POTENTIAL BIDDERS HOLD OUT FOR BETTER ALBERTSONS SITES

ELLIOT ZWIEBACH

BOISE, Idaho - While Albertsons LLC here tries to determine the winning bidders in its first round of asset divestitures, it may be the stores in the next round and the ones that follow that attract more interest - and money - industry sources told SN last week.

"The next round will be for better Albertsons properties," one retailer said. "This first group is the B list - the worst of the underperforming stores. But the lists will get better as we move forward."

Actually, there are already two store lists out, another retail executive told SN - "the first list of 128 stores that was put out June 7, and another list of 46 stores that came out June 28, and it's all 174 stores that people are bidding on. But there will be a third and a fourth and a fifth list coming out over the next months and years."

Asked about plans for future store disposals, a company spokeswoman said Albertsons LLC "does not comment on speculation about our business. Albertsons LLC has put a strong leadership team in place throughout the operation and is focused on running our stores."

Having acquired 661 stores in June, the principals of Albertsons LLC - Cerberus Capital Management, New York, and Kimco Realty Corp., New Hyde Park, N.Y. - have plenty of properties to put up for sale.

Holding back the better properties is only part of the equation in determining which stores go on the block and when, the second retail executive said. "Albertsons LLC is holding on to properties with higher sales volumes as well as those that fit within certain other efficiencies in terms of distribution, labor, marketing or advertising. So it's not just a matter of offering good/better/best," he pointed out.

Some stores may be closed without going up for sale if their leases are up or if the company can reach a termination agreement with the landlord, the executive added.

"The stores being sold first are the ones losing the most money," according to another observer. "They are certainly not Albertsons' most profitable stores, though there are a few decent ones in the bunch that could work for other operators."

The first round of sales encompasses 174 stores in eight states - 53 in Northern California, 51 in Texas, 23 in Florida, 23 in Colorado, 10 in Arizona, seven in Oklahoma, five in Louisiana and two in Utah.

Bids on the properties were due Aug. 4, with industry sources indicating due diligence on the bids is being conducted by two entities: The Food Partners, the Washington, D.C.-based investment banking firm that provides financial and strategic services to the industry, which is analyzing offers from supermarket operators; and Kimco, which is evaluating bids from non-grocery retailers.

It was unclear last week when the selling process would be completed, though some industry watchers said it could be as early as this week.

Another retailer said The Food Partners will likely "look for the smallest number of buyers to acquire the largest number of stores."

Albertsons LLC declined to discuss the timing of the sales. "We are currently working through the bidding process," a spokeswoman told SN.

The largest potential group of buyers appears to be in California, where virtually all competitors were deemed likely to make bids, sources there told SN, including Whole Foods Market, Wild Oats Markets, Kroger Co., Trader Joe's, Save Mart, Grocery Outlet, Dollar Tree and possibly Safeway, "although they have so many stores in such close proximity to Albertsons that it's doubtful they would be interested in very many of them," one local observer noted.

Northern California independents are also likely bidders for stores in Hispanic or Asian neighborhoods, another observer noted.

Bob Piccinini, chairman and chief executive officer of Save Mart Supermarkets, Modesto, Calif., said last week he had bid on only a couple of stores "because most of the stuff available at this point are dogs. But going forward, we would love to look at anything that might become available."

Grocery Outlet, Berkeley, Calif., told SN it has submitted bids on more than 30 of the Northern California stores, including 12 larger locations in which it would split the space with Dollar Tree. "We already operate approximately 12 stores side-by-side," said Marc Drazin, vice president of real estate for Grocery Outlet.

In Florida, Albertsons has good locations in the Orlando, Miami and Tampa areas where stores are available, a local real estate executive said, but the number of supermarket operators bidding could be limited. "Beyond Wal-Mart Neighborhood Markets and Save-A-Lot, who are not going to be interested in these sites, you have Publix, Whole Foods, Fresh Market and maybe Sedano's. But Publix is so dominant that it doesn't need the space."

As a result, he said he anticipates most of the Albertsons stores will go to developers, "who would take over the leases and flip them to new tenants."

Delhaize, parent of Tampa-based Sweetbay/Kash n' Karry, last week said it had not ruled out bids on stores.

In Arizona, Chandler-based Bashas' said earlier this month it had submitted bids on some of the Albertsons locations.

In Louisiana, where four of the Albertsons stores for sale are in the Baton Rouge area, local observers said they anticipate independent operators will be the likely buyers. "Some independents there have shown a lot of interest for quite some time in some of those locations," one source said. "If they remain as supermarkets, they are likely to be bought by independents."

In Oklahoma, Albertsons and Wal-Mart Supercenters have slugged it out as the only chain operators in the state vs. a host of independents. Of the stores available there, most are in the Tulsa market, and industry sources told SN they do not believe any independents have submitted bids - leaving the field wide open for non-supermarket retailers to move in, they said.