Albertsons becomes national power by thinking local

BOISE, Idaho — What Albertsons Cos. has been able to accomplish in a little over a decade is truly remarkable.

The prospects for the business were somewhat uncertain when it was established in June 2006. A group of investors led by Cerberus Capital Management created the company by purchasing 661 supermarkets as part of the breakup of Albertson’s Inc., whose other holdings were sold to Supervalu Inc. and CVS Health. Many industry observers at the time questioned the quality of the assets acquired by the new Albertsons.

“We bought all the stores nobody wanted,” chairman and chief executive officer Bob Miller recalls, only half-jokingly, “and here we are today.”

The distance traveled by the company is indeed impressive. Eleven years after its creation, Albertsons Cos. finds itself in the top echelon of American grocery retailers, operating 2,324 stores under 20 well-known banners across 35 states and the District of Columbia. The company generated $58.7 billion in sales and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $2.7 billion last fiscal year, and it had the No. 1 or No. 2 market share in two-thirds of the metropolitan statistical areas in which it competes. This section examines Albertsons’ swift climb to prominence, the strategy behind the company’s rise, and its future direction.

(Editor’s note: for the rest of this special report on Albertsons Cos., please see the print or digital edition of the June 12 issue of MMR.)

“We want to be the favorite local grocery store in the communities we serve,” says Miller, who started his career at Albertson’s Inc. and rose through the ranks to become executive vice president of retail operations there, before going on to become, among other things, chairman and CEO of Fred Meyer Inc. and Rite Aid Corp. “That means we have to run really good stores that are full, fresh, friendly and clean.”
Implementing that basic principle was just one part of the challenge that Albertsons faced a decade ago. “Our goal was to pay down the $1.2 billion in debt that we had and get the stores that we thought could be successful up and running,” Miller explains. “On the first day we started by closing 125 stores that we knew we couldn’t save. Then we worked on cleaning up stores, filling them with the right merchandise, and putting local management in place that was able to make the right decisions.

“During those first few years we were looking for opportunities to sell assets at big prices to pay down debt, so we divested several hundred stores. By 2013 we had no net debt, and had a strong little company with a strong cash flow. We ended up with slightly less than 200 of the original stores that were very, very successful, and that was our base to start to grow again.”

Building on that foundation, Albertsons embarked on a series of bold acquisitions that quickly elevated its profile in the grocery business. The company recaptured much of the retail empire its eponymous predecessor ceded when, in March 2013, it bought back 877 stores from Supervalu. Eight months later it struck a small, but strategically important deal, that brought it 51 United Supermarkets outlets in Texas. Albertsons moved into the elite group of food retailers two years later with the purchase of Safeway and its 1,325 stores, and it continues to make acquisitions that enhance its position in the marketplace as the industry ­consolidates.

Miller and the cohesive management team he has assembled from a combination of Albertsons veterans and newcomers have created one of the largest retailers in the U.S., in both sales and store count, behind Walmart and Kroger Co. Unlocking the full potential of the company’s diverse assets — which, in addition to Albertsons and Safeway, include such venerable banners at Acme, Shaw’s, Jewel-Osco and Vons — depends to a great extent on harnessing the entrepreneurial talents of managers in local markets.

“One of the real keys to our operating playbook and our success is being decentralized,” explains chief operating officer Wayne Denningham, who assumed the additional duties of president in April. “We have 13 divisions, all run by a division president who has been in the business a long time. In each of the divisions they control the four Ps — pricing, product, placement and promotions — which is really important because they can do things quickly, and they can do them locally.

“It’s all about running great stores,” he adds, reiterating the company’s commitment to the concepts of giving the 34 million customers it serves every week access to retail outlets that are full, fresh, friendly and clean.

Miller, Denningham and their colleagues understand that, like its competitors, Albertsons will be judged to a large extent by its fresh presentation, the cornerstone of which is top-quality products in such categories as meat, produce and seafood.

“We start with product and making sure we have the right assortment in the store,” says Shane Sampson, chief marketing and merchandising officer. “We’re really focused on fresh foods, signature items like fried chicken that is made fresh in the store, and products that fall under the NOSHE umbrella, which includes natural, organic, specialty, health and ethnic items.

“We think having the right local items is really important, as well. Tide laundry detergent may be the same in Boston as it is in Los Angeles, but we know that clam chowder is not the same in those two areas. So our people in individual markets are empowered to make the right decisions for their stores.”

Albertsons Cos.’ skill in implementing its retail philosophy has resonated with consumers. That success, coupled with the company’s proven ability to efficiently assimilate acquired assets, indicates that Albertsons Cos.’ second decade is likely to be as consequential as its first.
“We feel really good about where the company is at today and the opportunities we have in front of us,” says Miller.