Publix Adds 49 Florida Albertsons

ELLIOT ZWIEBACH

LAKELAND, Fla. — The pending acquisition by Publix Super Markets of 49 Albertsons stores in Florida could help rationalize competition within the state, though it's unlikely to make life any easier for Winn-Dixie Stores, industry observers said last week.

Publix, based here, said last week it has agreed to buy the stores from Albertsons LLC, Boise, Idaho, which is owned by a group of investors led by Cerberus Capital Management. The transaction represents the seller's second-largest supermarket divestiture, following the sale last year of all 130 stores in Northern California to Save Mart Supermarkets, Modesto, Calif.

Once the deal is completed, Albertsons will still operate 44 stores in Florida, spread all over the state.

Of the 49 stores Publix is buying, 30 are in central Florida, four are in South Florida and 15 are in North Florida. Four of the North Florida stores are in Escambia County, in the Florida Panhandle, marking Publix's first entry into that market, although it operates in nearby Mobile, Ala.

Publix generates annual sales of $23 billion. The addition of the Albertsons units could boost volume by as much as $1 billion, one observer suggested, though others estimated the acquired stores are generating less volume than that.

Prior to the acquisition, Publix operated 936 stores, including 670 in Florida, with the balance in Georgia, South Carolina, Alabama and Tennessee. Stores range from 21,000 to 61,000 square feet, with an average of 44,000 square feet. The 49 Albertsons stores average 55,000 square feet, with some units as large as 77,000 square feet.

The sale of the Albertsons stores should bring some marketing consistency to the marketplace, observers said last week.

“Albertsons' operating strategy has been extremely unstable,” Karen Short, an analyst with FBR Capital Markets, New York, said, “so while Publix will clearly present Winn-Dixie with challenges, the environment could become modestly more stable [with those stores] in the hands of Publix.

“Ultimately, Publix probably would have expanded its footprint in these markets, so square footage remains unchanged.”

However, while Publix is likely to improve the productivity of the Albertsons stores, “[market] share will likely come, at least in part, from Winn-Dixie,” Short said.

There had also been speculation that Jacksonville, Fla.-based Winn-Dixie might acquire some of the Albertsons stores, but with last week's announcement, “an acquisition as a short-term fix to gain share appears unlikely,” she noted.

However, because the sale to Publix is not expected to close until September — and because Publix apparently plans to take its time remodeling the stores — “Winn-Dixie will have several months of lead time to prepare a revised strategy to effectively compete with a more venerable competitor,” Short said.

While the principals declined to discuss the price of the transaction, Short said she believes Publix will pay $550 million for the 49 stores — an average of $11.2 million per location.

She said Publix could pick up sales of close to $1 billion from the 49 stores, though she acknowledged that estimate is based on dated information that put annual sales per Albertsons store at $20 million.

David Livingston, a consultant based in Pewaukee, Wis., told SN he believes each Albertsons store is generating closer to $10 million to $15 million, and that the purchase price should have been lower.

“$11 million per store is what Supervalu paid for the top-performing Albertsons stores,” he said, “so Publix must be paying half of that or less, because these are not good stores, and they have been ineffective competitors for many years.”

While the change in ownership of the Albertsons stores is likely to hurt Winn-Dixie and, to a lesser degree, Sweetbay Supermarkets — the Tampa, Fla.-based division of Delhaize America — “it probably won't mean very much change for either one,” Livingston projected.

Jim Hertel, managing partner for Willard Bishop, Barrington, Ill., said Sweetbay might be affected more than it otherwise would have because of the management change it is undergoing, with the departure of Shelley Broader as chief executive officer this week.

“Outside events — like the change in ownership of the Albertsons stores — have a tendency to cause some hesitation in the best-laid successor planning, and this could result in a hiccup, at the very least, for Sweetbay,” he said.

Another observer, who asked not to be named, told SN Sweetbay's corporate parent, Delhaize, had an interest in the Albertsons stores at one time, “so their sale to Publix has a doubly negative impact because it didn't get the stores and it will have to deal with a stronger player at those locations.”

Karen Howland, an analyst with Lehman Bros., New York, said Publix has exceptionally strong brand-name recognition “and will clearly be a more formidable competitor for Winn-Dixie.

“But Publix is more rational than Albertsons in terms of pricing and promotions, and where a private-equity company like Cerberus is more apt to try to make a profit before selling the stores, the change in ownership should be good for all parties competing in the state.”

Knowing where Publix will be converting Albertsons stores, Winn-Dixie may decide to alter its remodeling plans to focus on units near those locations, Howland added. “I would imagine Winn-Dixie will focus on stores near these Albertsons sites so it can be in the best competitive shape before those stores are reopened under the Publix banner.”

However, because Winn-Dixie leases its stores, it has to get approvals to do remodels, and it may not be able to move fast enough to get those remodels going, Howland pointed out.

Publix said last week the conversions of some of the Albertsons stores to its banner could be delayed until early next year, depending on how much remodeling is required at individual locations.

Some of the Albertsons locations Publix is acquiring are close to existing Publix stores, Publix spokeswoman Maria Brous told SN.

“We're still trying to understand the scope of the [integration] project,” she said, “so it's possible some of the Albertsons stores may not reopen or that some Publix locations may be closed.”

The order in which they reopen will depend how much remodeling individual units require, Brous indicated. All stores will be closed for remodeling, she added.

Albertsons LLC said last week it plans to lay off 121 warehouse and transportation workers at its Plant City, Fla., distribution center shortly before the transaction closes in September.

Once the sale of the 49 stores to Publix is completed, Albertsons LLC will continue to operate 44 locations in Florida, along with 226 other stores, in Texas (99 units), Arizona (44), Colorado (32), New Mexico (30), Louisiana (18) and Arkansas (one), plus two Super Savers in Utah.

Albertsons LLC was formed in mid-2006 by Cerberus and other investors to acquire 661 Albertsons stores that were not purchased by Supervalu, Minneapolis.