Albertson's Inc.

founded: 1939

Contact Information:

headquarters: 250 parkcenter blvd.
boise, id 83726 phone: (208)395-6200 fax: (208)395-6349 toll free: (888)746-7252 email: [email protected] url: http://www.albertsons.com

OVERVIEW

Albertson's Inc. is the second largest grocery store chain in the United States. With 2,549 stores in 36 states, the Boise, Idaho-based grocery chain posted revenues of $37.9 billion for fiscal year 2001, up from just 826 stores and $13 billion in revenues in 1996. The company's main operations are food and drugstore combination supermarkets with 1,977 of its stores housing a full-service pharmacy. Most stores range in size from 35,000 up to 107,000 square feet. More than one-half of the stores have added services such as full-service meat and fish counters, one-hour photo processing services, and floral departments. A smaller number of stores offer other amenities including coffee bars, in-store banks, and fuel centers. In 1999 Albertson's completed a merger with American Stores, adding 1,558 grocery stores and 750 stand-alone drug stores to the company under the banners of Jewel Osco, Acme Markets, Sav-on, and Osco Drug stores. Albertson's also operates no-frills discount warehouse stores under the names Max Foods and Super Saver, which specialize in discount meat and produce.

COMPANY FINANCES

In fiscal year 2001, Albertson's sales totaled $37.9 billion, up from $36.8 billion in fiscal 2000, representing an increase of 3.2 percent and $1.1 billion. However, Albertson's 1999 merger with American Stores, which immediately pushed revenue up from $14.7 billion in 1998 to $35.9 billion in 1999, cost the company $12 billion and a good portion of its market value, causing the company to miss sales and earnings estimates for several years following the deal. Stocks were trading at slightly more than $33 a share in April 2002, compared to a high of $67.13 a share in December of 1998. Net earnings for fiscal 2001 totaled $795 million, up from $870 million in fiscal 2000. However, when adjusted to reflect the cost of restructuring, net earnings drop to $501 million, down from adjusted net earnings of $765 million in fiscal 2000. The significant decrease in actual earnings represents the major cost of restructuring caused by the American Stores acquisition.

ANALYSTS' OPINIONS

The retail grocery market is notorious for its low profit margins. Accordingly, analysts have generally viewed Albertson's purchase of American Stores as a significant risk. However, the move also positioned Albert-son's for the most potential for gain, compared to its chief competitors Kroger and Safeway. Analysts differ in their opinions on the ability of Albertson's to complete its turnaround, regain its market value, and post consistent profits. Nonetheless, most saw the appointment of former General Electric executive Lawrence Johnston as Albertson's new chief executive officer in April 2001, as a step in the right direction. Johnston immediately announced the closure of 165 unprofitable stores, followed by the sale of 80 Osco pharmacies in the Northeast, signaling investors that the company is willing to take difficult steps to cut costs and focus on growing markets. Analysts continue to view Albertson's stock as a positive investment, likely to increase in value in the long term, but they warn that the company's future remains at the wait-and-see stage.

HISTORY

Albertson's was founded by Joe Albertson, who opened his first grocery store in Boise, Idaho, in 1939. Profits for the first year of operation were a respectable $9,000, but just two years later, Albertson had opened two more stores and sales topped $1 million. In 1945 Albertson incorporated his company as Albertson's Inc. and, by the end of the 1940s, six Albertson's stores were in operation in Idaho with annual sales nearing $3 million. Albertson had also opened the Stone Poultry Company, a poultry processing operation, and the Dutch Girl Ice Cream Plant in Boise, with the Dutch Girl becoming the company's trademark.

During the 1950s Albertson began expanding beyond the borders of Idaho, opening stores in Montana, Oregon, Utah, and Washington. Although Albertson experimented with a few department stores, he soon phased out these operations to focus on the grocery business. In the grocery stores, Albertson continued to push for innovation, and in 1951 the first store appeared with an in-house drug store. In 1957 Albertson's purchased Sugarhouse Drug of Salt Lake City, Utah, and began systematically incorporating pharmacies into its stores. The first frozen food distribution center opened in 1957, and a frozen food storage facility opened in Boise in 1958. In 1959 Albertson's introduced its own line of products under the brand name Janet Lee, named after the executive vice president's daughter. When the company went public in the same year, the funds generated from stock sales fueled increasing expansion.

FAST FACTS: About Albertson's Inc.

Ownership: Albertson's is a publicly owned company traded on the New York Stock Exchange and the Pacific Stock Exchange.

Ticker Symbol: ABS

Officers: Lawrence R. Johnston, Chmn. and CEO, 52, 2001 salary $1,250,000; Peter L. Lynch, VP and COO, 49, 2000 salary $460,406, 2000 bonus $402,321; Felicia D. Thornton, EVP and CFO, 37, 2001 salary $540,000

Employees: 235,000

Principal Subsidiary Companies: When Albertson's purchased American Stores in 1999, it added several regional supermarket and drugstore chains to its organization, including Philadelphia-based Acme Markets and Chicago-based Jewel supermarkets, along with Osco Drug and Sav-On drugstores. The company also does business through its no-frills discount warehouse stores under the names Max Foods and Super Saver.

Chief Competitors: As the nation's second largest grocery store chain, Albertson's main competition comes other traditional grocery chains as well as discount supercenters. Some major competitors are Kroger, Safeway, and Wal-Mart.

In 1961 Albertson's expanded into Wyoming by acquiring three grocery stores in Casper, and the following year Albertson's opened its one-hundredth store. In 1964 operations expanded into California with the purchase of 14 supermarkets belonging to Los Angeles-based Greater All American Markets. In the same year, Albertson stepped down as chief executive, although he remained as chairman of the board. J. L. Berlin became the company's second chief executive. Two years later, Jonathan Scott, Albertson's son-in-law, who was already serving as the company's president, replaced Berlin as chief executive officer. Through the remainder of the 1960s, Albertson's continued to expand through acquisitions and construction of new stores. In 1965 the purchase of eight markets owned by Semrau and Sons, based in Oakland, California, gave the company a stronger foothold in California. In 1967 eight stores were acquired in Colorado from Furr's, Inc. The company was listed for the first time on the New York Stock Exchange in 1969, and by 1970 Albertson's operated 200 stores with sales exceeding $400 million.

In 1969 Scott signed a deal with L. S. Skaggs, Jr., the son of his father-in-law's former partner, to develop six combination food and drug superstores in Texas in conjunction with Skaggs Drugs Centers. The stores, jointly financed and managed by the partners, took the next step in the transformation of the grocery store into the supercenter. Whereas even large supermarkets of the day averaged 30,000 square feet, the Skaggs-Albertson's stores were as large as 55,000 square feet. Also, a new emphasis was placed on nonfood items; new departments such as cosmetics, perfumes, camera supplies, and electrical equipment were added. The first store opened in Texas in 1970. Along with the new venture into Texas, Albertson's paid close attention to its other stores, constantly remodeling, updating, and even rebuilding or closing outdated locations. Scott's plan was twofold: stay ahead of the industry in innovation, services, and convenience and increase sales of nonfood items, which returned a higher rate of profit than food goods. The strategy paid off. By 1974 sales topped $850 million and net earnings neared $9 million. The following year sales surpassed the $1 billion mark.

In 1974 Albertson's ran into trouble with the United States Justice Department, who contested Albertson's 1972 acquisition of Mountain States Wholesale of Idaho. The Justice Department argued that because Albertson's was already the largest grocery chain in the region, the addition of Mountain States, which controlled 43 percent of the market share, constituted a monopoly. Despite Albertson's objections that the suit was baseless, the settlement, reached in 1977, required Albertson's to divest of Mountain States and placed a five-year ban on any further grocery acquisitions in southern Idaho or eastern Oregon. The company also came under fire from the Federal Trade Commission in 1974, which found fault with Albertson's advertising practices. As a result, the company was ordered to issue rain checks for on-sale items no longer in stock.

Although Skaggs and Albertson's considered merging, the idea was eventually put aside and, in 1977, the partnership was amicably dissolved with the assets split equally. Albertson's created the subsidiary Southco to assume control of the stores. Throughout the 1970s, conventional stores were phased out and the company focused on larger combination stores. Acquisitions also continued, including the purchase of 46 supermarkets in the Los Angeles area owned by Fisher Foods, Inc. As the economy went into recession at the end of the 1970s, Albertson's sought to cut overhead by converting several of its stores into mass-merchandise warehouses with a no-frills emphasis on nonfood items. The stores were profitable, but never replaced the mainstream supermarket venue. Still working to stay ahead of the industry, during the 1970s 87 percent of all Albertson's stores were either newly opened or completely remodeled. Also during the decade Albertson's opened its first full-line distribution facilities in Brea, California, and Salt Lake City in 1973 and 1976, respectively.

During the 1980s Albertson's focused on restructuring and building existing markets. In 1982 the company reorganized into four region operating groups: California, northwest, intermountain, and Southco. Two more distribution centers were built in Denver and Portland. To build business in existing markets, Albertson's launched a new advertising campaign that promoted "every day low costs." Rather than running ongoing special promotions and sales as was the norm in the industry, Albertson's advertised that they wouldn't advertise specials, and the money saved would be passed on to customers. The technique helped Albertson's break into the competitive Dallas market, one of the few new areas into which the company expanded in the 1980s.

In 1991 the company unveiled a five-year, $2.7 billion modernization and expansion plan through renovation, new construction, and a company-wide push toward automation. The next year Albertson's purchased 74 Jewel Osco combination food and drug stores owned by American Stores in Arkansas, Florida, Oklahoma, and Texas. By 1994 the company had become the nation's sixth largest grocery chain, with more than 500 stores in operation. In 1999 Albertson's merged with American Stores, which instantly jumped the company to the second place in the industry, behind Kroger. To gain the Federal Trade Commission's approval for the $12 billion deal, Albertson's sold 145 stores in areas where the markets overlapped. In 2000 Albertson's abandoned its regional organizational structure and turned over more control of operations to the division-level managers.

STRATEGY

Albertson's claims to provide convenience, quality, and variety under one roof. Its strategic focus includes finding solutions to customer needs, pharmacy service, online shopping, cost reduction, and increasing return on capital. To meet customers' needs, Albertson's uses the tag line "It's your store," suggesting that its stores are tailored to provide services and products desired by today's shoppers at value prices. In 2001 Albertson's launched a new customer service program, "Service First, Second to None." The program audits individual stores by a list of customer service criteria with rewards given for achieving specific goals. New incentives for employees were also put in place. By building loyalty with its employees, which are considered the company's "best customers," Albertson's hopes to positively impact sales. The "Associate Advantage" program uses sweepstakes and shopping incentives to encourage employee purchases.

The company is also in the process of testing a new loyalty card program, based on a similar successful program operated by the Jewel stores for the last 10 years. Moving to improve the public's perception of its pricing, Albertson's has become diligent in tracking its pricing and promotions. Battling its trendy image for slightly higher prices, the company now claims that its prices are at parity or better than other grocery chains in 15 of the 20 largest markets. Increased emphasis has also been placed on promotions, which has assisted in revising Albertson's image as a high-line chain. In another move to cut prices, in 2001 Albertson's began the process of restructuring its distribution system, which was previously operated as separate entities that sold to Albertson's stores for a profit. The reorganization will lower the cost of inventory to the individual stores, allowing them to increase their competitive edge in their market areas.

Although it continues to maintain a small number of traditional grocery stores, Albertson's strategy is to develop the food and drug combination store to create centers of convenience that provide a wide range of products along with high quality service. Particular emphasis is targeted for California, Arizona, and Nevada, where Albertson's hopes to capitalize on its distinct brands such as Sav-On, thus copying the success of the Jewel Osco units.

Within its stores, Albertson's is focusing on improving its perishable products, especially its fresh produce selection. Measures include improving temperature management in storage and in transit, improve procurement and quality assurance, and increased focus on displays and store presentation. Another in-store area of strategic importance is the increased sale of the company's private label products. Albertson's corporate brands make up 17 percent of units sold, which lags significantly behind Kroger's 31 percent. Albertson's sees this area as a key goal for the company to build both profits and customer loyalty.

INFLUENCES

Not only does Albertson's face stiff competition from its traditional rivals, Kroger and Safeway, the company also faces increasing pressure from a new breed of supercenter retailers. Wal-Mart has already made a strong impact in the grocery and drug store markets, and Target and Kmart are both making plans to significantly increase the number of food and drug combination stores operating under their respective banners. To keep up, Albertson's began to focus on its food and drug combination stores, which offer variety, convenience, and service. Additionally, the company is promising to maintain its growth by continuing to open new stores. In 2001, 145 new stores opened and 110 new stores are planned to open in 2002. Also 75 existing stores were remodeled in 2001, and Albertson's plans to step up its remodeling pace in the years to come.

CHRONOLOGY: Key Dates for Albertson's Inc.

1939:

Joe Albertson, in partnership with L. S. Skaggs and Tom Cuthbert, opens the first Albertson's Food Center in Boise, Idaho

1945:

Albertson dissolves the partnership and incorporates as Albertson's, Inc.

1959:

Offers stock to the public to fund expansion; operating 62 stores in four states by 1960

1963:

Opens its one-hundredth store

1969:

Albertson's is listed on the New York Stock Exchange for the first time

1970:

Operates more than 200 stores with sales in excess of $400 million

1975:

Corporate sales exceed $1 billion

1985:

Sales hit record high of $5 billion

1989:

Has highest net earnings of any U.S. food chain, with 497 stores, 127 combination food and drug stores, 175 super stores, 167 supermarkets, and 38 warehouse stores operating in 17 states

1997:

Net income surpasses $516 million, marking the twenty-eighth consecutive year of net income increase

2000:

Launches $500 million common stock repurchase plan

2002:

Operates more than 2,500 stores in 36 states

CURRENT TRENDS

Pharmacies are considered a vital part of Albertson's products and services package. With more than 800 stand-alone drug stores under the banners of Sav-On and Osco, Albertson's is slowly moving its stores out of shopping centers to corner locations where a drive-though window can assist pharmacy customers. Albertson's also centralized its pharmacy operations to better coordinate its health product services. The company is making plans to expand its fuel center program and is experimenting with nontraditional stores and locations. For example, Albertson's has expanded from the suburbs back into the inner city, building a store in a Chicago high-rise and another in San Francisco that will house 400 condominiums above the store.

Online shopping was introduced in 1999. Customers in 36 western Washington locations can shop at albert-sons.com, with the option for delivery or in-store pickup. Savon.com offers customers nationwide the ability to order prescriptions online. The site also provides a selection of 18,000 over-the-counter products along with health-related information.

PRODUCTS

After the merger with American Stores, Albertson's combined its store-brand products with American Stores products under a single label, Corporate Brand. Along with its store brand selection, the company developed new specialty labels, including Village Market meats, Timberwood wines, and Identity bath and beauty products. Quick Fixin' meal ideas were introduced in 1996 for customers in need of quick, nutritious, easy meal ideas. Weekly recipe ideas that can be made in 30 minutes or less are placed at the front of stores with all the ingredients located in one place. Albertson's product line also includes eight prepackaged heat-and-serve dinners.

CORPORATE CITIZENSHIP

Albertson's takes seriously its commitment both to the local communities in which it operates and the overall environment. To help reduce waste, the company began using plastic pallets in 1997 to ship products between distribution centers and stores. The pallets, which at 20 pounds weigh only one third of a traditional wooden pallet, help reduce fuel consumption, last up to 60 times longer, and are fully recyclable. For smaller stores and pharmacies, products are shipped in reusable plastic containers and returned to the distribution centers filled with recyclable goods from the stores. Albertson's has had a cardboard recycling policy in place since the late 1960s. In 2000 the company recycled 318,000 tons of cardboard as well as 34,000 tons of other resources. Other innovative strategies have been implemented to reduce waste. For example, in the past, ice cream was wasted at the Boise, Idaho, ice cream plant each time flavors were alternated as the two flavors became mixed. Now compatible flavors are produced back to back and the resulting mixtures are labeled as "Odds & Ends" and sold or donated locally. In 2000 Albertson's donated in excess of $48 million in cash and in-kind gifts to help meet community needs, including more than 20 million pounds of food.

THE BEGINNINGS

In 1939 Joe Albertson quit his job as a district manager for Safeway Stores and opened the first Albertson's in Boise, Idaho. With the financial backing of L.S. Skaggs, whose family helped build the Safeway empire, and Skaggs' accountant, Tom Cuthbert, Albertson hoped to create the largest food store in the state. Indeed, the first store was 10,000 square feet, nearly eight times larger than the average grocery store of the day. Albert-son also stocked his store with innovations, such as an in-store bakery, a magazine section, and ice cream parlor. Albertson's new superstore helped usher in the age of one-stop shopping.

EMPLOYMENT

Albertson's offers employment opportunities in numerous areas. At the corporate level, the information systems and technology department hires both experienced professionals and trainees, as does its store development and financial departments. Constantly growing with ambitious plans for store expansion or renovation, Albertson's hopes to attract or develop high quality personnel in the fields of accounting, architecture, engineering, construction, design, real estate, legal, economic research, and purchasing. Most management level positions are filled from current employees, and most employees join the Albertson's team at an entry-level position. Training programs and internships are available in the following areas: financial department, pharmacy, warehouse and distribution, and grocery management.

SOURCES OF INFORMATION

Bibliography

"albertson's announced market exits; enewswire, 13 march 2002.

"albertson's reports strong quarterly sales results, earnings meet wall street expectations and company guidance." company news release, 4 december 2001. available at http://www.albertsons.com.

"closing division offices." pr newswire, 13 march 2002.

duff, mike. "'new breed' rivals put albertson's in a bind." dsn retailing today, 6 august 2001.

gentry, connie robbins. "recession-resistant." chain store age, february 2002.

gibbs, lisa. "supermarket sweep." money, january 2002.

kepos, paula, ed. international directory of company histories, vol. 7. detroit: st. james press, 1993.

regent, nancy, ed. hoover's handbook of american business. austin, tx: hoover's business press, 2001.

For an annual report:

on the internet at: http://www1.albertsons.com/corporate

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. albertson inc.'s primary sics are:

5411 grocery stores

5912 drug stores and proprietary stores

also investigate companies by their north american industry classification system codes, also known as naics codes. albert-son inc.'s primary naics codes are:

311520 ice cream and frozen dessert manufacturing

445110 supermarkets and other grocery (except convenience)stores

446110 pharmacies and drug stores