ALBERTSON'S NEW BOSS PREPARED FOR TURNAROUND

ELLIOT ZWIEBACH

BOISE, Idaho -- Lawrence R. Johnston, who was named chairman and chief executive officer of Albertson's here last week, said the company is in a turnaround mode and there will be no sacred cows as he assesses what needs to be done.

"I know nothing about this industry and I bring no baggage with me, and I will look at everything with a clear and open mind," Johnston said in a conference call with securities analysts. "There will be no sacred cows, and we will do whatever it takes to realize shareholder value within the company."

Johnston, 52, joined Albertson's last week after spending 28 years with General Electric Co., including serving the last two years as president and CEO of GE's appliances division, a $6 billion global business based in Louisville, Ky.

At Albertson's he succeeds Gary Michael, 60, who retired as chairman and CEO last week, although the company said he will remain a director until the chain's annual meeting in June. Johnston told SN he had spent "a little time with Gary before I took over, and he came in today [Tuesday, Johnston's first on the job] to wish me all the best."

Johnston told analysts last week he's ready and willing "to make tough calls to find new ways to maximize the company's operations."

At Albertson's less than two days when he spoke to analysts, he said he was "a 24-hour expert" and was therefore short on specifics, although he said he expects to be more specific on June 5, when Albertson's hosts a conference call to discuss second-quarter results.

"By then I'll have a darned good idea of what we need to do first, and that's what I'll talk about," Johnston said. "When we get together June 5, you'll hear more about strategic plans, and I'll be pretty specific about what we will do to turn this company around."

However, he did indicate during the conference call some potential directions Albertson's may pursue, including the following:

Emphasizing combination stores. "From what I've seen, the food and drug strategy works very well for Jewel-Osco in Chicago," Johnston said. "I looked at some numbers this morning, and those stores jump out like a sore thumb because the return there is dramatically different than at other formats, and that's a business we'll really jump on."

Cutting costs. "The cost structure needs to be right-sized, and that is a part of the tough calls I expect to make," Johnston said.

Changing personnel. "The leadership team at GE spent a lot of time dealing with people, and we will do that here at Albertson's," he said. "I'm impressed with the people I've met here so far, but there will be changes that have to be made in some areas, and those will evolve over the next 12 months."

Utilizing technology. "At GE we were aggressive in the marketplace in using technology to drive new competitive advantages," Johnston said. He also said GE has been very aggressive at digitizing processes, "and we will be all over that [at Albertson's] because from an early look, I see a lot of opportunities."

Expanding globally. "We're not yet a global business, and that's an interesting area."

Johnston said he was familiar with initiatives the company introduced in January to drive sales and maximize returns -- including eliminating its regional structure in favor of a division approach to move decision-making to the local level -- "and I intend to learn more about those in the next couple of weeks. Then we'll evaluate those programs, and we're prepared to make tough decisions."

Johnston is the first outside executive to head Albertson's -- a background that securities analysts said might enable him to bring new perspectives to the challenges Albertson's faces in the wake of its acquisition two years ago of American Stores Co.

In hiring Johnston, Albertson's board of directors chose not to promote Peter Lynch, president and chief operating officer for the past year. The company said Lynch plans to stay with Albertson's, and Johnston told SN he plans to work closely with Lynch.

He said he had met Lynch "only a few days ago, and I was very impressed. This is a guy who knows the business. He's one of the most talented executives in this industry, and Albertson's is very lucky to have someone like Peter Lynch.

"Peter will be the quarterback and the operations leader, while I see myself as the coach, whose job will be to develop strategic directions for the business and get him the resources he needs to get his job done, though we haven't had time yet to get into specifics. But I intend to trust his judgment and to work closely with him."

Johnston acknowledged that Lynch was disappointed not to get the promotion, "but he's chief operating officer of a $38 billion business, and I don't view him as a subordinate. I happen to be chairman and CEO, but I'm also part of a team, and I hope to be able to work with all members of the team."

Johnston also told SN he doesn't have to become an instant expert on all aspects of Albertson's "because there are thousands of people working for Albertson's who are already experts in this business."

Speaking with analysts, Johnston said that he knew nothing about the medical business when he went to Paris in 1997 to head GE's medical systems division, "but the thousands of people I worked with over there did, and I was able to apply my leadership skills and lead a successful turnaround in which we doubled sales, eliminated non-value-added costs, redesigned processes and developed new products customers wanted.

"So business is business, and you need to take care of customers, be fair with associates and hold people accountable. What this business is about is selling consumer products and services, anticipating and meeting customer needs and expectations, and delivering on the commitments we make.

"My job is to set strategic imperatives and a clear vision, and then get the associates behind those plans."

Johnston said he likes to spend time in the field and plans to visit Albertson's Jewel-Osco and Acme divisions this week in Chicago and Philadelphia, respectively.

Despite Johnston's lack of food retailing experience, analysts who follow Albertson's told SN they anticipate positive things from his appointment.

"There is always a risk associated with changes in management and strategy," Debra Levin, an analyst with Morgan Stanley Dean Witter, New York, said, "particularly given [the fact] Johnston does not have supermarket or retail experience and [could cause] potential disruption in Albertson's newly devised strategy.

"Given that new CEOs typically put their own stamp upon assuming control, he will generate changes over time, which could lead to further disruptions at Albertson's.

"However, he could prove to be a breath of fresh air, since he comes in as an agent of change, which could prove positive for the company."

Chuck Cerankosky, an analyst with McDonald Investments, Cleveland, said he knew little about Johnston's background, "but he benefits from the halo effect attached to recruiting anyone from General Electric, which has generated so many well-regarded managers over the years."

Deborah Weinswig, an analyst with Bear Stearns, New York, said Johnston had an impressive track record during his tenure with GE "of gaining market share, successfully integrating acquisitions and reducing expenses at various divisions, and his selection is a positive for Albertson's.

"In addition, his fresh outside perspective and experience in consumer products -- based on his understanding of customer behavior and working with retail outlets -- should stimulate change in Albertson's most troubled areas."

Meredith Adler, an analyst with Lehman Brothers, New York, said Johnston will have "a steep learning curve" at Albertson's. "It's a company with a lot of challenges, but Johnston seems to be a talented guy who's up for the job.

"At GE, he was able to turn around the company's medical systems business and build bridges between Europe and the U.S., and that's what he's going to need to do."