Playing Guess the Buyer – The Albertsons Edition
By George Anderson
For those keeping score, Tesco, Carrefour, Delhaize, Wal-Mart and CVS are among the large international and domestic retail chains that have reportedly expressed some interest in acquiring all or part of Albertsons.
The latest report from out of the U.K. from a publication called The Business, says Tesco has sent a team of executives to the U.S. to look for possible takeover targets including, but not limited to, Albertsons.
Tesco, as is standard operating procedure in such matters, has refused comment.
While reports have begun to look at possible chains that might be interested in acquiring Albertsons or some of its businesses, many still believe the eventual winner in any bidding is likely to be an investment firm.
Moderator’s Comment: Does Albertsons need fixing? What should any potential acquirer of the chain know about the company as whole and its various divisions?
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George Anderson – Moderator
There are very few markets where Albertsons-Drug is the market leader or nearly so. Yet, there are some markets where Albertsons is stronger or more present than CVS…and others where Albertsons is stronger or more present than Walgreens. CVS and Walgreens must be taking a hard look at this. The customer service focus of CVS and Walgreens would give a quick boost to the stores Albertsons has now.
Several of the Albertsons banners continue to have strong local presence…ACME is one. These local banners offer huge opportunity for strong regional players to step up their pace.
For decades, Albertsons has over populated their floors with auxiliary fixturing. A focus on core will help business dramatically.
I wonder right now if Albertsons is turning all the lights back on in the stores and cleaning the clutter off the sales floor? Getting ready to impress guys in suits who talk funny? Does Albertsons need fixing? Depends how you define broken. We all know the facts: Albertsons has lost market share and is now an “also ran” in most of metro areas they operate. In the past few years they were laughed out of Memphis, Houston, New Orleans, Jacksonville, San Antonio, and South Texas. Wal-Mart, Publix, WinCo, and HEB have made sport of Albertsons playing cat ‘n mouse with them until they leave a market.
In nearly every market study I conduct that has an Albertsons in the market, they consistently perform at below average sales per sq. ft. levels. Unlike their counterparts at Publix and HEB, I have never heard an employee say they enjoyed working for Albertsons and felt it was well managed. In fact, it has always been the extreme opposite. Our price checks consistently show Albertsons at about 27-28% above Wal-Mart.
If the acquiring company does not consider that as a definition of being broken, then Albertsons does not need fixing.
Albertsons made $440 million after taxes, so the $7 billion price would yield a 6.2% ROI. This is unacceptably low. The ideal plan might be to buy the company as a whole, then spin off the real estate in any market whose financials are underperforming. If this is done quickly, the buyer can take advantage of today’s peak real estate values. The surviving Albertsons stores can be merged into other strong local competitors, to reduce overhead and improve margins. If local antitrust issues are a worry, the remaining Albertsons stores could be loaded up with debt so that the only choices would be merger or bankruptcy. Bankruptcy threats stemming from the excessive debt would also be a good way to intimidate the union members into give-backs to preserve their jobs, similar to Farmer Jack. Nothing in these scenarios helps customers, suppliers, or staff, but those criteria are not important to many financiers.
“Does Albertson’s need fixing?” is akin to asking “Does Delta Airlines have a competitive business plan for today’s climate?”
Albertsons is up for sale for some significant reason and no great, well functioning publicly-owned organization – grocery or otherwise – just opts out.
The days of staying afloat through acquisitions in the grocery industry rather than through fundamental changes is history. So a new merchandising highway must be traveled for any new owner(s) in order to gain a stronger appeal and a more upscale, more profitable venue.
Whether Albertsons is sold as a total entity or in parts, the new buyer(s) will have to alter the operating paradigm. Potential buyers – Tesco, Carrefour, CVS, Delhaize, Kroger, Wal-Mart (no, the government wouldn’t permit them to be buyers), or whoever – know this.
It would seem that investment firms are becoming owners of many corporations these days. If one of them buys Albertsons and their unionized-labor structure, they will probably move more upscale, charge more, and then re-sell in a few years just as the investors who bought Byerly’s did profitably several years ago. If a new ambiance can be created that is appealing enough, this plan would probably work.
If Albertsons is sold in parcels, each new owner will put its stamp on those stores.
Whatever scenario emerges the great heritage of Albertsons will become part of the passing parade. A pity!
HEB will get a piece of the action, as well as Kroger in Texas.