeter — is in line to buy some of the stores while discount pharmacy chain Fred’s is set to buy what that person called a “substantial” number of stores. Two private-equity firms also are likely to buy some stores, according to CTFN.

Fanning the flames of acquisition talk, Fred’s Pharmacy executives said on their conference call Thursday to discuss quarterly earnings that they wouldn’t take questions because of “a pending transaction.” They said there’s no assurance that the transaction will occur. Analysts speculated that could mean Fred’s might be looking to acquire some of the Walgreens/Rite Aid stores.

One investment analyst told me close to 1,000 Walgreens stores are likely to be sold. Reports have ranged from 500 to 1,000. Many of those are in the Northeast, an area where Kroger doesn’t operate supermarkets.

But the stores are around 14,000 square feet, much smaller than even a small grocery store of 25,000 to 30,000 square feet. That analyst said the stores would likely be no bigger than convenience stores. And the Federal Trade Commission has reportedly told Kroger it couldn’t close the drug stores and move those operations to its nearby supermarkets in regions where that’s an option.

Kroger spokesman Keith Dailey has told me the company doesn’t comment on rumor or speculation.

The deal could get Kroger into some new markets and increase its number of smaller store formats, Brad Meeks, a senior portfolio manager at Sycamore Township-based Madison Wealth Management, told me.

Problems could arise with the stores it buys because it apparently can’t shut them down, he said. It’ll have to choose its locations wisely.

“They have to be careful that they don’t get stuck with real estate,” he said.

Kroger will likely try to tie in acquired drug stores with its existing supermarkets, said Ryan English, portfolio manager at Sycamore Township-based investment advisory firm Foster & Motley.

“They’re essentially trying to increase their market share,” he told me.

But it could also see some locations in areas where it doesn’t currently operate as opportunities to expand its footprint into new markets, English said.

The Rite-Aid merger with Walgreens is expected to be completed by year-end. The FTC will require them to sell off some stores in order to approve the deal so it’s not anti-competitive in certain markets.