ALBERTSONS-OSCO: A DUAL-BRANDED CONCEPT

Elliot Zwiebach

BOISE, Idaho -- Albertsons here is seeking to boost sales volumes chainwide by putting two stores under one roof wherever it can -- the dual-branded combination stores that operate under the Albertsons-Osco or Albertsons Sav-on banners in the West and the Jewel-Osco banner in the Midwest.

Dual-branded stores include a complete supermarket offering combined with the complete product selection of a stand-alone drug store -- approximately 10,000 items -- plus a full-service pharmacy. In developing dual banners, Albertsons combines its name with Osco in all areas except Southern California and Nevada, where its drug stores carry the Sav-on banner.

Although the Jewel-Osco banner has been around for more than 20 years, it was Larry Johnston, Albertsons chairman and chief executive officer since mid-2001, who coined the term "dual-branding" for the stores.

Albertsons has been rolling out dual branding to stores outside Chicago for almost two years, with combined banners on 65 stores so far and more than 300 stores in Southern California set for conversions over the next couple of years.

Chain officials acknowledged that the dual-branded format results in higher overall sales -- primarily from pharmacy customers who do their food shopping when they come in to pick up prescriptions -- although they are unwilling to pinpoint how much more business a dual-branded store does over freestanding supermarket and drug store outlets. Johnston has said in the past the average pharmacy customer buys 30% more food than the average food customer.

"Dual branding is one of the benefits of operating both supermarkets and stand-alone drug stores," Chuck Cerankosky, an analyst with McDonald Investments, Cleveland, told SN, "because it enables the food operator to bring the image of a stand-alone pharmacy and health care business into the supermarket.

"Putting an Osco or Sav-on drug store inside an Albertsons also creates more of a destination for customers of both as part of a one-stop-shopping trip."

Mark Husson, an analyst with Merrill Lynch, New York, said putting two stores under one roof requires more capital, "but it offers the possibility of a better return in terms of profitability. Clearly, the Jewel-Osco stores in Chicago have managed to do that and have become Albertsons' most profitable division, and when the new CEO saw how much that one division stuck out with a different kind of store from the rest, it seemed like a reasonable idea to expand the concept to other markets to improve profitability."

Albertsons began rolling out dual-branded stores in 2001 at nine locations in Reno, Nev., and eight in Tuscon, Ariz., and subsequently introduced the format at 39 supermarkets in Phoenix and nine locations in Omaha, Neb. Southern California is next on the list, with conversions scheduled to begin in 2004 -- a process that's not due for completion till 2005, a chain spokesman told SN.

Johnston previously said Albertsons will introduce dual branding in most markets in which it operates supermarkets and drug stores, although it has not disclosed any plans yet for Las Vegas, where it operates 39 supermarkets, and New Mexico, where it operates 22 -- the only other markets in which it operates both retail outlets.

The company also has not disclosed plans for Philadelphia, Dallas and Florida -- three major markets where it operates food stores but no drug stores. Johnston previously told SN Albertsons may pursue other options in those markets, including introducing its Osco or Sav-on brand; acquiring a locally based drug store brand with a strong identity; or forming a joint venture with a drug store operator.

According to Karen Ramos, Albertsons' director of public affairs for the chain's Southwest division, the dual-branded prototype that Albertsons is building has 55,000 to 60,000 square feet, while the average converted store has 45,000 square feet but is still able to accommodate the full selection from a 14,000-square-foot drug store by reallocating the number of facings throughout the entire store.

Whereas combination stores have a single store director, dual-branded stores have separate managers for the food side and the drug store side, Ramos pointed out, "because operating each is so different from the other. In addition, having separate managers allows each one to focus on what's important, though they are both responsible for the overall success of the entire store."

The dual-branding format originated in Chicago in 1961, when Jewel Cos., then an independent entity, acquired the Osco drug chain and decided to experiment with combination stores. "It proved so successful that Jewel started to build new stores and remodel existing stores as combos," Ramos, who formerly worked at the Jewel division, told SN, "and by the early 1990s, every new store was opening as a Jewel-Osco combination store."

Jewel, which was acquired by American Stores Co. in 1984, became part of Albertsons when it acquired American in 1998.