Friday, February 23, 2018

Costco or Amazon Prime? More shoppers are choosing both. How about you?

Originally published February 20, 2018 at 10:15 am Updated February 20, 2018 at 4:54 pm

This Jan. 31, 2018, photo shows a Costco in Homestead, Pa. (Gene J. Puskar / The Associated Press)

Seattle Times business reporterThe number of people who both pay to shop at Costco and pay for free shipping from Amazon has grown rapidly in the last five years.Fifty-seven percent of Costco members also pay for Amazon Prime, up from 13 percent in 2013, according to a survey of 2,500 consumers conducted last month for boutique research firm MoffettNathanson.The membership overlap underscores the increasing cross-town competition between two of the world’s largest retailers.

But so far, Amazon Prime, which charges $99 a year for free two-day shipping and a suite of digital services, isn’t convincing people to cancel their Costco memberships, which cost $60 a year for individuals after last June’s $5 increase.

“Over those five years, as membership overlap exploded, Costco has shown steady revenue and membership growth,” write MoffettNathanson analysts in a research note. They add, “Americans appear to be buying into the concept of owning two ‘shopping’ memberships as the value proposition is fundamentally different.”Walmart, battling both companies, recently announced that its warehouse club unit, Sam’s Club, will offer free shipping to its Sam’s Plus members, who pay $100 a year for membership. Walmart began to offer free two-day shipping for online orders of $35 or more last year.

MoffettNathanson estimates there were 80 million people in the U.S. and Canada with access to Amazon Prime in 2017, 62 million Costco cardholders, 64 million at Sam’s Club, and 15 million at BJs.Oliver Wintermantel, a MoffettNathanson retail analyst, is one of the millions of Americans with a Prime subscription and a Costco membership.

“These are probably the two retailers I go to most,” he said.

He regularly tracks his purchases on Amazon, an enlightening exercise he suggests everyone try. “People are always very surprised, how much they spent, how many products they got,” he adds.Wintermantel says he likes his Costco membership for the “shocking value” he finds on products that are sold at very low or no markup – Costco makes most of its profits from membership fees, which are a fundamental part of its business model – and the serendipitous discoveries he makes shopping there.

MoffettNathanson, which conducts these surveys periodically, has also found that more current Costco and Amazon Prime members intend to renew than did in 2016. At Costco that was true at all income levels, and for people age 35 and older. But fewer Amazon Prime members with incomes below $45,000 a year said they were likely to renew their memberships in 2017 than did in 2016 – although the renewal intention rate is for this group remained above 90 percent. (The Washington Post’s technology columnist recently questioned the value of a Prime membership.)

For both Costco and Amazon, renewal intention was down from 2016 to 2017 for one key age group: millennials. The declines were small, and the vast majority of people 18 to 34 still told survey takers they plan to renew.But it was enough to catch the attention of the MoffettNathanson analysts. Costco, in particular, is under pressure to show how it is attracting younger members. At the company’s annual shareholder meeting last month, CEO J. Craig Jelinek said more than 40 percent of Costco’s new members are millennials.

The analysts offer a couple of potential explanations for the dip in millennial renewal rates: “Maybe millennials are just less loyal than their parents when it comes to retailers, or perhaps more of them joined on a limited trial basis (i.e. Living Social promotions). It’s a trend that we haven’t seen in our surveys before so worth watching, especially as the stickiness of membership is such a critical attribute of the model.”

Thursday, February 22, 2018

Hy-Vee tests produce freshness tracker

Hy-Vee is testing Zest Fresh, a technology designed to calculate and communicate the freshness of produce items as they move through the supply chain.

Data gathered include temperature, time from cut to cool, time in the packinghouse, time in transit, humidity and more, according to Zest Labs.The company expects its product to have several benefits for retailers as well as for others in the supply chain.

“When the retailer receives the product at the store, they’ll know the remaining shelf life to ensure freshness on display and for the consumer,” said Peter Mehring, president and CEO of Zest Labs. “This means that they no longer have to rely on inaccurate techniques such as pulping or visual inspections.

“Second, retailers get automated visibility into their supply chain,” Mehring said. “One issue retailers are facing today is the status of deliveries. Zest Fresh can tell them the status of shipments as they move from the supplier to the distribution center and advise if they’re on schedule and if they’re complete or partials. This enables proactive planning.”

The information captured can also inform decisions earlier in the supply chain.“At the distribution center for example, pallets with fewer days of remaining shelf life can be routed to nearer locations and pallets with longer remaining shelf life can be routed to further destinations or held for later consumption,” Mehring said. “We call this ‘First Expired, First Out’ inventory management, which is far better than the traditional ‘First In, First Out’ method that doesn’t take shelf life into account.”

Seedless Holiday grapes are the item involved in the Hy-Vee test, according to a news release.

“We are excited to work with Zest Labs to determine how Zest Fresh can help both monitor and improve freshness while providing complete traceability through the cold supply chain,” John Griesenbrock, vice president of Hy-Vee produce and Health Markets, said in the release. “With traceability support, we will become even more invested in bringing the freshest and highest quality produce to our customers.”

Here Are The Top 10 Breakthrough Technologies For 2018

Bernard Marr , CONTRIBUTOR Opinions expressed by Forbes Contributors are their own.

MIT Technology Review unveils its breakthrough technology list for 2018 – a rundown of 10 awe-inspiring scientific and technological advances that have the potential to change our lives in dramatic ways.

I spoke to editor David Rotman about why these particular breakthroughs made the cuts, what makes them exciting – and why some of them raise important ethical concerns that will need to be addressed in the near future.

He told me “We select the list by asking each of our journalists what are the most important new technologies they wrote about this year? And which will have a long-term impact. We’re looking for fundamentally new advances in technology that will have widespread consequences.”

Technology Trends 2018 (Source: Shutterstock)

1. 3D Metal Printing

We’ve all become used to 3D plastic printing over the last few years, and the ease it has brought to design and prototyping. Advances in the technology mean that instant metal fabrication is quickly becoming a reality, which clearly opens a new world of possibilities.

The ability to create large, intricate metal structures on demand could revolutionize manufacturing.

“3D metal printing gives manufacturers the ability to make a single or small number of metal parts much more cheaply than using existing mass-production techniques,” Rotman says.

“Instead of keeping a large inventory of parts, the company can simply print a part when the customer needs it. Additionally, it can make complex shapes not possible with any other method. That can mean lighter or higher performance parts.”

2. Artificial Embryos

For the first time, researchers have made embryo-like structures from stem cells alone, without using egg or sperm cells. This will open new possibilities for understanding how life comes into existence – but clearly also raises vital ethical and even philosophical problems.

Rotman told me “Artificial embryos could provide an invaluable scientific tool in understanding how life develops. But they could eventually make it possible to create life simply from a stem cell taken from another embryo. No sperm, no eggs. It would be an unnatural creation of life placed in the hands of laboratory researchers.”

3. Sensing City

At Toronto’s Waterfront district, Google’s parent company, Alphabet, are implementing sensors and analytics in order to rethink how cities are built, run, and lived in. The aim is to integrate urban design with cutting edge technology in order to make “smart cities” more affordable, liveable and environmentally sustainable.

Rotman says “Although it won’t be completed for a few years, it could be the start on smart cities that are cleaner and safer.”

4. Cloud-based AI services

Key players here include Amazon, Google, IBM and Microsoft, which are all working on increasing access to machine learning and artificial neural network technology, in order to make it more affordable and easy to use. Rotman told me “The availability of artificial intelligence tools in the cloud will mean that advanced machine learning is widely accessible to many different businesses. That will change everything from manufacturing to logistics, making AI far cheaper and easier for businesses to deploy.”

5. Duelling Neural Networks

This breakthrough promises to bestow AI systems with “imagination”, through allowing them to essentially “spar” with each other. Work at Google Brain, Deep Mind and Nvidia is focused on enabling systems that will create ultra-realistic, computer generated images or sounds, beyond what is currently possible.

“Dueling Neural Networks describes a breakthrough in artificial intelligence that allows AI to create images of things it has never seen. It gives AI a sense of imagination,” says Rotman.

However, he also urges caution, as it raises the possibility of computers becoming alarmingly capable tools for digital fakery and fraud.

6. Babel Fish earbuds

Named for the science-fiction comedy concept introduced by Douglas Adams in The Hitchhiker’s Guide To The Galaxy, these are earbuds utilizing instant online translation technology, effectively letting humans understand each other while communicating in different languages, in near real-time.

Rotman says “Google’s Pixel Buds mean that people can easily carry out a natural conversation with someone speaking a different language.”

Although the ear buds themselves are still at an early stage and, reportedly, do not yet function too well, anyone can access the underlying technology today through Google’s voice-activated translation services on computers and mobile devices.

7. Zero-carbon Natural Gas

New engineering methods make it possible to capture carbon released during the burning of natural gas, avoiding greenhouse emissions and opening up new possibilities for creating clean energy. Currently, 32% of electricity used in the US is produced by burning natural gas – a process which accounts for around 30% of carbon emissions from the power sector. 8 Rivers Capital, Exelon Generation and CB&I are highlighted as key players here.

“The clean natural gas technology holds the promise for generating electricity from a cheap and readily available fossil fuel in a way that doesn’t generate carbon emissions,” Rotman says.

8. Perfecting Online Privacy

Blockchain-based privacy systems make it possible for digital transactions to be recorded and validated while protecting the privacy of the information and identities underlying the exchange of information. This means it is easier to disclose information without risking privacy or exposure to threats such as fraud or identity theft.

9. Genetic Fortune Telling

Huge advances are being made in predictive analytics using genomic data by players including Helix, 23andMe, Myriad Genetics, BK Biobank and the Broad Institute. This is making is possible to predict chances of diseases such as cancer, or even IQ, by analyzing genetic data. This promises to be the next quantum leap in public health protection, but also raises huge ethical concerns, including the risk of genetic discrimination.

“Nothing like this has been possible before,” says Rotman.

“Genetic fortune telling will make it possible to predict the chances that you’ll be smart or below average in intelligence. It will also make it possible to predict behavior traits. But how will we use that information? Will it change how we educate children and judge their potential?”

10. Materials’ Quantum Leap

Using a seven-qubit quantum computer designed by IBM, researchers at Harvard have created the most complete simulation of a simple molecule.

The molecule – beryllium hydride – is the biggest yet simulated by quantum computing.

Rotman says “The promise is that scientists could use quantum computers to design new types of materials and precisely tailor their properties. This could make it possible to design all sorts of miracle materials, such as more efficient solar cells, better catalysts to make clean fuels, and proteins that act as far more effective drugs.

MIT Technology Review’s full report on the list of breakthrough advances can be seen here.

Tops Files for Chapter 11

Heavy debt, pension dispute cited; company eyes quick restructureBy Jon Springer on Feb. 21, 2018

Tops Markets LLC on Wednesday filed for protection under Chapter 11 of the U.S. Bankruptcy Code in order to undertake a balance sheet restructuring and renegotiate contracts including collective bargaining agreements and pension obligations to union workers.

The Williamsville, N.Y.-based company, which operates 169 stores under the Tops and Orchard Fresh banners, said its debt holders have provided $125 million in debtor-in-possession financing as well as a $140 million DIP facility from Bank of America. Tops said it would use the new loan from lenders to pay off pre-petition revolving credit, and that the $140 million Bank of America facility would provide liquidity during its stay in Chapter 11.

The company in a statement said it expects to conduct “business as usual” during an anticipated six-month stay in Chapter 11 and that it intends to fully pay its vendors under normal terms. C&S Wholesale Grocers, Tops’ major grocery procurer, has extended the company an extra week of trade terms in exchange for Tops paying a portion of C&S’s prepetition claims.

Tops listed assets of $977 million and debts of $1.18 billion as of the end of its fiscal year Dec. 30. The company lost $80 million on sales of $2.5 billion for the year.

In the filing before Judge Robert Drain in the Southern District of New York, Tops characterized its business as relatively healthy, but said obligations of its heavy debt load had constrained its ability to invest and put it at a disadvantage against

“Tops has built strong market share and our stores continue to distinguish themselves by offering quality products at affordable prices with superior customer service,” Frank Curci, CEO of Tops, said in a statement. “We believe the financing that we received from our noteholders is a vote of confidence in our business. Our operations are strong and we have an outstanding network of stores and a talented team to support them. We are now undertaking a financial restructuring, through which we expect to substantially reduce our debt and achieve long-term financial flexibility. This will enable us to invest further in our stores, create an even more exceptional shopping experience for our customers and compete more effectively in today’s highly competitive and evolving market.”

Tops is owned by six senior executives who purchased the company from Morgan Stanley Private Equity in 2013, along with five representatives of its debtors. In a declaration filed in court, Michael Buenzow, a senior manager with FTI Consulting, said the previous owner “saddled the company with an unsustainable amount of debt on its balance sheet.” FTI was engaged by Tops in December to assist efforts to renegotiate terms with a committee of its debt holders. Buenzow was subsequently named chief restructuring officer.

Tops currently has approximately $715 million of pre-petition funded indebtedness, including $560 million of senior secured notes due in 2022 and an asset-based revolving credit facility from Bank of America with $68 million outstanding. Tops also has $34 million in letters of credit and a $10 million first-in last-out term loan, for a total outstanding amount due Bank of America of approximately $112 million.

Morgan Stanley acquired Tops from Ahold in 2003 for approximately $300 million and borrowed against it several times, often to pay itself a dividend. In 2009, the company issued $275 million in notes, from which Morgan Stanley took a $105 million dividend. An additional $75 million in debt was issued in 2010 to fund an acquisition of Penn Traffic. New notes totaling $460 million were issued in 2012, which redeemed previous debt and paid another $100 million dividend; and in 2013, a $150 million debt issue was used nearly entirely for a $142 million Morgan Stanley dividend.

Tops has also been embroiled in a longstanding dispute with the Teamsters union concerning a withdrawal liability of in excess of $180 million arising from Tops’ acquisition of Erie Logistics LLC from C&S in December 2013, and is party to pension funds with the Teamsters and the United Food & Commercial Workers that are underfunded by approximately $393 million.

Tops said it would endeavor to use tools in Chapter 11 to address its pension obligations and resolve the Teamsters arbitration dispute. Around 80% of Tops’ 14,000 workers are represented by unions.

Alibaba, Not Amazon, Shows Us Grocery's True Future

By Randy Hofbauer - 02/21/2018

It’s been less than two months since Amazon debuted its Amazon Go cashierless store concept to the public, following 10 months of tweaking the location’s “just walk out” system, which uses driverless car technology to detect and charge a person for a product when it’s removed from the shelf and the store. What some retailers might not know, however, is that Amazon founder and CEO Jeff Bezos isn’t the first retail visionary to execute such a concept.

Hema stores power everything via mobile: After downloading an app, shoppers scan items — all of which have barcodes — to learn more about products and recommended items, and to pay for them.

Jack Ma, founder and executive chairman of China-based retailer and technology company Alibaba Group Holding Ltd., already has a similar concept operating in a number of small-format stores. China’s BingoBox stores rely on RFID technology to detect what a person is walking out with and charge them while the items are being scanned upon exit. Although not the same technology that Amazon Go employs, it serves the same purpose — and, according to Technode, may be replaced by cameras with image-recognition technology that can scan and charge.

For those who may know the company only by name, Alibaba Group currently operates as the world’s largest retailer and one of its largest internet companies. While its businesses are diverse, it’s arguably best known for its three major ecommerce platforms: Taobao, a consumer-to-consumer website similar to eBay; Tmall, a business-to-consumer website for local Chinese and international businesses to sell branded products to consumers; and Alibaba.com, the world’s largest online business-to-business trading platform for small businesses.

But it’s also making its mark in brick-and-mortar, especially with groceries. And while BingoBox is quite the forward-thinking concept, it’s a chain of supermarkets that’s enabling Alibaba to really show the world what the future of retail looks like — and from which U.S. grocers can take inspiration.

HERE COMES HEMA

Hema — not to be confused with the Dutch retail chain of the same name — supermarkets are said to be the “purest manifestation of Alibaba’s ambitions to marry online with offline,” offering shoppers a “more efficient and flexible” shopping experience, according to Alibaba’s news site. Using technology and data to provide a seamless and more efficient shopping experience, Hema powers everything via mobile: After downloading an app, shoppers scan items — all of which have barcodes — to learn more about products and recommended items, and to pay for them.

Key Takeaways

Alibaba’s Hema supermarket chain in China marries online with offline in a way that should make U.S. grocers take notice.
Mobile needs to become the main way that customers interact with U.S. grocers.
U.S. grocers should team up with large digital-format companies, seeking out opportunities to collaborate with them in areas such as voice ordering and fulfillment of online orders.
U.S. grocers should also focus on location, and bear in mind technology’s costs and inefficiencies.

Additionally, a dining area allows patrons to eat as they shop, letting them hand-pick fresh food, including live seafood from a large aquarium. To save hassle, the in-store kitchen can cook food for eating on the spot.

For those who prefer to shop online, stores also serve as fulfillment centers, with each one serving a mile-and-a-half radius and delivering thousands of orders per day, each within 30 minutes. Customers order via the app, and orders are gathered by employees with scanners and bags sporting unique barcodes before being dropped off for delivery. Roughly 50 percent of Hema’s store revenue is through these app orders that are delivered from stores, says Jack Chuang, partner in global firm OC&C Strategy Consultants.

LEARNING FROM HEMA

Hema supermarkets arguably are the ultimate example of seamlessly blending online and offline shopping experiences, Alibaba Group CEO Daniel Zhang has said. And blending online and offline shopping experiences is exactly what U.S. grocers have made progress toward but not fully arrived at yet.

So if Hema is setting the standard, what must U.S. grocers do to seamlessly integrate the physical and digital?

MAKE APPS CENTRAL TO THE EXPERIENCE

Creating a full picture of the customer based on his offline and online activity isn’t easy. Early on, however, Alibaba invested in Alipay, an online payment account that also can be used for offline payments, particularly in grocery. “They found a way to make loyalty not just a discount-based thing, but a benefit — a convenience,” says Tom Gehani, director of client strategy and research at New York-based business intelligence company L2 Inc.

Before shopping a Hema store, consumers download a mobile app that links to Alipay. Whether they’re ordering online from home for delivery within 30 minutes or scanning barcodes in-store for product information, the customer is empowered by the app and uses it for all points of interaction with the store, products and transactions.

And across all points of interaction, the app gives information that helps paint a full picture of the shopper, both online and offline. Data collected from transactions are used to personalize recommendations, while geographic data help plan the most efficient delivery routes, Alibaba says on its site.

“U.S. grocers need to do a lot more with mobile than just having a series of apps,” notes Bill Bishop, chief architect with Barrington, Ill.-based retail consultancy Brick Meets Click.“Mobile needs to become the main way their customers interact with them. Mobile payment is probably the biggest gap in the U.S. today; nevertheless, there’s a lot more to do to fully integrate mobile into the path to purchase.”

TEST AND PARTNER

Hema is one of Alibaba’s bigger retail tests, and its careful rollout and expansion are proof that food retailers can develop some of their most innovative ideas as small, quiet trials.

“You need to have a couple different pilots occurring at the same time,” affirms Scott Webb, president of Chicago-based digital solutions provider Avionos.

Although there have always been some rigid points of entry in grocery, the ways that people are changing their shopping habits and grocers are adjusting show the need for pilots, he notes. Even when a grocer can’t afford 18 months to introduce a new integrated POS system or develop and launch a shop-by-phone app, it can have a number of smaller pilots happening at once. This is where working with a partner can be beneficial.

Hema points to its parent company’s forward-thinking approach to the digital retail landscape, and U.S. grocers could stand to benefit from this. Amazon is a secretive and real threat, but Alibaba appears open to discussions — it’s already playing a role in helping some brick-and-mortar retailers make the digital transformation.

Although some consumers prefer to shop from home, amenities such as an in-store aquarium that lets patrons hand-pick seafood for home, or on-site preparation and consumption, further bring together the physical and digital.

“Many of these retailers would be unable to achieve this transition on their own,” Bishop observes. “U.S. grocery retailers need to be open to partnering with large digital-format companies, but they also need to search out new opportunities to collaborate with them in areas like voice ordering and fulfillment of online orders.”

U.S. retailers have taken note: In January, the New York Post reported that senior executives at the Cincinnati-based Kroger Co. held meetings with counterparts at Alibaba Group about a potential partnership to “speed up the integration of online and offline sales.”

THINK ABOUT LOCATION

It’s been said that 90 percent of the U.S. population lives within 10 miles of a Walmart store, so pickup is a good option for many of the retailer’s customers. On a similar note, Alibaba’s Hema stores are strongly location-focused for customer convenience — built for those living within a 1.5-mile radius of them.

“And they’ve been building these in very densely populated parts of Shanghai and Beijing,” L2’s Gehani says. “I think that’s something grocers in general are going to have to think through: What is a highly urban-density format going to look like versus [one for] a rural area?”

BE AWARE OF COSTS, INEFFICIENCIES

Hema’s model has many merits, but they bring additional costs. Alibaba has been challenged to make Hema profitable, given the stores’ massive size and many hirings for managing delivery and inventory fulfillment. Of course, this is to be expected, as, just like in any market, expanding in grocery will bring growing pains, points out Gina Ashe, CEO of Boston-based retail intelligence platform ThirdChannel.

“Hema’s challenges should serve as a lesson for grocery stores to test out new concepts and formats in stages without biting off too much, too fast,” she notes.

Sure, shoppers will love having the freedom to skip checkout lines and place orders for pickup minutes before they arrive, Ashe notes. But they won’t love arriving at a store if their order isn’t ready on time, or running into technical glitches if the technology isn’t yet ready for scale.

“It is more important for the U.S. grocer to think through an ecommerce mindset,” says OC&C’s Chuang, such as “what drives traffic, how to collect data, how to use customer data to drive better assortment and conversion, and what excites customers in-store.”

How Does Stress Influence Consumers’ Eating Habits?

The Lempert Report: Researchers found a “social” component to food that evokes feelings of comfort.By Phil Lempert on Feb. 21, 2018According to the American Psychological Association, 38% of adults report that they have either overeaten or eaten unhealthy foods in the past month because of stress. And as we reported in our 2018 Trends Forecast, Americans are more stressed out than ever before.

A new study on comfort food was conducted by researchers at the University of the South in Sewanee, Tenn., and the State University of New York at Buffalo, published in Appetite. The study, entitled “Threatened Belonging and Preference for Comfort Food Among the Securely Attached,” sheds some light on why these comfort foods are so comforting.

The researchers found that there is a “social” component to foods that provide us comfort.

Ranker, the website on which you can vote on just about everything, published their findings on their survey “The Most Comforting Comfort Food” to find out which foods top the list. No. 1, no surprise, was chocolate, which we could agree with based on the nutritional and emotional proven benefits. But No. 2? That was grilled cheese!

So for retailers that are located in areas that employ high-stress jobs, they may well be suited to create a “comfort cafe” at the front of the store where people can stop to enjoy these foods or take them home rather than having to navigate the aisles searching for their favorites, and adding even more stress to their over-stressed lives.

Tuesday, February 20, 2018

Albertsons Cos. Merging With Rite Aid, Will Rebrand Store Pharmacies

Posted by Alissa Marchat

Date: February 20, 2018

in: Category News, Corporate Store News, Health/Wellness, Home Page Slider, National, Operations, Store News

Integrated platform to offer ‘greater choice, convenience and access’

The companies say the combination will provide customers with flexible and convenient access to a full range of food, health and wellness offerings and will deliver significant value to customers, employees and shareholders by:

Enhancing the companies’ geographic footprint and creating local networks in attractive geographies. The new company will have an expanded footprint and be ranked first or second in 66 percent of the top metropolitan areas in the U.S. and will be ranked first or second in 70 percent of pharmacy locations based on Nielsen data. It will establish the leading integrated food, health and wellness retailer on the West Coast and will have a strong brand position in the Northeast.
Leveraging strong pharmacy network and rite aid’s pharmacy benefit management company, EnvisionRxOptions, to drive customer growth. The combined company will be positioned to drive incremental growth by deepening existing relationships and expanding reach across higher-value pharmacy customers. This will be achieved through a full suite of health and wellness capabilities, including specialty pharmacy offerings and in-store RediClinics in larger Albertsons Cos. stores and stand-alone Rite Aids. In addition, investing in preferred relationships with EnvisionRxOptions, other PBMs, and regional payors is expected to drive prescription growth.
Utilizing data analytics and integrated loyalty programs to drive growth and target new customers. The new company will capitalize on enhanced data and analytics to unlock profitable growth through new customer acquisition, new merchandising programs and demand forecasting. It will also create cross-branded opportunities for its loyalty programs, improving connections across a combined current base of 25 million active loyalty program participants.
Combining strong own-brand portfolios with extensive manufacturing and distribution network to drive revenue growth and operating efficiencies. The combination of Albertsons Cos.’ billion dollar own brands, including O Organics and Lucerneâ, and its manufacturing and operating capabilities, with Rite Aid’s own brands in health and wellness, including B4Yä and Daylogicä, and its pharmacy expertise will allow the combined company to drive growth opportunities and efficiencies across its purchasing, marketing, manufacturing and merchandising functions.
Serving customers when, where, and how they want to shop. The combined company’s expanding omni-channel platform will provide customers with convenience, choice and flexibility through multiple in-store formats, digital channels and same-day food and prescription delivery options from stores and via Drive Up & Go.

“This powerful combination enables us to become a truly differentiated leader in delivering value, choice and flexibility to meet customers’ evolving food, health and wellness needs,” said Standley. “The combined platform positions Rite Aid to capitalize on our pharmacy expertise and expand and enhance our pharmacy footprint. We are confident that delivering improved customer experiences and value will drive growth and profitability while creating compelling long-term value for shareholders.”

“The hallmark of Albertsons Companies’ business has been to become the favorite local supermarket of our customers,” said Miller. “We have always put our customers first, and our combination with Rite Aid will enable us to even better serve the valuable pharmacy customer by providing a fully integrated one-stop-shop for our customers’ food, health and wellness needs. I have long known the excellent management team at Rite Aid, and we share a singular focus on superior customer service and a clear vision and strategy to become the favorite local supermarket and pharmacy to shoppers in every neighborhood we serve.”

Lenard Tessler, vice chairman and senior managing director at Cerberus, commented, “As a long-term partner to Albertsons Companies’ world-class management team, this transaction highlights Cerberus’s confidence in this team and our conviction in the underlying customer focus driving this combination. As significant shareholders, we are very optimistic about the future of the combined company.”

Financial details

The combined business will benefit from an enhanced financial profile and solid capital structure, which will support growth and expansion. On a pro forma basis, the combined company is expected to generate year one revenues of approximately $83 billion (excluding potential revenue opportunities) and year one Adjusted Pro Forma EBITDA of approximately $3.7 billion (including run rate cost synergies). The combined company’s pro forma net leverage ratio is expected to be 3.8x at transaction close (including run rate cost synergies).

The combined company expects to deliver annual run-rate cost synergies of $375 million in approximately three years and access potential annual revenue opportunities of $3.6 billion. More than 60 percent of the cost synergies are expected to be realized within the first two years post-close. Identified revenue opportunities primarily include partnering with payors, including Rite Aid’s PBM, EnvisionRx, through preferred networks to drive additional high-value customers, connecting Rite Aid’s reliable pharmacy customer base to Albertsons Cos. through loyalty programs and targeted marketing, leveraging Albertsons Cos.’ grocery capabilities and Rite Aid’s pharmacy expertise to enhance the customer offering, and driving traffic through the omni-channel experience. Cost synergies will be achieved primarily through procurement savings, leveraging efficiencies realized by a combined supply chain, combined distribution and fulfillment channels, and leveraging manufacturing capabilities.

Governance

The board of directors will be comprised of nine directors, four of whom will be named by Albertsons Cos. (including Bob Miller and Lenard Tessler), four of whom will be named by Rite Aid (including John Standley), and one of whom will be a jointly selected director. A majority of the board will be independent. Tessler will serve as lead director.

Rite Aid aims to become ‘differentiated leader in food, health and wellness’

This morning, Rite Aid sent out a letter to its employees announcing the agreement. In the letter, Standley and Kermit Crawford, Rite Aid president and COO, outline the deal and some of the motivations behind it. See the letter in its entirety here:

Dear Rite Aid Team,

As you know, we have been working diligently as a team to provide an outstanding experience for our customers while also identifying ways to build momentum as an organization. Today, we are excited to share some important news that will make the “new” Rite Aid part of a leading food, health and wellness company with expanded capabilities to serve customers where and how they want to shop.

This morning, we announced that Rite Aid and Albertsons Companies, one of the nation’s largest grocery retailers, have entered into a merger agreement to combine our complementary businesses and create a truly unique enterprise that operates approximately 4,900 locations, including 4,300 pharmacies and 300 clinics.

For Rite Aid, this merger is transformational because it takes us from being a strong regional pharmacy player and combines us with the number two conventional grocer in the country to create what we believe will be the differentiated leader in food, health and wellness. We will be an important part of a company with projected annual revenue of $83 billion and will rank first or second in most of the markets in which we operate. It will also provide us with 1,800 additional pharmacy counters and access to Albertsons’ expertise in food and consumables, including their extensive own brands portfolio and food manufacturing capabilities that will help us in further transforming the front-end of our stores. The new company will be financially stronger than we are today and will generate significant cash flow to reinvest in the business.

In addition, the associates at Albertsons, which operates 20 well-known banners like Safeway, Shaws and Jewel-Osco, are ideal partners because they share our vision for providing an outstanding customer experience.

As we bring Albertsons and Rite Aid together, John will be leading the combined organization as CEO. Albertsons’s current Chairman and CEO Bob Miller will serve as Chairman. The company’s board of directors will include four directors named by Rite Aid, four directors named by Albertsons and one jointly appointed independent director. The company will be dual headquartered in Boise, Idaho, and Camp Hill, Pa., and is expected to trade on the New York Stock Exchange.

Over the past several years, your focus and commitment have enabled us to transform our company through initiatives such as our wellness+ loyalty program and expanded clinical services like our highly successful flu shot program. It’s even more impressive that we have continued this transformation during a time of significant change for our organization and a period of strong competition within our industry.

As a leadership team, we’re constantly exploring options to find the best way forward, and we believe this proposed combination gives us an unprecedented opportunity to further transform the retail and healthcare landscape while accelerating our strategy for the “new” Rite Aid. Most Albertsons pharmacies will be rebranded as Rite Aid, and we will continue to operate Rite Aid stand-alone pharmacies, creating a network that ranks first or second in 70% of our pharmacy locations.

In addition to utilizing our existing pharmacy network, our EnvisionRxOptions PBM will be critical in enabling us to generate additional traffic in our combined store networks, and RediClinic and Health Dialog will continue to serve as important offerings in meeting the health and wellness needs of our patients. Together with Albertsons, we will have greater resources like the ability to leverage our loyalty programs to drive cross-traffic between grocery and pharmacy locations and gain enhanced customer insights.

Under the financial terms of the agreement, in exchange for every 10 Rite Aid shares, Rite Aid shareholders will have the right to elect to receive either one share of the combined company and $1.83 in cash or 1.079 shares of the combined company. The merger, which does not affect the transfer of stores to Walgreens Boots Alliance or the support we have agreed to provide to Walgreens-owned Rite Aid branded stores, is expected to close in the second half of calendar 2018. Until then, Albertsons and Rite Aid will continue to operate as separate companies. The transaction is also subject to approval by Rite Aid shareholders, regulatory agencies and other customary closing conditions.

This is certainly a lot of information to process, and we understand that today’s announcement will generate a number of questions. We encourage you to read the press release below for additional information about the transaction. In addition to holding team meetings throughout our organization over the next few days, we will be sharing more information with you in the coming weeks and months.

This proposed combination is an exciting opportunity to create a truly differentiated leader in the food, health and wellness space. As we look to make the most of this opportunity, the most important thing we can do is to continue supporting each other in effectively serving our customers, who rely on us every day to meet their health, wellness and shopping needs.

We have an extraordinary team with a proven ability to deliver a great Rite Aid experience, which should give us tremendous confidence that we can continue to drive positive momentum throughout our business in the weeks and months ahead. Thanks for all of the great work you do each and every day in making Rite Aid a trusted destination for health and wellness. We look forward to working together in taking these efforts to an even higher level heading forward.