Save Mart Doubles Size In Albertsons Purchase

ELLIOT ZWIEBACH

MODESTO, Calif. — Save Mart Supermarkets here is on the verge of doubling its store count and its sales volume by acquiring the 132-store Northern California division of Albertsons LLC.

The purchase will also move Save Mart outside California for the first time, with 10 stores in northern Nevada.

The 124-store Save Mart chain, with sales of about $2.6 billion, will add between $2.4 billion and $2.5 billion in sales from the Albertsons stores, giving it an annualized sales volume of approximately $5 billion when the deal closes in late February, Bob Piccinini, chairman and chief executive officer, told SN.

Although Save Mart is paying for the stores in cash, the purchase is being described as a stock transaction because Save Mart is taking on the acquired company's liabilities. Other terms of the transaction were not disclosed.

Piccinini said he expects Donna Robbins, president of Albertsons' Northern California division, to join the Save Mart organization in some capacity “[to assure] minimal disruption to current operations.” He also said he expects to “embrace and learn from” the Albertsons operation and implement best practices from both organizations.

“It's a unique opportunity, and we'll have to stretch a bit to do it, but these stores are not in turnaround,” he said. “These are nice, clean, profitable stores that we can integrate into our operations, and we don't have to rush in and try to change everything.”

He said only “a few” of the stores were underperforming, and the company hadn't decided yet what to do with those. Piccinini said there's very little overlap between the Albertsons stores he's acquiring and existing Save Mart stores.

While most of the acquired stores will be converted to the Save Mart name, he said the company plans to remodel two Albertsons stores that are closed and reopen them under the FoodMaxx warehouse banner. Save Mart also acquired the Lucky banner in Northern California, but Piccinini said he hadn't decided whether to use it.

Supervalu, the Minneapolis-based distributor that acquired the best performing divisions of Albertsons last June, acquired rights to the Lucky name in Southern California and Las Vegas, and is operating Lucky stores in five locations. Grocery Outlet, Berkeley, Calif., is seeking the rights to the Lucky name in court.

Save Mart's acquisition also includes two distribution centers, and because most of the Albertsons stores are in the San Francisco Bay area, where Save Mart does not operate, Save Mart will utilize its own warehouses as well as the two it is acquiring, Piccinini said.

“Our two facilities are not operating at capacity, but they don't have the ability to add 132 more stores, nor would the facilities we're acquiring be able to absorb our existing volume,” Piccinini explained.

Save Mart operates an 800,000-square-foot grocery and frozen food facility in Lathrop, Calif., which it shares with Sacramento-based Raley's, and a 250,000-square-foot perishables and nonfood warehouse in Merced, Calif. The facilities it is acquiring are an 850,000-square-foot grocery warehouse in Vacaville, Calif., and a 450,000-square-foot perishables warehouse in Roseville, Calif.

Neither of the Albertsons facilities stocks HBC, which is supplied to the stores by Supervalu, Piccinini noted. Supervalu will continue to supply HBC to the stores for about six months.

The division office Save Mart is acquiring is located in Dublin, Calif. Piccinini said he's not sure yet how Save Mart will utilize that space, “because we have to see how the two companies match up. Until this deal was made, we were not allowed to walk through those offices or talk to the people there, but there's no question that with 13,000 additional employees at store level, we'll have to enlarge the company.

“My hope is that personnel from the two companies will match up, and we think that's possible because Albertsons has been operating on a really skinny basis as just a division.”

More than 25% of Save Mart's growth over the years has come through acquisitions, including the 1989 purchase of 27 Fry's Markets from Kroger Co. and the 2002 buyout of 28 Food 4 Less stores from Fleming, which enabled the chain to move into the Sacramento and San Jose markets.

Once the Albertsons deal is finalized, it will give Save Mart its first stores outside California: four in Reno and three each in Carson City and Sparks, Nev.

Jacques Loveall, president of United Food and Commercial Workers Union Local 8, said he believes the acquisition will be a positive and stabilizing development for the Northern California food industry. He said the union has scheduled meetings with Save Mart executives to discuss the transaction.

Bob Miller, chairman of Albertsons LLC, told SN last week his company originally had no intentions of selling any of its divisions, including Northern California.

After acquiring 661 stores in Albertsons' underperforming divisions last June, it closed 130 across all divisions that it is seeking to sell, including 46 whose sale to Ross Stores is pending, Miller noted.

“But even before we completed our acquisition, Bob [Piccinini] called me and said he wanted to talk about this deal,” Miller said last week, “and he was insistent that we get together on a transaction that worked for him.

“Once we took over the stores, we closed some and decided to operate the rest because we felt there was more upside in taking stores that had been undermanaged and making improvements and making sure they were run properly. So Bob was the only person I talked to about a division sale, and he made us a good offer that was a good deal for him and for our associates, who all get to keep their jobs, so we decided to sell the division.

“As a result, Save Mart is getting a terrific assortment of stores with lots of synergies, and we're getting a good price for them.” He declined to pinpoint the price.

Miller also declined to say whether the 523 stores Albertsons LLC is operating — including the 132 it is selling to Save Mart — are profitable, “but we're very happy with their performance. They are continuing to improve, and we see a lot of upside because as a group they are cash-flow positive.”

He said the Northern California stores are in good shape “because Albertsons had kept them updated, though they cut back a bit in the last 24 months before they were sold. But Northern California had some of the smallest stores in the company because many were old Lucky locations that couldn't be expanded, so the average size of the stores there is smaller than the 50,000-square-foot average for the rest of the company.”

From a cost standpoint, Northern California was one of the most expensive to operate, Miller added, “because all the stores are unionized. So as a company we'll probably be more cost-efficient going forward.”