ALBERTSONS BITES INTO GOURMET MARKET WITH BRISTOL FARMS BUY

ELLIOT ZWIEBACH

BOISE, Idaho -- Albertsons went shopping in an upscale niche last week and acquired Bristol Farms, an 11-unit chain of gourmet and specialty stores in Southern California at which perishables account for nearly 70% of sales.

The company said it will operate Bristol Farms under its existing banner, with separate management operating the business independently from Albertsons' conventional food and drug operations.

SN reported in August that negotiations for the deal were under way.

The acquisition of Bristol Farms is the chain's second in five months, following the purchase in April of Shaw's Supermarkets in New England, and comes on the heels of the opening of the chain's first price-impact Super Saver in Dallas last week at the other end of the spectrum from the upscale Bristol Farms format.

Analysts questioned by SN were divided in assessing the value of the acquisition by Albertsons.

"This is a good acquisition -- although it's not a big one -- because the growth in food retailing today is in the natural and gourmet area," Andrew Wolf, an analyst with BB&T Capital Markets, Richmond, Va., said, "and I've always felt it's better for a conventional supermarket to go after that segment from the gourmet side, as Albertsons is doing with Bristol Farms, rather than from the natural side in which Whole Foods operates, because the customers, products, marketing and distribution are closer to what they're used to."

Wolf said he isn't sure if Albertsons will attempt to grow sales by integrating some gourmet elements from Bristol Farms into its conventional stores in upscale neighborhoods or simply opt to expand the Bristol Farms banner, "but either way, this puts Albertsons in a growing segment of the industry."

Wolf said he didn't think it would add much cost to incorporate elements of Bristol Farms into conventional stores in upscale neighborhoods. Other analysts expressed different opinions.

Mark Husson, an analyst with HSBC Securities, New York, told SN he questions the potential synergies from the Bristol Farms acquisition.

"At this point, it's not clear if Albertsons can add anything to what Bristol Farms does, beyond buying some grocery items cheaper, or if Bristol Farms can add anything to what Albertsons does," he said.

"The fact Albertsons says it will not interfere with Bristol Farms' management is a good move after what Safeway did in integrating Genuardi's and Dominick's, but the big question is whether anything Albertsons learns from a small business like Bristol Farms is truly scalable.

"Even if Albertsons doubles the size of Bristol Farms, it probably wouldn't be enough to move the needle to make it worthwhile."

Another analyst said he questions the potential benefits of the deal, wondering whether any of Bristol Farms' expertise in merchandising upscale perishables is likely to find its way into Albertsons' stores. "It would be very costly for Albertsons to add upscale elements to a conventional store because of the extra shrink, labor and equipment involved and the need to attract sufficient traffic, as the industry found out with home meal replacement in the 1990s," he told SN.

However, he said the addition of Bristol Farms is "a useful acquisition that gives Albertsons insight into the added-value format. Albertsons says it will maintain Bristol Farms as a separate operation, with its current management intact, and I hope it does because we've seen what can happen, in a negative way, when a larger company takes over a smaller one with unique characteristics, as Safeway did with Genuardi's."

Edouard Aubin, an analyst with Deutsche Bank Securities, New York, told SN he sees the deal as a small but positive move for Albertsons to diversify its reach.

"With the U.S. population segmenting more than in the past, it makes sense to offer different formats," Aubin said, "and with this second acquisition in five months, it's quite clear Larry Johnston [Albertsons' chairman, president and chief executive officer] wants to shake up the company's asset portfolio quite significantly."

However, with only 11 stores and annual sales estimated at about $150 million, Aubin said the acquisition of Bristol Farms is not a significant addition, particularly when compared with the acquisition of 202 Shaw's stores that added sales of $4.6 billion.

Terms of the acquisition were not disclosed, though industry sources told SN they estimate the price Albertsons paid to be $75 million to $100 million.

Bristol Farms operates its 11 stores in middle- to upper-income communities in Southern California. Stores average 14,000 square feet, with newer stores running about 20,000 square feet.

Kevin Davis, president and CEO, will continue to oversee Bristol Farms.

Albertsons acquired the company from a group of private equity funds managed by Oaktree Capital Management, Los Angeles.