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Case Study: Albertsons stores’ new owners likely to upgrade seafood
Experts forecast short-term stability, long-term
By Lisa Duchene
September 01, 2006
When two new owners bought and took over more than 1,760
Albertsons grocery stores in a $17.4 billion deal, they set the
stage for potentially big upgrades to the stores' seafood
Supervalu, CVS and an investment group led by Cerberus
Capital Management of New York purchased Albertsons grocery
stores, drug stores and distribution facilities in early June.
Cerberus named its new holdings Albertson's LLC, operating out
of the former Albertsons headquarters in Boise, Idaho.
Cerberus, which buys under-performing operations and
controls companies worth a combined $30 billion, acquired 661
stores. Supervalu, based in Eden Prairie, Minn., acquired more
than 1,100 stores, becoming the nation's third-largest grocer,
behind Wal-Mart and Kroger, and ahead of Safeway, according to
Officially, both companies are mum about what's in store for
their seafood departments. Insiders say the new owners probably
don't yet have plans, so changes aren't expected for several
months. But the long-term view is another story.
Improving perishables like seafood must be on Supervalu's
and Cerberus' to-do lists if Albertsons' new owners hope to
steer the chain and banners like Acme, Jewel and Shaw's into a
bright, profitable future, say grocery industry experts.
"You're going to see [Albertsons] coming back strong in
perishables," says Phil Lempert, editor of supermarketguru.com
and food editor for the Today Show.
"Perishables is the ground on which a lot of grocers
[including Albertsons] need to be improving their offering,"
says Jim Hertel, senior VP of Willard Bishop, a grocery
consulting firm in Barrington, Ill. "They still have, from the
shopper's point of view, advantages relative to price-oriented
discounters, and [perishables], especially in the area of
prepared foods, are where they can develop superior and unique
Robert Miller, most recently the CEO of Kroger's Fred Meyer
division and now CEO of Albertson's LLC, has stated publicly
that the chain plans to substantially improve the perishables
departments in quality and selection. There are no details
about what that means for the seafood departments at the
600-plus stores now owned by Albertson's LLC, says Stacia
Levanthal, Albertson's spokeswoman.
Cerberus acquired the stores and distribution centers of the
Albertsons Dallas/Fort Worth, Florida, northern California,
Rocky Mountain and Southwestern divisions, which saw combined
2005 sales of $10.4 billion.
Within days of the purchase, Albertson's LLC closed 100
stores: 16 in Colorado, 37 in northern California, eight in
Florida, 16 in Colorado and 30 in Texas, Louisiana and
The closings hardly represented a dramatic loss of volume,
since those stores were doing so poorly, says one national
seafood distributor. They represented 16.2 percent of the
chain's total stores, but only 9.7 percent of total sales.
Increased sales from a more promotional, aggressive
merchandising strategy will more than make up for that volume,
says the distributor. The new organization immediately narrowed
seafood product selection, offering deeper promotional
discounts, and pocketing lower gross margins than the former
owner, he says.
The new Albertson's is also expected to improve service by
staffing service seafood counters, says the seafood
distributor. Albertsons has had a combination of service and
self-service departments, but service seafood counters were not
always staffed, says the distributor.
"The reason Cerberus and Supervalu were able to buy
Albertsons is that Albertsons was not doing a good job," he
Seafood purchasing and merchandising are likely to become
regional, say distributors. The old Albertsons regime in 2005
was combining divisions to consolidate purchasing.
"Our headquarters will be in Boise," Miller wrote in a June
2 letter to vendors, "but the bulk of the merchandising
decisions will be made in the divisions, the regions and, in
some cases, the stores."
In seafood purchasing, that may mean stability.
Albertsons could not effectively centralize seafood
purchasing and merchandising from its Boise headquarters, so it
put in place a network of direct-store-delivery vendors,
seafood distributors who worked closely with each division but
have a fair amount of autonomy over seafood procurement and
merchandising, says Tom DeMott, a former seafood merchandiser
for chain grocery stores and now COO of Encore Sales Co. in San
Albertsons relies heavily on DSD vendors, and that is
unlikely to change, he says.
"I would expect that when it comes to chains like Shaw's,
Jewel and Acme, whatever you see going on in seafood is going
to be driven by their local people more so than by any
centralized programs," says DeMott. The same goes for
Albertson's LLC, he says.
Supervalu is known for its ability to appeal to customers'
regional tastes. It and the new Albertson's must restore
customers' image of Albertsons, Jewel, Shaw's and Acme as their
"neighborhood market," says Hertel.
"[Supervalu] is quite good at it, and that's part of the
philosophy [CEO] Jeff Noddle is bringing to the acquisition. So
that's one of the things people can look forward to," says
Supervalu now owns 2,500 grocery stores in formats ranging
from extreme value up to high-end gourmet. It operates
full-service grocery stores under the banners Jewel, Shaw's,
Star Market, Albertsons, Farm Fresh, Shop 'n Save, Acme,
Shoppers Food & Pharmacy, Save-A-Lot, Sunflower Market,
Biggs, Bristol Farms, Cub Foods, Farm Fresh, Hornbacher's,
Scott's and Shoppers Food and Pharmacy.
What Supervalu and Albertson's LLC should do, say experts,
is master seafood basics and grow the category to reflect the
expanding Hispanic population that buys more seafood than
"The seafood case needs to expand two to three times in
size, and the meat case needs to decrease," says Lempert. "If I
was in charge of Albertsons, that's what I would do.
"You can't beat Wal-Mart on price or Whole Foods on health.
You have to find a new identity."
Willard Bishop's Hertel agrees. The Albertsons deal may
represent a big opportunity to improve the seafood departments
and grow sales, but Supervalu and Albertson's have some
higher-priority concerns before turning their attention to
seafood, he says.
For one, they must improve their pricing image with
consumers. When they focus on perishables, probably within
about 18 months, expect to see changes made first in produce
and meat, then in the seafood and deli departments, says
SFlb Contributing Editor Lisa Duchene lives in Bellefonte,