BOISE, Idaho -- Albertson's here said last week it would spend $1 billion over the next three years for new stores and remodels -- including a rollout of its dual-branded, combination-store format -- in Southern California.
That's a region where the company's supermarkets face a challenge from the arrival over the next few years of supercenters operated by Wal-Mart Stores, Bentonville, Ark., and where the company's drug store chain, Sav-on, faces a more immediate challenge from the current rollout of stores operated by Walgreen Corp., Deerfield, Ill.
Analysts told SN the investment is long overdue because of the new competition from Wal-Mart and Walgreen, and because the traditional competition has also been improving its store base, particularly Ralphs, a division of Kroger Co., Cincinnati.
Jonathan Ziegler, San Francisco-based managing director for Deutsche Banc Alex. Brown, New York, said, "The competitive profile is Walgreens and Wal-Mart. Ralphs has upgraded. Now, it's Albertson's turn."
In a separate development earlier last week, Albertson's raised its earnings guidance from continuing operations (excluding goodwill amortization and before restructuring) for the first quarter ended May 2 to between 55 cents and 58 cents, up from an estimate of 53 cents given in March. The company said complete results for the quarter will be released June 5.
Reasons the company gave for the guidance increase included better-than-expected progress with restructuring and lower-than-
expected costs in exiting several unprofitable markets. Albertson's said comparable-store sales for the quarter were 1.4%.
In Southern California, Albertson's said it will focus its investment on converting stores to its dual-branded combo format, offering Albertson's food stores and Sav-On drug stores under a single roof, a concept Albertson's introduced and refined in Chicago with its Jewel-Osco stores.
An Albertson's spokeswoman told SN that the three-year investment will result in 30 new Albertson's stores and 82 remodels. Which of those stores will be dual-branded combo stores will be decided "on a site-by-site basis," she said.
The company will also open 96 Sav-On stores and do 20 Sav-On remodels, she added, explaining that these will be drug stores only, not combo stores.
Last week's announcement boosts Albertson's 2002 capital expenditures in Southern California by 40% over the 2001 level, she noted.
Albertson's is currently either the No. 1 or No. 2 supermarket in all Southern California markets, while Sav-On is the leading drug store chain throughout the region, according to the company.
Analysts differed in their views of how difficult it will be for Albertson's to defend this position.
Gary Giblen, director of research and senior vice president, C L King Associates, New York, told SN Southern California has "always been a stepchild area for Albertson's.
"The Albertson's stores tend to be more in the outlying areas. That's going to be where Wal-Mart's going to have strength, too. It's a recipe for vulnerability to Wal-Mart."
Ziegler, however, gave Albertson's high marks for planning to upgrade its units before Wal-Mart's supercenters arrive in the region. "Albertson's is signalling that they're going to spend money in strong markets. They're going to focus on markets where they have decent market share and decent store locations and some deferred maintenance. They want to be in good fighting shape when the 800-pound gorilla arrives," he said.
Andrew Wolf, equity analyst, BB&T Capital, Richmond, Va., said the threat Walgreen poses to Sav-On is certainly more immediate and probably more serious than the one Wal-Mart poses to Albertson's supermarkets. "Walgreen does a very good job running stores, and they win on real-estate selection."