Albertson's Gets Aggressive
ive at looking at acquisitions," said A. Craig Olson, senior vice president of finance and chief financial officer for Boise, Idaho-based Albertson's.
The chain underlined that philosophy with two big January deals that occurred within a week of each other. First, Albertson's said it will buy 10-store operator Seessel's, Memphis, Tenn., from parent company Bruno's, based in Birmingham, Ala. The Boise supermarket giant then struck a definitive agreement to acquire Buttrey Food & Drug Stores Co., Great Falls, Mont., operator of 43 units.
Noting a strong desire for quality acquisitions, Olson said the Seessel's deal will jump-start Albertson's market presence in the region and foster experimentation with a central kitchen and bakery concept. The Buttrey transaction, a fill-in deal, "offers synergies in combined purchasing, distribution, merchandising and backstage systems," he said.
Olson said Albertson's plans about 380 new stores between 1998 and 2002, including approximately 65 units in 1998. These figures do not include the January deals. Overall, the chain is aiming for net square footage growth of about 7.5% between 1998 and 2002, not including acquisitions.
Richard King, president and chief operating officer, said, "We are spending time branding Albertson's, to build brand equity in our own name.
Fred Meyer Looks Beyond Megamerger
Fred Meyer Inc.'s two-way megamerger announced last November has created the opportunity for unprecedented growth and efficiencies, said executives of the Portland, Ore.-based chain.
Under the deals, Ralphs Grocery Co., Compton, Calif., and Quality Food Centers, Bellevue, Wash., will combine with Fred Meyer in separate transactions expected to close in March.
"We will have a leading presence in the Western United States," said Robert Miller, Fred Meyer's president and chief executive officer. "The acquisitions put us in seven of the 10 fastest growing states with complementary geographic fits."
Ken Thrasher, executive vice president and chief administrative officer, said that by 2001 the company will be able to save about $100 million in areas including advertising, purchasing, warehousing and transportation.
"We're already a leader in EBITDA [earnings before interest, taxes, depreciation and amortization] and the new synergies will bring us higher," he said.
Thrasher emphasized that the company's integration plan is "low- risk."
Among some next steps are increasing the nonfood private-label product mix in Fred Meyer stores, remodeling Smitty's units in the Phoenix market.
Kroger Expands Its Label
Kroger Co., Cincinnati, is America's largest supermarket chain and its private-label brand is "America's brand," said Joseph Pichler, chairman and chief executive officer.
"More people reach for the Kroger brand than any other brand in the country," Pichler said.
Kroger stands behind its store label, Pichler said. If a customer is not satisfied with a Kroger branded item, Kroger offers a money-back guarantee or an exchange for a national-brand equivalent.
In 1997, the company introduced 160 new items, and more are in development as the chain continues to build profits through its private-label strategy.
The chain operates 1,392 supermarkets and 816 convenience stores, with total sales at $26.6 billion.
Its greatest strength is in its diversity, Pichler said.
In the event one market is weak, chances are other regions will make up the difference. Strong sales in the Midwest and Western United States are compensating for competitive activity in the Southeast and low food inflation throughout the country, he said.
Kroger will make an acquisition if the target adds value and purchasing power and can move private-label merchandise, Pichler said.
"We're not interested in anything that's broken," he said. "We don't fix things. We will buy in-fills in our existing market or freestanding divisions to enter new markets."
Kroger has a No.1 or 2 position in 28 of its 30 markets in 26 states. To maintain those positions, the company plans about 90 to 100 expansions and 50 remodels this year, and is on track to build 80 to 100 new stores.
Safeway Mulls Growth
Steve Burd, president and chief executive officer of Safeway, Pleasanton, Calif., has firmly installed a culture of thrift and cost-cutting in the nation's No. 2 conventional supermarket operator. These days he spends most of his time thinking about growth strategies and potential acquisitions.
Safeway has been integrating Vons since completing its acquisition of 320 Vons stores in southern California and Nevada last April. Safeway's next acquisition could come this year, Burd said.
"We don't have to do it in 1998, but it would be a good time for us," he said. "I'm a lot smarter about other companies in the industry now than six months ago, and we are looking at how available assets will be in 1998. There are some available now if you have a great appetite for fixing things. But we want quality and good market position. Whether or not we do a transaction in 1998 will be a function of availability and price."
Safeway ended 1997 at $22.5 billion in sales and with 1,368 stores. Much of Safeway's success under Burd in the last few years has come from using best practices to improve operations. "Now, with Vons, we're making sure it's a two-way street on best practices," Burd said. "We're ahead of schedule on the Vons integration in terms of operating improvements."
The Vons merger has enhanced geographic diversity and improved buying power, Burd said. "We think we can continue to buy better up to $50 billion in sales," he said.
Burd said Safeway's top priorities remain much the same as they have for the past few years: reducing costs, increasing sales and managing capital effectively.
"There's still a need to reduce costs after all this time," he said.
Food Lion on the Prowl
Executives at Food Lion, Salisbury, N.C., stressed the theme of expansion in outlining the chain's plans for growth through acquisitions and new-store openings.
"A lot of chains will become available; we're trying to make sure it's known we're interested," said Tom Smith, president and chief executive officer. "We're looking for a good, strong group of stores that operate very well but that we can add efficiencies to."
"We have tremendous capacity in our balance sheet to make a major acquisition," added Laura Kendall, chief financial officer.
Smith said the company would prefer a chain in the Southeast but was not opposed to looking outside that region.
Smith also cited Food Lion's purchase last year of Kash n' Karry Food Stores, Tampa, Fla., as a success the company would like to repeat.
"We surveyed customers in the Tampa area and found out they very much liked the way Kash n' Karry operated and they wanted to keep it that way," he said. "Our challenge was not to change anything that the customer could see."
Behind-the-scenes improvements at Kash n' Karry have included more purchasing power, better technology (the chain introduced a preferred-customer card last month), a stronger emphasis on category management and economies of scale through combined distribution, Smith said.
Kendall said Food Lion plans 1998 capital expenditures totaling $360 million. She projected 133 renovations and 75 new-store openings, including 18 offsets, mostly in Virginia, North Carolina and Florida.
Fleming Running With Retail
Fleming Cos., Oklahoma City, is looking to expand its roster of corporate stores and to "realize chain-like advantages" through greater integration of wholesale and retail operations, according to Harry Winn, executive vice president and chief financial officer.
Winn pointed out that only 14 of Fleming's 35 full-line distribution centers now service chains.
"Fleming would like to have an anchor chain supporting each of its supply centers," he said. "We don't have the money to buy one for every [center] today, but we clearly have that objective."
Winn said Fleming's introduction of its Baker's stores to the Oklahoma City market in November is a good example of the company's expansion strategy. To supplement the five stores it bought, remodeled and converted to the Baker's banner, Fleming is embarking on an "aggressive site location program for new stores," he said.
"If we cannot buy it in an integrated way, we will work to build it. There's more than one way to get to a market."
A new recapitalization program will allow Fleming to increase capital expenditures in 1998, to $230 million from $130 million last year. Most of that extra money will be spent on retail growth, including 20 new stores and 40 remodels.
According to Winn, a stronger focus on technology has helped the company's distribution business to cohere. Fleming is also aiming to have every retail customer use one of its three marketing software systems by the end of the year, he said.
The company will continue to unbundle and reprice the retail services it offers to customers -- in some cases charging a fee for the first time -- and to increase dramatically the number of private-label stockkeeping units in each Fleming brand, Winn said.
American to Expand in Place
American Stores Co., Salt Lake City, will focus its new stores in existing markets this year, growing gross square footage about 7%.
The company will also continue its effort to become a major drug provider in third-party health care plans.
Victor Lund, American's chairman and chief executive officer, said the company intends to maintain its No. 1 or No. 2 position in its core markets with the addition of 87 food stores and 70 drug stores in 1998. American operates food, drug and combination stores under a variety of banners in the Northeast, Central and Southwest United States, including Acme Markets, Jewel Food Stores, Jewel Osco, Lucky Stores, Osco Drug and Sav-On.
"We have completed all of our planned new market entries right now, so we can concentrate our new stores in existing markets," Lund said. "Those stores become profitable quicker than our new-market entries."
Lund said maintaining its market dominance is crucial to winning drug contracts with third-party managed care providers.
"If you're going to be a strong third-party player in a drug market, you have to be a strong market player," Lund said.
"Keeping and growing profitable third-party business is a key part of our business and we have to continue doing that well. We are aggressively pursuing this business and growing it. But we are going to do it on our terms."
On the subject of acquisitions, Lund said the company was interested, provided the target had an attractive store base and could be accretive within two years.