Chicago retail owners undisturbed by grocers merger despite overlap

UPDATED, Nov. 3, 2022 4:30 p.m. Two grocery stores at the same intersection may be a problem for regulators, but likely not for real estate investors.

Major Chicago grocery chains Mariano’s and Jewel-Osco are poised to be under the same ownership if the feds approve a merger between their parent companies, Kroger and Albertsons. Kroger owns Mariano’s and Albertson’s owns the Jewel brand. Both parent companies are publicly traded, and there are about 170 Jewel stores in the Chicago metro area and more than 40 Mariano’s stores.

Though it’s a $25 billion deal, the merger likely won’t create much change from the consumer’s perspective or in terms of available retail real estate square footage, Mid-America Real Estate’s Dick Spinell told The Real Deal. The parent companies are likely to maintain the stores’ different flags, with Mariano’s providing a more upscale option to Jewel’s affordability.

“We’ve had a nice balancing out of the entire market and right now it’s a very, very strong grocery market. Our grocers all do very well, [and] food- and drug-anchored shopping centers are one of the more coveted investment opportunities,” Spinell said.

Jake Bisenius, the CIO for the shopping center landlord AmCap that has bought multiple properties tenanted by Jewel in the Chicago area of late including one this month, also predicted minimal real estate impact on the market. He said landlords are likely unconcerned so far due to the stores having different customer bases and geographic footprints, since there are more than three times as many Jewel stores as Mariano’s in the area.

“My guess is if you have a Mariano’s right next to a Jewel that might not be great, but I don’t think there’s a ton of overlap in the market on stores,” Bisenius said. He compared the Chicago market to Colorado, where there are many Albertsons-owned Safeway stores next to Kroger-owned King Soopers stores.

The typical draw area for a 65,000-square-foot grocery store is about three miles, with the radius for a more specialized store extended to four to five miles, Spinell said, though store sizes in urban areas, especially in older buildings, tend to be smaller. That radius expands in outlying suburbs, where bigger grocers including Walmart could draw customers from five to seven miles away.

That said, two different stores in the same area can actually create a retail destination and deepen the market, according to Spinell.

“There are intersections where they’re across the street from each other. Generally, where that’s the case, they’re really strong intersections and they’re both doing really well,” he said. “All boats rise with high tides.”

Still, appeasing regulators might be another story. A financial consulting firm found that as of mid-June almost half of Albertsons-owned stores were located within three miles of Kroger-owned ones, with Chicago being one of the markets with the most significant overlap, Grocery Dive reported.

The Federal Trade Commission says it monitors mergers by analyzing the likely effects on consumers and competition and seeing whether the agreement allows the companies to operate more efficiently or if it results in higher prices, fewer choices or lower quality.

The companies said earlier this month that they’re willing to divest 100 to 375 locations by spinning them off into a separate company controlled by Albertsons shareholders, the outlet reported, though the companies didn’t specify which markets.

Whether a vacancy in a Chicago space now occupied by one of the brands is opened as a result of regulators or a decision by the new mega-company to consolidate locations with one of each nearby, a Roscoe Village intersection might be where they look first.

The properties at 3400 North Western Avenue, a Jewel-Osco, and 3350 North Western Avenue and respectively owned by a company tied to Albertson’s and Florida firm Regency Centers, sit across the street from each other. Regency Centers declined to comment.

Kroger declined to comment and Albertston’s didn’t respond to a request for comment.

The merger comes as investor demand strengthens for retail assets anchored by what are referred to as daily needs providers. Multiple shopping centers featuring Mariano’s and Jewel-Osco stores have traded hands in the Chicago area for tens of millions in recent months, including AmCap’s acquisitions.

Buyers in almost all cases handed profits to sellers — such as the Florida-based Sterling Organization, which has both bought and sold Jewel-anchored properties in the Chicago area this year — over their previous acquisition costs.

Correction: This story was updated to correct the spelling of Dick Spinell’s surname.