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NEW ALBERTSON'S CEO COULD USHER IN CHANGE

BOISE, Idaho -- The decision by Gary Michael to step down as chairman and chief executive officer of Albertson's here may prove to be a catalyst for the chain to pursue new directions in merchandising and marketing, securities analysts told SN last week."The company needs a new sense of urgency, and Michael's retirement is an indication that something positive is happening," Chuck Cerankosky, an analyst

BOISE, Idaho -- The decision by Gary Michael to step down as chairman and chief executive officer of Albertson's here may prove to be a catalyst for the chain to pursue new directions in merchandising and marketing, securities analysts told SN last week.

"The company needs a new sense of urgency, and Michael's retirement is an indication that something positive is happening," Chuck Cerankosky, an analyst with McDonald Investments, Cleveland, said.

"Albertson's has a very strong asset base that's been underproductive and the stock is at a 10-year low, so the company needs a management change to get more value out of its asset base," he noted.

Whoever is selected, "he will have to be long-term-oriented and be prepared to wage an uphill battle," Cerankosky added. "Things won't get fixed suddenly, and if the new manager is intent on fixing things in one or two quarters, he will be very disappointed."

Michael, who has held the top spot at Albertson's since 1990, said earlier this month he will retire after the company's annual meeting in June. Albertson's board said it is launching a search for a successor from inside or outside the company.

If the choice comes from the inside, several analysts cited Peter Lynch as a likely successor. Lynch was named president and chief operating officer last March after a career with American Stores Co., which Albertson's acquired last year.

According to Jonathan Ziegler, San Francisco-based managing director for Deutsche Banc Alex. Brown, New York, "What Albertson's needs is someone who understands retail today. Gary Michael has been great at generating high returns, but he doesn't have good ideas about how to generate sales growth in markets with supercenters and drugstores that sell food, and he's not really the right guy for getting top-line growth.

"Peter Lynch has shown some ability to do that at remodeled stores, but Albertson's needs someone who knows how to grow sales in the current operating environment."

Cerankosky said Lynch "ought to figure prominently in the [selection] process. He comes from American Stores and he was made president of Albertson's for a reason, so it's possible the board will consider him as a successor.

"On the other hand, someone with an outsider's perspective, who was not part of the old Albertson's, could come in with more of a promotions orientation and more experience operating stores in major metropolitan markets."

Hiring an executive from outside the company "would mean the infusion of fresh ideas," Gary Giblen, senior vice president and director of research for C L King Associates, New York, said. "But all options are on the table, including the elevation of Peter Lynch or others from within the company. Because Lynch doesn't have a long history with Albertson's, he could represent new blood."

If the new CEO is selected from outside Albertson's, analysts said the list of potential successors could include Robert Miller, former chairman and CEO of Fred Meyer Inc., Portland, Ore. (now a Kroger Co. division), who is currently heading Rite Aid Corp., Camp Hill, Pa.; Hugh Farrington, former chairman and CEO of Hannaford Bros. Markets, Scarborough, Maine, who is currently vice chairman of Delhaize America, Salisbury, N.C.; or Jim Donald, chairman, president and CEO of Pathmark Stores, Carteret, N.J.

Mark Husson, an analyst with Merrill Lynch, New York, suggested Albertson's needs to go outside the company for a new CEO "to re-establish credibility that it's looking at itself from a fresh perspective. Food retailing is a fast-moving, very dynamic industry, but Albertson's has not kept up with the leading-edge companies either before or since its acquisition of American Stores.

"Aside from any integration problems, Albertson's weaknesses include the lack of a frequent shopper card and the data the cards provide; a 'dirty' everyday-low-pricing program that is not aggressively low enough and not promotional enough to be interesting; and the lack of a strong private-brands program or an understanding of how important private brands can be."

Michael's decision to stay on through the annual meeting in June doesn't mean the company will avoid making any significant changes before then, Giblen said. "If the right candidate were hired tomorrow, he could start making changes immediately and Gary Michael would be there to assist him during a transition period," he said.

Whoever the new CEO is, he is likely to spark changes in the ways Albertson's goes to market, analysts said.

According to Giblen, while some of Albertson's current problems stem from its ongoing integration of American Stores Co., "Albertson's had problems before the acquisition, including anemic same-store sales, inadequate returns on capital and a lack of merchandising pizzazz. And although Albertson's has done a lot over the last few years to improve its store image, the stores are still a lot blander than Kroger's or Safeway's."

Ziegler suggested the new CEO might opt to sell off some assets "in markets where Albertson's can't get critical mass to compete head-to-head with Wal-Mart. Selling assets would allow it to focus on its strongest markets like those on the West Coast, Dallas, Philadelphia and Chicago."

Ziegler also said Albertson's ought to accelerate its store remodeling program. "With approximately 2,400 stores, the company is remodeling 120 a year. But if half the stores are relatively new, that leaves 1,200 that need to be remodeled, which would be a 10-year remodeling program. Albertson's needs to reduce that to a five-year program and double the number of remodelings annually."

According to Cerankosky, some of Albertson's problems stem from its acquisition of American Stores and the change that created in its market position. "The strength of the core Albertson's operation was its small market shares in big and small markets, but since the acquisition, Albertson's is on everyone's radar screen."

Asked if Michael was being made a scapegoat for Albertson's ongoing sales and earnings disappointments, Ziegler said, "The buck stops with Michael, and the bucks coming in stopped growing under his watch. Gary Michael has done an amazing job overseeing a company with 28 years of uninterrupted growth through 1998. But the question the board is asking is, what has he done for us lately?"

Giblen said Michael's pending retirement indicates a growing impatience on the part of Albertson's directors to reverse the company's disappointing sales and earnings performance over the last several quarters.

"Company directors used to be more patient, but we're living in an impatient world where executives aren't given a lot of slack and where they don't have a lot of time to show improvements," Giblen said. "The announcement of Michael's retirement indicates the board feels it's in everyone's interest, by mutual agreement, to make a change."

According to Cerankosky, "There's probably enough blame to go around at the company, including the board. It was not a one-person decision to acquire American Stores.

"But the fact the American Stores acquisition has not gone well and there are still challenges to making it work probably figured into Michael's decision to retire early.

"And I'm not sure how to read it exactly because of the delay between the announcement and the actual retirement, but it looks like Gary Michael will have a role in choosing the management that succeeds him."