Albertsons CEO Vivek Sankaran: 'Omnichannel strategy is working’

Albertsons Cos. is moving ahead with its omnichannel expansion but has pushed some of its expected micro-fulfillment center (MFC) openings into next year, according to CEO Vivek Sankaran.

In a conference call yesterday on fiscal 2021 second-quarter results, Sankaran said Albertsons plans to open another four MFCs by the year’s end, adding to the three locations already in operation, including two at Safeway supermarkets in South San Francisco and San Jose, Calif. That’s down from the nine MFCs, powered by partner Takeoff Technologies, that Albertsons planned to have by the close of 2021.

“We are improving our productivity in our three existing MFCs, and we have plans for an additional four MFCs before the end of our fiscal year, bringing the total of seven,” Sankaran told analysts on the call. “This is two less than previously estimated, as the launch of two locations has moved into fiscal year 2022, primarily as a result of delays in construction.”

Albertsons Cos. launched its first Takeoff micro-fulfillment centers at Safeway stores in South San Francisco and San Jose, Calif.

Sankaran provided the MFC update in a rundown of Albertsons’ progress in its strategic priorities, which include the acceleration of its digital and omnichannel capabilities. In the 2021 second quarter, the Boise, Idaho-based supermarket giant saw digital sales rise 5% year over year, for two-year stacked growth of 248%. That’s come in large part as the retailer has extended the reach of click-and-collect and delivery service, he noted.

Related:Albertsons sees second-quarter rebound

“Digital transformation is an imperative in our growth strategy, as we aim to provide an array of convenient shopping experience for our customers. To this end, we've expanded our Drive Up & Go [curbside pickup] locations to over 1,900 and expect to reach approximately 2,000 locations by year-end,” Sankaran said.

“Underlying the rollout of our digital and omnichannel capabilities is our focus for delivering a superior customer experience, as well as improving profitability over time,” he explained. “For example, in Drive Up & Go, our average wait time for pickup is now down to three minutes. In delivery, we continued to speed up delivery times while reducing delivery cost per order by expanding our third-party delivery store network, and we added DoorDash one-hour delivery to all divisions, with a catalog of 40,000-plus products. And we also announced DoubleDash, allowing customers to combine delivery of a restaurant meal and a grocery delivery in one trip. In loyalty, our integrated loyalty and e-commerce app is now fully rolled out and offers a connected customer experience, with redesigned rewards and other new features.”

Related:Albertsons tapped to pilot DoorDash DoubleDash

Ongoing expansion of pickup and delivery service helped fuel Albertsons Cos' two-year digital sales growth of 248%.

Albertsons, too, has invested in an enhanced customer experience in stores, led by fresh foods and private label, which the company dubs as its Own Brands portfolio.

“In fresh, our efforts to differentiate our offerings have generated elevated demand, with fresh growth outpacing center store by approximately 250 basis points year over year,” according to Sankaran. “Sales in each of our fresh categories remain ahead of pre-pandemic levels, as customers continue to consume more meals at home.”

Meanwhile, new Own Brands offerings and an expanded distribution into Albertsons’ legacy divisions has boosted private-brand penetration to 25.2% as of the 2021 second quarter, up about 60 basis points from a year earlier.

“During the quarter, we launched 85 new products, including ready-to-eat meals, refrigerated Signature Reserve pastas, and several organic coffee items,” Sankaran said in the call. “Year to date, we have launched over 400 new Own Brands items and are on track to reach our goal of launching over 800 items this fiscal year.”

Albertsons’ store investment also included the opening of seven new locations and completion of 76 upgrade and remodel projects during the 2021 first half. The company now has 2,278 food and drug stores in 34 states and the District of Columbia, up from 2,252 a year earlier, under such banners as Albertsons, Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Markets and Balducci's Food Lovers Market.

Enhanced fresh food departments have been a competitive differentiator for Albertsons, company executives say.

“In-store excellence has been elevated by providing the right assortment in each local market using digital tools to enhance replenishment and in-store conditions, encouraging friendly customer service and enhancing speed and ease of checkout through frictionless and contactless payments,” Sankaran added.

Progress is being made as well in efforts to improve productivity, expected to help offset cost inflation and Albertsons’ strategic investments.

“During the quarter, we continued to eliminate waste and improve efficiencies to enhance promotional effectiveness, reductions in indirect spend, labor efficiency and ongoing efforts to reduce shrink,” Sankaran told analysts. “We continue to expect to achieve the targeted $1.5 billion in annual gross savings by the end of fiscal year 2022.”

Albertsons’ second-quarter performance, which marked a rebound from first-quarter declines due to last year’s pandemic-driven surge, led the company to raise its fiscal 2021 guidance. The retailer now estimates identical sales to dip 2.5% to 3.5% year over year (versus earlier guidance of -5% to -6%), for two-year growth of 13.4% to 14.4% (up from 10.9% to 11.9% previously). In addition, adjusted earnings per share are now projected at $2.50 to $2.60 per share, up 30 cents from prior guidance.

“Our omnichannel strategy is working with our customers. We’re adding customers to our franchise. They’re spending more with us and engaging in more ways with us. We continue to gain market share in dollars and units, and our trends improved with each successive period in the [second] quarter, especially around holidays,” Sankaran said. “Our digital initiatives continue to drive engagement and growth. We remain focused on elevating service quality and speed. Our productivity initiatives are delivering, strengthening the middle of our P&L. We’re also navigating the uncertainties of the times — inflation, product supply, labor challenges, to name a few — with agility and creativity.”

Albertsons’ efforts to bolster its workforce and talent pool included the hiring of former Best Buy executive Sharon McCollam, who took the reins as president and chief financial officer on Sept. 7, succeeding Bob Dimond as CFO.

“We continue to add talent throughout the company at both the corporate and division level,” said Sankaran. “Our outreach through job fairs for retail and distribution employees and the training we've put in place assist in the success of our new employees and enhance retention.”