ALBERTSONS MAY RETOOL DALLAS-FORT WORTH DIVISION

ELLIOT ZWIEBACH

BOISE, Idaho -- Albertsons here has reportedly decided to switch the majority of its employees in its Dallas-Fort Worth division from full-time to part-time status to cut costs and improve customer service. This move follows a reported drop in sales of 50% at some stores and division losses.

Chain officials declined comment on the reports. Albertsons has a workforce of approximately 20,000 in its Dallas-Fort Worth division, all of whom are non-union employees.

Industry analysts said the apparent deterioration of Albertsons' business in its core Texas market could prompt the company to consider divesting its stores there -- as it did when it abandoned the Houston market last year -- if the situation does not improve. Some analysts said Albertsons might want to consider a possible exit from Florida as well. Others said the chain might need to re-strategize and determine better ways to compete in certain markets, particularly those like Texas and Florida, where Wal-Mart Stores is a significant competitive force.

Industry sources said Albertsons operates approximately 80 stores in Dallas-Fort Worth, where it controlled a market share of nearly 20% in 2003; however, that figure has dropped to 17.6% this year. Meanwhile, Wal-Mart -- with more than 40 supercenters and nearly 20 Neighborhood Markets -- has moved up to become the market leader with a 25.1% share.

"Dallas is a market where Albertsons has the No. 1 share in supermarket sales. So it doesn't lack scale, and it doesn't have a union. Yet it's still struggling," Neil Currie, an analyst with UBS Warburg, New York, told SN.

"We hear a lot of people saying most supermarket problems are all about unions, yet here is an example of a company with the top supermarket share in the market and no union, and it still can't make enough money."

According to Currie, Albertsons' decision to cut back on full-time hours "directs attention away from the real issue, which is that Albertsons has lost sight of who its customers are and what they want -- the ability to understand what products are important, what pricing should be, and balancing price, quality and service."

If the attempts to cut labor costs and improve service with a larger part-time workforce don't succeed, "then the next logical step could be to get out of the Dallas market completely," Currie said.

"When you look at a map of where Albertsons operates, clearly Texas, along with Florida, look to be out on a limb and isolated. It's also true that Texas and Florida are the two markets where Albertsons has the biggest overlap with Wal-Mart. You could argue that over time, other markets will look like those, and you can't run away forever."

Jonathan Ziegler, principal at PUPS Investment Management, Santa Barbara, Calif., said Albertsons may need to rethink its strategies in markets like Dallas-Fort Worth. "It's got to understand what its customers want from an Albertsons store and offer something different to dodge the Wal-Mart pricing bullet. The answer is not to cut and run, but to figure out what formats are required in a given market or what adjustments need to be made to certain formats and then roll those out."

According to another analyst who asked not to be named, "The question that needs to be asked is, 'Is Albertsons' move [to a larger part-time workforce] designed to do a better job meeting customer demand, or is it just a way to cut labor costs?"'

According to Gary Giblen, senior vice president and director of research for C L King Associates, New York, "This is a cost-cutting measure, pure and simple. While a move to more part-time employees provides Albertsons with the ability to be more flexible on labor scheduling, it's also a great way to reduce the costs of health care and other benefits.

"But the question is, 'Can Albertsons make it work without sacrificing store conditions and service?' That could depend on the mix of experienced to less-experienced part-time help it utilizes.

"If Albertsons achieves its financial goals in Texas, then it's inevitable it will probably adopt the same approach in Florida, its other non-union operation," Giblen said. However, because of prescribed ratios of full-time to part-time workers outlined in union agreements, it could not take the same approach in any of its other markets, he added.

If the change in labor scheduling in Texas does not work, Giblen said, "it raises the question of whether Albertsons should divest its Texas stores. Scaling back as it's doing is the first step, and the next step could be divestiture."

He said he believes it is "probable" Albertsons will ultimately get out of Texas, and Florida as well, "because of declining market shares and competition from stronger players who have defined their market positions better at the upper or lower ends of the scale."

Published reports indicated Albertsons' plan to reduce hours for the majority of its workforce emanated from a speech by Judy Spires, president of the Dallas-Fort Worth division, delivered to employees in a satellite broadcast earlier this month, in which she reportedly said the changes were not a matter of choice, but of survival.

In her speech, Spires reportedly said the division is in a "do-or-die" situation in the metroplex as a result of aggressive competition from Wal-Mart supercenters and other operators.

Consequently, the company decided it needed a more flexible, part-time workforce scheduled in shifts of four to six hours instead of eight hours, with more employees available for the morning and evening rush hours and on weekends, when more customers are in the stores and with less downtime when few customers are shopping, the reports said.

Spires reportedly said research indicated customers do not see Albertsons as their store of choice due to an inability to consistently provide for their time-constrained lives. She also reportedly said shorter shifts and more hands in the stores could alter that situation, "or we will not be able to turn around our current situation."

Published reports quoted Spires as saying she knew the changes would bring turmoil to the lives of many employees, and some might have to find additional part-time jobs or purchase supplemental health benefits. She reportedly said part-time employees would qualify for limited health benefits in the chain's bridge plan, which would cost a single employee a minimum of $14.60 a week.

The published reports said Spires was joined on the broadcast by three Dallas-area store directors whose stores had already converted to a part-time workforce and had seen a jump in sales. One director said he had offered suggestions to his employees about how to save money, including eliminating use of a cell phone or not taking clothes to a dry cleaner.

At the time Spires was named president of the Dallas-Fort Worth division -- as well as of the Rocky Mountain division -- last January, Albertsons said it was implementing a new organizational structure in the Dallas division designed to eliminate layers of management between the division president and frontline store associates as part of an effort to streamline operations after testing elements of the program in the Rocky Mountain division.