Associated Independents Support Albertsons Buy

MARK HAMSTRA

SALT LAKE CITY — Associated Food Stores will vault to the top of the market-share rankings here with the acquisition of 36 Albertsons stores from Minneapolis-based Supervalu.

But the addition of the stores is a mixed blessing for independent retail members of the wholesale cooperative, who stand to benefit from the increased volumes the deal will bring through the warehouse but also will suddenly find themselves competing against their own supplier.

“For me it's almost like competing against myself, with the same playbook, the same deals, the same ads, the same advisors and everything,” said Monte Peterson, president and co-owner of Peterson's Market in Riverton, Utah, and chairman of the AFS board of directors.

One of the Albertsons stores that Associated plans to acquire is located directly across the street from his family's store.

In an interview with SN last week, Peterson said that although he was torn about the idea of the acquisition, he voted in favor of it — as did all of the members of Associated's board.

“I do feel it is the best for the system,” Peterson said. “I think it will lower the cost of goods, spread fixed costs and establish the footprint, really, of the independent in the Mountain West.”

He noted that as Wal-Mart has expanded in the region, Associated and its independent members have lost market share. Independents in the state also compete against Kroger's Smith's banner, Target and Costco, among others. In addition, Boise, Idaho-based discounter Winco has begun construction of its first stores in the state, including one location just 10 miles from Peterson's store.

“I have a long tradition of competitors across the street from me,” Peterson explained, reciting a list of banners — Safeway, Farmer Jack, IGA — that have come and gone. The Albertsons store that is currently across the street is the second Albertsons building to operate there. In addition, Wal-Mart operates a supercenter within the city limits.

“Competition is nothing new to me — it just makes you better,” he said.

“You are going to have a competitor, the question is will it benefit your system with shared profits and spread fixed costs — or someone else's system.”

Peterson said he hopes to distinguish his store from the Associated-owned Albertsons across the street by offering some differentiated products — he carries USDA Choice beef, for example, while Associated does not — and by offering “more service and amenities.”

Peterson's Market measures 44,000 square feet, compared with the 55,000-square-foot Albertsons, although Peterson said his store is “a better facility.”

The store has been in the Peterson family for three generations — the company was founded by his grandfather in 1938 — and two of Peterson's sons are also in the business, working at AFS-owned corporate stores in St. George and Odgen, Utah.

FUTURE OPPORTUNITIES

Dick King

Peterson said he believes that there will be “several opportunities” for Associated independents to eventually acquire some of the Albertsons locations that AFS is acquiring from Supervalu.

In an interview with SN, Dick King, who was named president of the new corporate division at AFS that is buying the stores, said it would be “several years” before Associated builds up the volume at the Albertsons stores to the point that the company would consider selling them to individual members.

“Anything that will help grow Associated Food Stores — that's what we're after,” he said. “But we feel we need probably several years to increase the volume and make the changes we need to, to make the stores attractive to a new owner.

“It is something we look at, because our goal is to better the independent retailer in the markets we deal with.”

King said Associated plans to focus on improving service levels and the quality of the offering at the acquired stores in the perishable departments.

“Not that the Albertsons stores don't offer quality, but we think we can improve the quality in perishables, such as meat and produce,” he said.

He said the company would also explore opportunities to adjust pricing, but added, “Although some newspapers have said that this means there will be a price war, we don't plan to start one.”

WESTERN FAMILY BRAND

King said he anticipates that one of the most impactful changes will be the addition of the Western Family private-label line in the acquired Albertsons stores. Albertsons, he said, has not had a private label that is as well-known at the Western Family brand, which itself is a retail-owned co-op based in Portland, Ore.

“Western Family has a great reputation in this marketplace, because people see Western Family in Harmon's and Winegar's and Ream's and the others that we supply,” he said. “The Western Family name is very recognizable in this marketplace, from the surveys that we've done.”

He said the brand connotes quality in the market, similar to the Janet Lee private label that Albertsons once carried.

King would know, as he was a longtime executive with Albertsons before it was acquired by Supervalu, and served as the chain's president during its 1999 merger with American Stores Co., which was based in Salt Lake City.

In fact, King noted that he actually began his career working at supermarkets in Utah, and spent much of his career in the state.

“I started working in the stores here in the Utah market before I went in the service, and altogether I probably spent about 20 of my 26 years [at Albertsons] here in Utah,” he said. “It's a great area, and it's fun to see some of the great people who worked with me and worked for me years ago.”

He noted that as a senior vice president and then president of Albertsons, he was involved in approving many of the stores that he will now be running as part of the new division. He said the stores would be renamed after the acquisition is completed. Associated has the rights to continue to use the Albertsons name for a short time after the acquisition closes, which is scheduled to occur this fall. King said a few names have been tossed around but Associated's marketing team only recently began researching feasible possibilities for the re-bannering.

“We had some people working on it, but they didn't know what they were doing it for [because of the confidentiality agreement with Supervalu], so it has been hard for them to have blindfolds on and put together a name,” King explained.

As reported last week, AFS will continue to operate the 22 corporate locations it currently owns separately from the new Albertsons division. Supervalu will continue to operate three Albertsons locations in the St. George market, which are managed from its Las Vegas division, about an hour away, and will seek to sell four other Albertsons stores in Utah that are not part of the Associated transaction.

Most of the Albertsons stores Associated is acquiring are located in the area called the Wasatch Front, from Ogden to Provo, Utah.

“These are neighborhood stores, in good established areas, with a good mix of clientele,” King said.

The sales volumes of the stores were not disclosed, but are estimated to be lower than those of the Smith's in the market. In Salt Lake City, Albertsons has a 15% market share with 22 stores, vs. the 23.2% market share for the 23 Smith's locations, according to Tucson, Ariz.-based Metro Market Studies. Combined with Associated's other stores, the Albertsons will give AFS market share of nearly 34%.

King said he has met with many of the current Albertsons employees both at store-level and at the Supervalu division office, and has been seeking to reassure store-level workers that they will be able to retain jobs under the new ownership, he said.

“[Supervalu] had a good rapport with their people, and I think the people are fine,” he said. “They are hesitant about change, of course, and they just went through a sale about three years ago, but the people in this Utah market are great.”

He said he still has to hire a staff for the new AFS division that will run the Albertsons stores, and he will be speaking to current Supervalu workers to fill some of those positions. Some functions will be also handled centrally at Associated, he explained.

King said that Rich Parkinson, the chief executive officer of Associated, and Jeff Noddle, the former CEO of Supervalu, had known each other through industry associations and had long ago discussed their openness to working together for such a deal if the opportunity came about. The two began discussions “about four or five months ago,” King explained, indicating that the plan to divest the Utah Albertsons was put in motion before the current CEO of Supervalu, Craig Herkert, came into the position in May.