Kroger, Safeway, Albertson’s ratings cut by S&P

Thursday, June 30, 2005 | 9:05 a.m.

Kroger Co., Safeway Corp. and Albertson's Inc., the three biggest U.S. grocery chains, had their debt ratings cut by Standard & Poor's, which cited competition from Wal-Mart Stores Inc. and a Southern California strike.

The chains had their ratings cut to BBB-, the lowest investment grade, from BBB, New York-based S&P said in a statement on Wednesday. The companies were removed from CreditWatch and their outlooks are "stable."

Kroger, the largest U.S. grocer, and its rivals face increased competition from discounters including Wal-Mart, the world's largest retailer, as well as dollar stores, drug retailers and warehouse clubs, S&P said. The retailers also haven't recovered from the longest labor action in the industry's history, a 4 1/2 month strike in Southern California that ended in February 2004, the ratings service said.

"The supermarket industry is under increasing stress from structural and economic factors such as market share gains by nontraditional food retailers, rising costs, especially for employee benefits, and soft consumer spending," S&P analyst Mary Lou Burde said in a report Wednesday.

"It will be challenging for traditional supermarkets to achieve performance gains in the face of intensifying competition, as cost savings must keep pace with ongoing price reductions."

Shares of Cincinnati-based Kroger fell 10 cents to $19.15 at 4 p.m. in New York Stock Exchange composite trading. Shares of Boise, Idaho-based Albertson's rose 10 cents to $20.65. Safeway, based in Pleasanton, Calif., lost 26 cents to $22.97.