As is happening now with disquieting frequency, another major food retailer is involved in a reorganization that is tantamount to dismemberment. That company, of course, is Albertsons.
As was reported in last week's SN, Albertsons' top officer, Larry Johnson, asserted that Albertsons is "clarifying our endgame." Unless that was an unfortunate choice of words, the implication couldn't be much more dire.
Here are some of the self-imposed options set before Albertsons: The sale of the entire company, or, failing that, an aggressive stripping away of underperforming retail assets. Doubtless, that means Albertsons will sell or shutter, and then exit, a number of markets, or divest entire operating units. The part of the plan that entertains the possibility of divesting assets is a sort of industrial strategy that calls for exiting arenas in which being the top dog isn't possible. Yet, it wasn't too long ago that supermarket retailers routinely expanded using the "edge" method -- by opening a few stores around a market, then moving in more boldly as success was achieved. Those players would envy and build upon the foothold Albertsons possesses in many areas.
Let's look at Albertsons now. Albertsons operates more than 2,500 stores under nine banners situated in 37 states. Store styles include supermarkets and drug stores. Those assets produce for Albertsons some $40 billion in annual sales.
That raises an important question: With that kind of mass behind Albertsons, why is it capitulating and specifying that it is worth more as a real-estate play than as an ongoing enterprise? The short answer seems to be that it has an ill-defined and much-changing strategy that, ultimately, is bereft of any means to build the business. That may have happened because topside executive churn and other non-operational distractions attenuated Albertsons' merchandising expertise to the point that no merchandising-driven plan was developed. Merchandising is what makes all the difference. Look at H-E-B, Publix, Wegmans, Ukrop's and, on a scale about that of Albertsons, Kroger. See Page 1.
All these considerations aside, though, the fate that awaits Albertsons seems all too clear. These are early days, but most likely Albertsons, or major components of it, will be bought not by a strategic buyer, but by one or more venture-capital firms. Albertsons will then be chopped up into small and highly leveraged operating entities that will be sold to synergistic buyers, or spun off as freestanding companies. Those components will either fail or be subsumed by other entities. That scenario has an industrywide implication. It now seems that investment companies are stirring after a long period of quiescence. See Page 1. That means other supermarket chains will have a ready means to seek a non-operational solution.
Finally, Albertsons' contretemps may explain why it barred news reporters from its annual meeting this year. That situation was mentioned in a column in this space on June 20, 2005. Maybe the fate that Albertsons now faces was discussed in some backstage forum and it was feared information might leak. At that time, Albertsons was the only supermarket company known to have the no-media policy. Since that time, though, Spartan barred media from attending its annual meeting. Portions of that meeting were Webcast.