ALBERTSON'S IS SEEN STAYING ON COURSE

GREG GATTUSO

BOISE, Idaho -- Albertson's proposal last week to purchase Smitty's Super Markets, a 10-store operator based in Springfield, Mo., has reaffirmed the chain's intention to grow through acquisition in both new and existing markets, said financial analysts who track the company.

Albertson's announcement marks the chain's third supermarket deal in as many months. As reported in SN, it previously purchased Seessel's Supermarkets, gaining entrance to the Memphis, Tenn., market; it is also proceeding with an acquisition of Buttrey Food & Drug Stores Co., which would bolster Albertson's presence in the Northwest.

"They've gotten a lot more aggressive in looking at acquisitions," observed Ed Comeau, a financial analyst with Donaldson, Lufkin & Jenrette, New York. "Albertson's has realized that making acquisitions is probably a better use of capital, and better leverages their expertise [than building stores]. Organic growth is not the only way."

Comeau said he would not be surprised to see Albertson's do a "sizable" acquisition -- even larger than Buttrey -- sometime this year.

Mark Husson, retail analyst for J.P. Morgan, New York, said Albertson's has a very focused "nuts-and-bolts management team" capable of integrating any acquisitions it makes. Coupled with the chain's strong balance sheet, Husson estimated the chain could handle an acquisition every quarter for the next five years.

"The rash of smaller acquisitions they are doing now would not have been possible a year ago because Albertson's had problems with underperforming stores that largely have been fixed now," Husson said.

Chuck Cerankosky, a financial analyst with the Cleveland office of Tucker Anthony, Boston, said Albertson's would likely continue to make acquisitions, primarily in the Western United States, the Midwest and the Sun Belt and could integrate them successfully.

"It's not just a question of whether you can afford to make the acquisition -- you have to make sure you can assimilate the company," he said. "If you have too much on your plate, you run the risk of spreading yourself too thin and upsetting the customers and the employees. Albertson's seems to have addressed these issues ahead of time."

As it did in the Seessel's acquisition, Albertson's said it would leave intact the Smitty's name, which has a strong brand recognition in its markets.

Husson said that strategy shows Albertson's is becoming more "locally aware.

"[Albertson's] is moving slightly away from the idea that one size fits all, and that a plain, undifferentiated everyday-low- pricing Albertson's box is the answer to every marketplace, where clearly it is not. In the case of Smitty's, brand is very important."

Albertson's said the controlling shareholders of Smitty's have granted Albertson's an option to acquire their stock and have agreed to vote in favor of the acquisition. Though the financial terms of the merger were not disclosed, industry observers estimated it could be worth $70 million to $90 million.

Albertson's said after it acquires the company, which operates 10 combination stores averaging 70,000 square feet in the Springfield and Joplin, Mo., markets, it would build additional stores in the region.

"This is an ideal way for every chain to enter a market," Cerankosky commented. "You know what you're getting into and you have usable mass from the start."

Earlier this year, Albertson's entered Memphis by buying Seessel's Supermarkets from Bruno's, Birmingham, Ala., for $88 million. It also announced plans to acquire Buttrey Food & Drug pending regulatory approval.

Cerankosky said the three deals so far this year continue the ever-accelerating trend toward industry growth through acquisition.

"The small guys have been acquired over the years, but it was done more quietly than it is done now," Cerankosky said. "All the chains are looking out for acquisitions."

He said the latest deals are "a function of opportunity, and taking advantage of that opportunity."

J.P. Morgan's Husson pointed out, however, that the supermarket industry is still extremely fragmented, and that "there are any number of small fish in small ponds for Albertson's to gobble up."

Mike Read, an Albertson's spokesman, said the Smitty's deal was very similar to the Seessel's market-entry acquisition.

"[Southwest Missouri] was an area that we already had targeted," he said.