NEW YORK -- American Stores expects to spend about $700 million to build and remodel stores in 1994, Victor L. Lund, president and chief executive officer, said here last week.
The $700 million, which is about 7% above last year's capital-expenditure program, will be allocated almost equally among American's three operating groups: supermarkets in the East, supermarkets in the West and drug stores.
American's proposed 1994 capital spending will likely exceed all other supermarket operators' capital spending this year, according to securities analysts who follow the company. About one-third of the spending, however, is earmarked for infrastructure improvements.
Slightly more than one-third of the 1994 budget is targeted at store-remodeling projects and about 30% of the $700 million will fund the opening of 40 new stores, including 11 supermarkets.
Lund said American is going to be very deliberate about the execution of its capital-expenditure plan. "Our goal," he said, "is to have at least 45% of [all] our stores [classified as] new or remodeled in the past five years and 90% remodeled or new in the past 10 years."
At the end of 1993, more than 50% of the company's food stores and more than 40% of its drug stores were new or had been remodeled within the past five years.
Lund spoke here at a luncheon
sponsored by the New York Society of Security Analysts.
American's Eastern supermarket operations include Acme Markets, Malvern, Pa; Jewel Food Stores, Melrose Park, Ill., and Star Market Co., Cambridge, Mass. Western supermarkets include the northern and southern California divisions of Lucky Stores, based in San Leandro and Buena Park, Calif., respectively. Including drug stores, American operates about 1,670 stores.
Ed Comeau, a securities analyst at Lehman Bros., New York, said American likely will spend about $450 million on improvements to the supermarket side of its business this year. About one-half of the $450 million is for store development and the other half is for systems development.
Lund also addressed a number of other topics in a 50-minute presentation. He said: · Plans are "well under way" for American's new food-store format, which will be noteworthy for its appreciably lower cost. The first store, which is expected to resemble a warehouse-style supermarket, may open this year.
· The company increased square footage by about 1.3% net in 1993, which includes the closing of stores representing about 3.3% of total square footage. Net square footage should increase slightly more in 1994.
· The move to reduce prices at Lucky Stores in southern California last year was "the right program at the right time." Despite the difficult economic environment in southern California, Lucky achieved same-store sales increases of between 1% and 2% in the fourth quarter.
· Some of the six Chicago-area Super Kmart Centers that have opened are in "very good" locations. American has not raised the issue of Kmart's nonunion status with its Chicago-area unions, but the union leadership knows the Super Kmart Centers are there. American's 200-store Jewel Food Stores division is centered near Chicago.
· American held a meeting in February at its Salt Lake City headquarters for company executives who are working on a "national distribution" organization. The goal is to "functionally and geographically" consolidate the company's warehousing. This also opens the door for a companywide effort to implement Efficient Consumer Response, an industrywide cost-cutting initiative.
In response to a question about ECR and whether there is an attempt by some in the industry to "sabotage" the project, Lund said he believes this is the case.
"I don't think there's any doubt about that," he said. The difficulty with ECR, he said, is it requires industry segments that traditionally have been at odds to cooperate with each other.
Speaking to reporters following the presentation, Lund said that for a vendor who is the dominant player in a marketplace ECR is a "wonderful" strategy. For vendors with the second- or third-place share of the market and who want to improve their position by offering deals, ECR may not be the preferred way of doing business.
"You don't have a unanimity of support for ECR," he said. "There are as many opinions of ECR as there are companies."
American, however, is "aggressively pursuing" efforts to implement ECR strategies.
Speaking about the company's 1994 capital budget, Lund said the emphasis will be on remodeling projects, with about $250 million targeted for this task. American plans to remodel 210 existing stores this year, including 95 drug stores and 115 supermarkets.