BOISE, Idaho -- Albertson's here continues to benefit from the complex integration of American Stores Co. because a number of fundamentals are working in its favor, company officials said at Albertson's annual meeting in Nampa, Idaho.
Industry analysts, however, told SN the company still has considerable challenges to overcome before it can full realize many of the synergies that were promised at the time of the merger last year.
Top Albertson's executives said the following mostly merger-related factors has put the company in a strong position moving forward:
The company's large size is leading to more economies of scale than expected.
The associate force is successfully adapting to the demands for flexibility.
The company's decentralized operating structure is enabling Albertson's to adapt to the merchandising needs of local areas.
The gradual, low-investment approach to e-commerce is positioning the company for the future without over-taxing resources.
Gary Michaels, Albertson's chairman and chief operating officer, told the company's annual shareholder meeting in Nampa, Idaho, "As we integrate our two and realize the benefits of our merger, we see more benefits than we ever had before. We see virtually unlimited potential for the company we call the new Albertson's.
"Our new size allows us to take advantage of economies of scale. It allows us to operate efficiently to provide better value to more customers in more communities."
Peter Lynch, Albertson's new president and chief operating officer, discussed the integration process as well. "The merger brought tremendous changes and challenges," he told the shareholders. "We asked our associates to learn new computer systems, new job processes and new programs. Our associates responded with innovation, flexibility and decisiveness. Our associates truly exceeded expectations, and we are very proud of them."
Lynch also said the company's decentralized structure makes it more responsive to customer demands. "Responding to the differing needs of each neighborhood requires flexibility," he said. "Using eight operating regions to support our stores contributes to that flexibility. The decentralized structure keeps decision-making close to the customer."
Mike Reuling, Albertson's vice president, explained to the shareholders the deliberate pace of the company's expansion onto the Internet. "We're moving into e-commerce carefully," he said, "running pilot programs such as Albertsons.com and Sav-ondrugs.com and keeping our investment low.
"We're preparing for a future marketplace in which providing multiple points of customer contact will be critical. At some point, a certain percentage of the population will be ready to order groceries over the Internet.
"When those consumers are ready for e-commerce, we'll be ready for those consumers. We'll be able to roll out our dot-com business quickly, to complement our traditional brick-and-mortar stores."
Industry analysts were quick to point out the significant challenges that lie before the company.
Gary Giblen, general partner, Giblen Capital, a Darien, Conn.-based hedge fund, said, "The jury is still out on whether Albertson's can fully meet or beat its integration target. There are a thousand things they have to do -- stores, distribution systems, MIS."
He noted that the company only made its first quarter earnings target of 53 cents per share, reported earlier this month, by excluding merger-related costs and one-time charges. "They used a lot of financial engineering to achieve an already lowered earnings number."
Jonathan Ziegler, San Francisco-based managing director at Deutsche Banc Alex. Brown, New York, said he thought the most difficult integration challenges had been overcome.
"The key effort was the integration in California," Ziegler said, where the company decided after some initial hesitation to combine American's Lucky Stores chain with its own Albertson's. "A good chunk of that is behind them now. There are still out-of-stock problems and disruptions in logistics, but these are easier to remedy.
"The company is still probably at the maximum state of pain, but it is about to enter the recovery room."