VONS' NEW CEO ASSERTS COST, PRICE CUTS ON TRACK

ELLIOT ZWIEBACH

ARCADIA, Calif. -- "This company is not broken," Larry Del Santo, Vons Cos.' newly installed vice chairman and chief executive officer, told the annual shareholders meeting here last week.

In remarks just two weeks after rejoining Vons from American Stores Co., Del Santo said Vons' cost-cutting and price-lowering moves have placed the company on the right course.

"This company has done a terrific job of cutting expenses and streamlining operations," Del Santo said. "Lower costs have to precede lower prices, and Vons has made great strides in taking costs out of the system and reinvesting them in better pricing and customer service.

"Looking for ways to effectively reduce our cost of doing business will continue to be a way of life at Vons, so we can expect this process to continue. Along the way we may make some adjustments and do some fine-tuning, but don't expect any fundamental change in direction.

"Our improving sales trend and customer count confirm that we are on the right track."

To emphasize his optimism,

Del Santo told the meeting that both he and Richard E. Goodspeed, Vons' new president and chief operating officer, intend to become Vons shareholders. "And a significant portion of our compensation is tied to market-priced stock options," he added.

Del Santo will become chairman at next year's meeting, when Roger E. Stangeland, the current chairman, steps down.

Vons restructured its organization late last year and began a longterm program of reducing costs at headquarters and at store level earlier this year in response to a degenerating sales trend during 1993. The company's longterm positive outlook is not likely to be reflected in Vons' second-quarter results, with earnings continuing to be negatively impacted by the price reduction program, Stangeland told shareholders.

"Our original plan was to fund the cost of the marketing [price-cutting] program with concurrent reductions in our expense structure," Stangeland explained.

But the southern California earthquake, which occurred four days after Vons' new value-pricing program was introduced, forced the chain to accelerate its price-cutting efforts, Stangeland said, "which resulted in an over-weighting of marketing costs in the first half that we expect to be mitigated in the second half due to increased sales and expense reduction benefits.

"As a result, our expectations for 1994 operating results have not changed materially." Vons will continue to reduce costs, Stangeland said, and to reinvest those savings in lower prices, aggressive weekly promotions, hard-hitting advertising and faster checkout service, "to make Vons the most compelling store a customer can shop in -- and it's a longterm strategy.

"Our commitment is to do what we need to do to re-establish a positive sales trend. To this end, we advanced the timing of additional planned price decreases, which has cost and will cost us some margin and profits."

Since January Vons has reduced 12,200 prices in four waves, which has resulted in a margin decline that is moving faster than anticipated, Stangeland pointed out. "The two parts of the program are temporarily out of sync but will be brought back in step as our continuing cost-cutting efforts produce the results we have projected," he explained.

Same-store sales, while still down, were a negative 5.5% during the first quarter, Stangeland noted, compared with a negative 7.7% in the prior year's fourth quarter. Same-store results have improved every month since the beginning of the year, he said, "and our customer counts have improved at an even faster rate."

Del Santo, a former Vons president, rejoined Vons only two weeks before the annual meeting, following a 10-year stint with American Stores.

He was hired to succeed Dennis K. Eck, who resigned as vice chairman and president last fall when it became clear to him he was not going to succeed Stangeland as CEO. In the course of searching for a new CEO, the company also ended up hiring Goodspeed.