Albertsons' new deal
The chain's slide seems to have stopped, for now at least. The big question is: what's next? With super centers and box stores stealing shoppers, bidders might be reluctant.
By MARK ALBRIGHT
Published April 30, 2007
After shopping the same Albertsons for 11 years, George Meller first noticed the changes a few months ago.
"They cleaned the place up and the customer service got better," said the 67-year-old retired machinist who now splits his food shopping evenly with a Publix that's farther from his Clearwater home.
A brutal five-year run of cost-cutting and sales declines ended with Albertsons' Florida operation orphaned and its corporate parent busted up. Yet less than a year later, new owner Cerberus Capital Management, which took the division and five others private last summer, has reversed the chain's long-running market-share slide in the Sunshine State.
"We returned to the fundamentals of the grocery business," said Mike Withers, vice president of marketing for the 93-store Florida unit of what's now called Albertsons LLC.
Displays that cluttered the aisles were banished. The forest of blinking shelf-coupon dispensers was weeded back. Pricing was sharpened. In produce, quality specifications and prices were pumped up. A new cash-register system was installed that eliminates many checkout headaches caused by two different systems that didn't talk with each other well.
Employees received new burgundy uniforms, regular training and an ad campaign promoting a new slogan "It Means a Great Deal."
"We never had employee training before. Now it's very structured, including the cashiers who get a class and test weekly, about 80 percent of it in customer service," said Brenda Keck, a Palm Harbor store manager who started 21 years ago as an Albertsons cashier in Holiday.
The breadth of the fix-up surprised some industry analysts and competitors who remain convinced Albertsons LLC divisions including Florida are being kept alive only to be sold. Unlike most grocers, Albertsons owns most of its stores as well as its huge Plant City distribution center. So Cerberus paid for only the value of the real estate in case the marginally-performing divisions could not be revived. So far 293 of the 655 stores Cerberus acquired have been sold or closed. Some even became Ross Dress For Less outlets. But veteran grocer and former Wild Oats Natural Markets chairman Robert G. Miller refused to take the reins as chief executive without first trying to restore the remaining 362 Albertsons LLC stores, representing $5.5-billion in 2006 sales.
"He's done a heroic turnaround job," said Burt P. Flickinger III, director of Strategic Resources Inc., a New York retail consultant.
"The game plan is to operate these stores as best they can while figuring out what else to do with them," said Neil Z. Stern, a partner with McMillan & Doolitle, a Chicago retail consulting firm.
What comes next in Florida is the hard part.
The Florida market is midway through a massive build-up of Wal-Mart and Target supercenters, and Costco and BJ's warehouse clubs that Flickinger estimates within five years will snatch $8-billion to $10-billion a year in annual supermarket food sales in Florida.
"Nobody wants to bid into a supercenter tsunami that's going to swamp weaker supermarket chains," Flickinger said.
Until now, competitors regarded Albertsons a nonfactor in Florida.
"Their competitors don't seem that concerned that Albertsons haven't said much about what they plan," said Lorrie Griffith, editor of the Shelby Report of the Southeast, a trade publication.
Instead, grocers are obsessing over who might be the ultimate buyer or what stores will be offered for sale. After all, building stores in a fast-growing market like Florida is the only way to keep from losing ground. And Albertsons has not opened a store since 2004 in Florida and for almost a decade in the Tampa Bay area.
While Wal-Mart zoomed from 4 to 21 percent of the market in only five years, Albertsons' share dropped 3.5 percentage points to 8.27 percent, or $438-million, this year, according to Nielsen Company/Trade Dimensions. That's $189-million in lost business this year.
Compared with 2002, however, market-leading Publix has slipped 3 percentage points, to 38 percent, as Wal-Mart marched on and recovering Winn-Dixie, Albertsons and Sweetbay Supermarket stabilized.
"Clearly, Publix got complacent in Florida and turned its attention to other states," Flickinger said.
With big supermarkets skittish about a bid, experts don't see current players bidding for the whole Florida division either. (Winn-Dixie doesn't have the money. Publix doesn't have the interest. Wal-Mart has neither the strategy nor the history). One remote chance: Sweetbay's Belgian owners may see Albertsons as a way to get back into Orlando and east coast markets.
Albertsons' new owners have no plans to change brand names, even though SuperValu Inc., the Minneapolis chain that bought the most profitable Albertsons markets and 1,124 stores, owns the name and uses it elsewhere. Other possibilities: find investors to bankroll a management buyout or sell the repaired units to SuperValu.
Cerberus has another year to use the Albertsons name or negotiate an extension. It still stocks most of the house Albertsons store brands although that's starting to change. EqualLine health products are giving way to HealthLine. GoodDay cleaning products are shrinking. The Essentia premium natural foods line is gone, along with a deal to have Toys "R" Us supply the toy aisle. Albertsons is weighing whether to drop its loyalty card program like it did in Denver.
"Albertsons has been a very good name in the Florida market for years," Withers said. "Going forward we aim to keep it that way."
Mark Albright can be reached at albright@sptimes.com" or (727) 893-8252.
Albertsons in Florida: The Story So Far
1973 - Boise, Idaho, grocer builds the first combination supermarket/drugstores in Florida in a joint venture with Skaggs Companies.
1977 - Partners feud. Boise-based Alberstons's Inc. ends up owning the Florida stores.
1999 - Alberstons buys its former partner, Skaggs' American Stores Inc., to become nation's largest grocer with 2,500 stores, at least until rivals Kroger and Safeway assemble bigger collections. Driving the strategy: the notion that supermarket chains can compete with Wal-Mart pricing if they were larger.
2003 - Supermarket strike/lockout in unionized California Albertsons ends with few winners and lots of cost cutting.
2005 - The whole Albertsons combination begins to unravel under staggering debt and an inability to compete with Wal-Mart on price. Company starts selling pieces of itself.
2006 - Albertsons sold in pieces for $17.4-billion and former GE management guru Larry Johnston walks off with a $105-million golden parachute for his five-year contribution as CEO. SuperValu Inc. gets 1,124 stores in the best markets. CVS Inc. takes 700 drugstores. Hedge fund Cerberbus Capital Management buys the marginally-performing markets for only their real estate value including Northern California, Texas, Arizona, Louisiana, Colorado and Florida.
2007 - The 655 stores Cerberus bought shrinks to 362 after store closings and sales of unprofitable markets. The Florida Division, which stretches from the Panhandle south but is concentrated around Central Florida and Tampa Bay, is winnowed from 105 to 93 stores.