ALBERTSON'S SWITCHING TO DIVISIONAL STRUCTURE

JON SPRINGER

BOISE, Idaho -- Albertson's here said last week it would eliminate its regional structure in favor of a divisional approach designed to execute marketing and merchandising strategies on a local level.

The announcement represents an important philosophical shift for Albertson's that could help boost sagging sales and, according to one analyst, "turn plain vanilla stores into vanilla fudge."

Albertson's said it would immediately begin operating as 19 separate operating divisions. Analysts told SN the new structure more closely resembles that of national competitors Kroger, Cincinnati, and Safeway, Pleasanton, Calif., as well as that of American Stores, the Salt Lake City-based supermarket chain Albertson's merged with in 1998.

"I think this is a dynamic change in how they're going to market," Jonathan Ziegler, a San Francisco-based managing director for Deutsche Banc Alex. Brown, New York, told SN. "They've always said they were a neighborhood store -- this is the muscle behind that. I think they're trying to localize their business and get sales up. It's a step in the right direction because the sales just weren't there."

Peter Lynch, Albertson's president and chief operating officer, said the new structure would help Albertson's become more "customer focused" while allowing for faster reactions to changes in the markets in which they operate. Albertson's operates more than 2,500 stores in 36 states.

"One marketing plan does not work in all areas," Lynch said. "This new structure will result in quicker response to our customers' changing needs market by market and will allow us to better serve those needs."

Lynch had hinted at imminent changes in Albertson's operating strategies last month following disappointing sales and earnings results for much of fiscal year 2000. Albertson's is also expecting earnings per share will fall short in the fourth quarter.

During a conference call last month, Gary Michael, Albertson's chief executive officer, said that consumer research was indicating that Albertson's needed to focus more attention on local marketing and merchandising. "What the research tells us is that we need different solutions in different areas of the country," Michael said. "We need different approaches to go to market in each area."

The changes would be apparent in Albertson's stores, said Ziegler, which despite geographical differences, tend not to vary much from area to area today.

"You can go to an Albertson's in Seattle and an Albertson's in Tampa -- once you're inside, you can't tell the difference," Ziegler said. "Instead of being plain vanilla, they're adding some vanilla fudge."

Meredith Adler, securities analyst at Lehman Brothers, New York, told SN that Albertson's switch was bold, but necessary.

"It's definitely a positive," she said. "Their challenge is to become more sophisticated marketers and merchants on the local level. To get the kind of results they're after, this is what they have to do."

She added that it was likely Albertson's would incur some additional expenses implementing the new structure. "In the short run there will be a learning curve."

Michael Shea, a Portland, Ore.-based analyst for D.A. Davidson & Co., Great Falls, Mont., told SN that he felt the changes at Albertson's were a "potential source of inefficiency."

The new operating divisions will be Idaho, Southern California, Northern California, Oregon, Western Washington, Inland Empire, Big Sky, Utah, Rocky Mountain, Southwest, Dallas/Fort Worth, San Antonio, Houston, Great Plains, Midwest, Midsouth, Florida and Eastern. There will also be a separate drug store division. Albertson's previous regional structure included Southern California, Northern California, Northwest, Intermountain, Southern, Midwest, Eastern and drug stores.

Albertson's stock was up 26 cents to $26.06 late last week.