Aldi, Save Mart may have tried to buy Colorado stores in Kroger merger divestiture sale

Aldi is one of the fastest-growing grocery stores in the U.S., but has yet to reach Colorado.

The German discount chain may have attempted to enter the state's market through the Kroger-Albertsons merger and failed, according to a court testimony Wednesday.

If the merger between the parent companies of King Soopers and Safeway goes through, 91 Colorado stores and the Safeway name is set to go to C&S Wholesale Grocers through a divestiture.

Colorado state lawyers have asked why Kroger and Albertsons would choose a grocery distributor as the buyer of the divested stores and not another more experienced retailer, or split the stores amongst other grocers if the companies cared about having fair competition.

An expert testifying during the Colorado trial attempting to block the merger may have accidentally revealed some other options during the grocers' confidential bidding process: Aldi and Save Mart.

Representatives for Aldi, Save Mart and Kroger did not immediately respond for comment.

Colorado brought on grocery consultant Roger Davidson as an expert to evaluate the divestiture plan and C&S Wholesale Grocers. Davidson is the president of Virginia-based food investment advisor firm Oakton Advisory Group LLC and was a former executive at several major grocers such as H.E.B., Ahold USA, Walmart and Wild Oats Markets in Boulder until Whole Foods Market attempted to acquire the company, but failed due to the Federal Trade Commission's concerns it was anticompetitive.

C&S Wholesale Grocers — a New-Hampshire food distributor set to acquire 91 Albertsons stores in Colorado and 579 nationwide — will acquire too many stores, too fast, Davidson warned.

Kroger, Albertsons and C&S Wholesale have stood by the divestiture agreement and said the distributor is capable of handling the transition. Meanwhile, Davidson and Colorado's legal team believe it’s a “retail liquidator.”

Davidson was asked by the state to examine the confidential bidding process set by Kroger and Albertsons to divest stores to allow for the merger and offer his opinion.

He said there were two bidders in the process that generated 80 bidders who stood out as better buyers than C&S Wholesale Grocers.

The first option he described was a profitable retailer offering “deep discount” products with about 2,200 stores nationwide. It also acquired another grocer recently in another part of the country and plans to convert those stores to its smaller format and keep some the same size, he said.

This bidder was interested in all of Colorado’s Safeway stores for sale but was not allowed to proceed, Davidson said.

The original divestiture package first released publicly was smaller and included about 413 stores nationwide.

The grocer description is very similar to Aldi U.S., a German grocer rapidly expanding especially on the East Coast. The grocer began the year with about 2,200 stores nationwide and is up to about 2,400 stores.

Aldi announced last year it would acquire Southeastern Grocers, the parent company of Florida-based grocer Winn Dixie, which would bring it up to more than 2,800 stores. It plans to convert some of the larger big box stores into Aldi’s smaller format and keep some as traditional grocery stores.

Aldi has a presence in 39 states and has yet to enter the Colorado market, though several testimonies from grocery executives throughout the trial said they feared the German grocer could soon become another competitor in the state.

It’s among the fastest growing grocers in the country in a very competitive retail market.

“They already have a solid backbone,” Davidson said about why he believed the unnamed grocer was a better option than C&S Wholesale Grocers. “They have a large number of stores across the U.S. to draw up on and they're a very profitable retail.”

In the midst of his testimony, Denver District Court Judge Andrew Luxen stopped the questioning and asked a state attorney to approach the bench. The live feed of the trial turned off for the bench conversation, and when it resumed, an attorney for the state asked Davidson to mind his testimony descriptions of third-parties to keep them confidential.

Within a minute, after being asked about the leadership of a second grocer based in the West who was a finalist in the bidding alongside C&S Wholesale Grocers, Davidson mentioned “CEO Shane Sampson. He has a great reputation in the industry –”

He was quickly interrupted by another attorney representing the grocers, asking the judge to go back to the bench.

The feed was cut off again, and Davidson was dismissed from the stand to return the next day as lawyers discussed the confidentiality agreements for the trial. Davidson was already set to have his cross examination the next day to make time for Albertsons CEO Vivek Sankaran to testify Wednesday.

Sampson is the CEO of Save Mart, a California-based grocer with nearly 200 stores across California and Nevada.

Luxen later sealed court transcripts of the bench conversations saying the private parties' privacy outweighed the public interest.

The Colorado trial is in its second week after beginning Sept. 30 and set to end by Oct. 18. Two other trials in Oregon and Washington could also affect the fate of the merger.