BOISE, Idaho -- Albertsons here plans to reinvest savings from the newly ratified Southern California contract into lower pricing and aggressive promotions "to get loyal customers back, acquire new customers, and build a defensible position against new market entrants," Larry Johnston, chairman, president and chief executive officer, said last week.
One of the supermarkets' gains in the new contract was the creation of a two-tier payscale in which current, or Tier 1, employees, receive a higher wage rate than newer, or Tier 2, workers.
He also said the buyout of Tier 1 employees "is always an option. We've done it in other markets, and we're keeping that option open in Southern California."
Albertsons may also consider hiring back some of the temporary employees who worked at its stores during the 20-week strike-lockout, Johnston said. "We hired 20,000 replacement workers, some of whom were very good, and we'll take a good look at some of them [to determine] who may join us in the future," he said.
Johnston made his comments in a conference call with financial analysts to discuss the chain's financial results for the year and fourth quarter ended Jan. 29. Sales for the year dipped 0.6% to $35.4 billion, while net income rose 14.6% to $556 million. For the 13-week quarter, sales fell 5.5% to $8.6 billion, comparable-store sales declined 6.5%, and net income fell 36.6% to $130 million.
The company said it estimated the 20-week labor dispute in Southern California reduced fourth-quarter sales by approximately $700 million and net earnings by approximately $90 million, or 24 cents per share. Excluding the Southern California stores, the company said comps for the quarter increased 1.2%.
In response to an analyst's question, Johnston said the industry has not detailed the specific wage differential between Tier 1 and Tier 2 employees despite press estimates, and he declined to do so as well. "But I believe those differences will change the game in Southern California as new entrants come in and enable us to lower the gap with price-impact players," he declared.
Johnston said Albertsons is still not certain yet how many locked-out employees will return to their jobs, "but all supermarkets experience high turnover in a normal year, and that turnover will drive Tier 2 inclusions."
Efforts by Albertsons to win back customers began even before the labor dispute ended, Johnston pointed out, when the chain introduced a loyalty card program set to begin when the strike-lockout ended.
Johnston said Albertsons was set last Wednesday to initiate another promotion, "an excellent example of how dual branding will propel this company forward" in Southern California: a program that offers two free movie tickets to almost any theater in the area for every $200 in accumulated purchases at Albertsons supermarkets or Sav-on drug stores.
Albertsons has previously said it plans to introduce dual-branded Albertsons-Sav-on stores in Southern California this year, "and we'll use this promotion as a strong kickoff for that program," Johnston said last week.
He said he doesn't know how long it will take Albertsons to win back customers, "but we're very encouraged by our business in the first week since the strike-lockout ended."
Johnston said Albertsons estimates 2004 earnings will fall in the range of $1.30 to $1.40 per share, including a reduction of 14 cents per share resulting from the new labor agreement, encompassing 6 cents from the impact of the strike-lockout on the first month of the quarter; 6 cents for a onetime contribution to the health and welfare trust fund; and 2 cents for a onetime ratification bonus paid to returning associates.